A Different Operator

The fleet hours have risen from 750-800 hours per airframe per year to about 1,000-1,200 hours per airframe per year.By any measurement, that is a significant jump in capacity.

And there is more growth to come in the period ahead, with Alliance planning to add three more aircraft by June 30 2018, bringing its all-Fokker fleet to 35.

“We’re busy and I think that kind of growth brings its own challenges, good challenges,” Schofield told Australian Aviation in an interview in Brisbane on February 21.

“From a practical sense, it obviously would have been difficult to turn on almost 40 per cent of additional capacity if we were a traditional operator. But I guess Alliance is a different operator.”

The backbone of Alliance Airlines is its fly-in/fly-out (FIFO) work for the resources sector, which is expected to continue to be the case for the foreseeable future. And after a few quiet years, that work is again experiencing growth.

However, the company has made significant strides in recent years broadening its operations other areas.

There is wet lease flying on behalf of other operators. Australia’s major carriers, such as Tigerair Australia, Qantas and Virgin Australia, among others, have all used Alliance Airlines for additional capacity.

Then there is Alliance Airlines’ regular public transport (RPT) flights from Brisbane to Bundaberg, Gladstone and Port Macquarie, which commenced in July 2017 and are codeshared with Virgin Australia.

The company has also established a growing charter business underpinned by contracts with luxury tour group Tauck and, just recently a new partnership with Japan’s JTB, as well as ad-hoc assignments for the likes of school groups, sporting teams and travelling musicians.

Finally, Alliance Airlines’ “fifth pillar” or revenue stream is its aviation services business that covers spare parts and aircraft sales, leasing of engines and the management of airports on behalf of some customers.

A look at the flying hours of the airline’s fleet shows total flying hours rose 34 per cent to 16,207 hours in the six months to December 31 2017.

The largest increases came in RPT flying, which jumped 137 per cent to 2,347 hours, and wet lease flying, which was up 105 per cent 3,506 hours.

Flight hours for contract flying for resources clients was up about 10 per cent to 9,647 hours.

“Our goal has always been not to do any less work for the resource sector. To the contrary, to continue to do more, but in percentage terms for it to be a little bit smaller by growing the other areas,” Schofield said.

“We are really proud. It is a pretty diverse business across those those five areas now.”

TOURISM OPPORTUNITIES

In February, Alliance Airlines signed a multi-year agreement with Japanese travel company JTB to provide charter flights in Australia.
Alliance Airlines will be able to offer JTB a number of different packages thanks to its diversity of cabin configurations within the Fokker 100, Fokker 70 and Fokker 50 fleet.

In addition to the standard cabin layouts, the company has Foker 70s in a VIP layout with 24 seats and another with 48 business class seats.
There will be another VIP aircraft available later in 2018 when Alliance Airlines activates a Fokker 100 with 24 seats in a business-jet style layout. The aircraft arrived in Australia in early 2018 and was on display alongside the Sir Charles Kingsford Smith-inspired VH-FGB on February 21.

Alliance Airlines’ first major contract with a package tour company was signed in 2015 when it started flying passengers for US-based Tauck.
Schofield said the work with Tauck in Australia and New Zealand involved 30 tours in the first year and was the “proof of concept” for the business model.

“This year we are going to do 68 tours in Australia and about the same number in New Zealand,” Schofield said.

“So it’s been a great success story for Alliance and I think for Tauck in terms of having an aircraft and crew that follow the tour group around.
“The operating economics for us are the same as a fly-in/fly-out contract, which is as a charter. Obviously the passenger demographic is different and the on-board experience is customisable.

“Some of our resources sector clients want quiet flights so that their employees can rest. Tauck can sometimes want almost silver service and champagne in flutes on board and, again, that is one of our unique strengths in being able to provide that unique experience.”

‘It is a diverse business now.’ Lee Schofield

Flights for JTB start in April, where JTB customers will be taken on a day trip to visit Uluru.

Then in August, JTB has planned a international charter flight bringing visitors to Australia that will land in Darwin, with Alliance Airlines to operate domestic charters to various Australian destinations.

“Some of our meetings with them have been really exciting in terms of what can we do next,” Schofield said.

