|
|
COOPERATION --THE WAY AHEAD: Airlines join forces to weather turbulence ahead
Samisoni Pareti
(Islands Business, August 2006)
In a magazine editorial he wrote in July 2002, the late Robert Keith-Reid asked, “Who would enjoy life as the chief executive of Air Niugini, Solomon Airlines, Air Marshall Islands, Air Nauru, Air Vanuatu, Polynesian Airlines, Air Caledonie, or Air Tahiti Nui?”
 |
Flying high... Air Pacific and Air Niugini at Brisbane Airport, two regional airlines doing well.
|
That question was followed up with another rhetoric; do the bosses of these airlines “slumber untroubled?” Today’s answers to those questions remain unchanged to those he had offered some four years ago.
Keith-Reid had singled out several factors that made the work and life of airline bosses in the Pacific pretty miserable: “undesirable political interference coupled with inept management,” together with operating in a region “in which costs are unavoidably extremely high, distances are long and passenger-loads light.” High fares for such air services, he added, “are another inevitable fact of life”.
Some 50 months later, airlines of the Pacific are still being battered by those crippling realities and more.
Added to the list now are almost an infinite number of worrying trends; ballooning jet fuel costs, expensive counter-terrorism measures, archaic navigation equipment, aging runways and airport infrastructure, unrealistic landing fees, unsuitable aircraft size, pilot poaching, ‘cherry picking’ operators, and more.
Runaway fuel cost
So debilitating has been the cost of jet fuel that airlines in the Pacific are seriously pursuing the idea of fuel price hedging and bulk purchasing.
These airlines mandated their regional body, the Association of South Pacific Airlines (ASPA) at a meeting in Brisbane in June, to look at the feasibility of the proposal.
“Rising fuel costs is a major concern for small islands carriers,” said George Faktaufon, secretary-general of ASPA.
“Because of our low volume of intake, we need to work together in order to gain some advantage.
“We shall be exploring the possibility of subscribing to one of the metropolitan carriers for hedging or bulk buying because even amongst ourselves the volume will still be low.
“If this fails, then we shall need to look at the possibility of setting up our own.
“We would prefer the first option because we can rely on the expertise of others. It can be problematic to establish something like this on our own.”
One of the few members of ASPA that already engages in fuel price hedging is Fiji’s national carrier, Air Pacific.
Its chief executive officer and currently ASPA chair, John Campbell, said he won’t be surprised if fuel price reaches the US$100 mark.
By late last month, price had surged to US$97.90 a barrel in response to the unrest in the Middle East, problems in Nigeria and strong consumption.
“In performing much the same level of flying in the current year as we did in the last, we find ourselves paying around F$60 million per annum extra, or an additional F$1.154 million per week for fuel for no significant change in activity,” Campbell told readers of the airline’s inflight magazine