“There’s Tasmania, there’s Kangaroo Island, there’s the Kimberleys, so being about to work with them and their huge distribution potential and build unique itineraries in Australia is very exciting.”

RESOURCES SECTOR IMPROVING

At its full year results presentation in early February, Alliance Airlines said total flying hours were expected to total 35,000 hours for the full 2017/18 year. This represented an increase of almost 40 per cent from the prior year.

The company noted the resources sector continued to improve and show signs of increased activity.

While the downturn in commodities prices and resulting drop in mining-related activity in previous years had impacted everyone, Schofield said Alliance Airlines had come through that period in decent shape given its “strategic focus on blue-chip production mines”.

“Of course the other operators who had a lot of capacity deployed for construction mines sought to redeploy that elsewhere in production phase mines when that came off,” Schofield explained.

“In that downturn we didn’t lose any big chunks of work, it was the one or two flights a week here and there that came out of the schedule.

“Now what we have been seeing really in probably the last quarter of 2017 was those one or two flights a week for various customers coming back into the schedule.

“When you look pretty much across all of the commodities that we serve and all of the geographic regions we serve, there is one common theme which is there is an increase in activity.”

Schofield said Alliance Airlines’ charter partnership with Virgin Australia, which received the tick of approval from Australis’s competition watchdog in 2017, was “working even better than we probably contemplated”.

‘In that downturn we didn’t lose any chunks of work.’
Lee Schofield

The two carriers’ charter alliance involves joint tendering for corporate FIFO contracts, as well as cooperating on aircraft maintenance, procurement of aircraft and parts, parts pooling, airport operations, airport handling, check-in, frequent flyer programs, lounge access, scheduling, pricing, sales and marketing and service policies.

“It’s still only early days, we are still in the first year of implementation but I’ve been really pleased that collectively we’ve been able to win some business for each other,” Schofield said.

“We’ve been able to leverage our relationships both ways. Virgin Australia, through their scheduled network, have some corporate customers who we’ve been able to provide charters to in areas where Virgin don’t have a base.

“And then conversely we’ve had some charter customers who have said ‘well, given the partnership can we direct our RPT capacity over to Virgin’.”

Alliance Airlines’ observations about the resources sector mirrored those of Australia’s other carriers during the February reporting season.
Qantas chief executive Alan Joyce said the first half of 2017/18 was the first time in three years the airline has experienced an improvement in resources-related flying.

“We’re seeing the resource side bottom out and in this first half we’ve actually seen revenue growth after three years of decline,” Joyce told reporters at Qantas’s first half results presentation on February 22.

“So the green shoots are appearing in the resource sector and we think going forward we’re optimistic that that could be actually a good positive outcome.”

Qantas has transferred two Jetstar Airbus A320s to its Perth-based Network Aviation unit for FIFO work. The two A320s, which have been painted in QantasLink livery, replace to Boeing 737-800s that have been redeployed on Qantas-branded RPT flights.

Meanwhile, Regional Express (Rex) deputy chairman John Sharp described the uplift in the mining sector as one of the “tailwinds” that would support a forecast 20 per cent improvement in full-year profit in 2017/18.

“Mining and fly-in/fly-out work is starting to increase and that is a reflection of the rise in commodities prices which is leading to more activity in the mining world and you can see that in the profits of major miners like BHP Billiton’s profits,” Sharp said when announcing Rex’s first half results.

“A few years ago our passenger numbers actually started to drop. They stabilised a couple of years ago and have started to grow. Now they are continuing to grow and we expect that passenger number growth to continue in the second half of the financial year.”

And Virgin Australia chief executive John Borghetti attributed his airline’s improvement in the 2017/18 first half to “capacity and network optimisation, the benefits of our fleet simplification program and improved corporate demand, including a pick-up in the resources market.”

NO RUSH ON FLEET REPLACEMENT

In November 2015, Alliance Airlines acquired Austrian Airlines entire fleet of 15 Fokker 100s and six Fokker 70s as part of a US$15 million deal, comprising a US$9.5 million cash payment and the issuing of new shares to Austrian Airlines worth US$5.5 million (giving it a 12 per cent stake in the company).

Since the transaction, Alliance Airlines has brought some aircraft for use in Australia, sold a number of Fokker 100s to other operators, including QantasLink, used the aircraft for wet and dry leasing opportunities, and for spare parts.
The company is the largest operator of the out-of-production Fokker aircraft in the world.

Schofield said the Fokkers were ideally suited to Australian conditions and, despite their age, had plenty of life left given their low hours and cycles.

“As we sit here now we are still of the view that we’ve got around 10 years left to operate in the fleet,” Schofield said.

“Some people focus on the calendar age of the fleet but really that is only a minor consideration. More importantly it is the hours and cycles that are on the fleet and we are only just over a third of the way through on average.

“Rear-mounted engines have obviously gone out of vogue in terms of modern aircraft design but for operating to remote locations it is actually a huge advantage.”

Schofield noted the oldest aircraft in the fleet had only just reached the halfway mark of its operational life, which meant there were still 45,000 flights left in the airframe.

At the opposite end of the scale, Alliance’s youngest aircraft had just over 8,000 flights on the clock.

“There’s an enormous amount of untapped flight volume there,” Schofield said.

“The transaction that we did with Austrian Airlines has helped give us access to a low capital cost aircraft and also, perhaps more importantly, engines and spares including major components.

“We’ve also purchased other batches of spares from other operators who are trading out of the type.I think we’ve done a good job at securing a low capital cost aircraft that really works for us.”

Similar sized jet aircraft to the Fokker 70 and 100s currently in production included Embraer regional jets and Bombardier’s C Series.
And although any aircraft replacement program was at least a decade away, Schofield said the topic was discussed often within management.
“We always listen to anything any of the other manufacturers have got to say because we will have to make a change somewhere about 10 years from now,” Schofield said.

“At the moment there is no compelling financial case to even consider making a change.

“It will never been a physical obsolescence that drives us into another fleet, it will be an economic rationale.
“We will always be a second-hand user of aircraft. It just suits the business model.”

ALLIANCE PAYS TRIBUTE TO SIR CHARLES

It is a reflection of Alliance Airlines’ nimbleness that an idea to pay tribute to the 90th anniversary of Sir Charles Kingsford Smith’s trans-Pacific crossing went from concept to reality in less than six months.

The airline has painted a Fokker 100 in a special livery and produced a commemorative beer called Smithy’s FGB in partnership with Newstead Brewing Co that will be offered for sale on its flights.

The aircraft, VH-FGB, has an image of Sir Charles Kingsford Smith on the tail, while the fuselage features the Fokker F.VIIb/3m Trimotor, named “Southern Cross“, used for the successful crossing in 1928.

The Fokker 100 was repainted at Norwich in the United Kingdom and then ferried to Australia in January before being formally unveiled at an event in Brisbane on February 21.

Sir Charles and fellow Australian pilot Charles Ulm, as well as radio operator James Warner and navigator/engineer Harry Lyon from the United States, flew the Southern Cross from Oakland in California to Eagle Farm Airport in Brisbane over a 10-day period in 1928, stopping at Hawaii and Fiji enroute.

The 6,300nm journey began on May 31 1928 and ended on June 9 1928. It was the first-ever trans-Pacific flight from the United States mainland to Australia.

“Flying across the Pacific is still a bit undertaking, it is still a very long journey. To have done it the way Smithy did 90 years ago is amazing,” Schofield said.

“As a general aviation enthusiast, and a lot of us are at Alliance unsurprisingly, it is interesting at that level. We thought ‘let’s do something to recognise it’.

“That trip was conducted in a Fokker aircraft and we are now the largest operator of Fokker aircraft. That adds another touchpoint for us.”
And there is more to come in June.

‘Flying across the Pacific is still a big undertaking.’
Lee Schofield

Schofield said the airline was planning on taking recreating the final leg of Sir Charles’ journey, when after crossing the Australian coastline at Ballina he tracked northwards to the eventual landing at Eagle Farm.

He hopes these initiatives will prompt more people to visit the special memorial in Brisbane where the Southern Cross is on display.

“That aircraft, the original Southern Cross, is just an amazing piece of not only Australian history but worldwide aviation history. I do find it remarkable that is just here so close,” Schofield said.

“We really hope that bit of interest we might be able to generate out of this will actually drive more people to go and see that aircraft because it is literally right next to the international terminal and a stunning piece of history to see.”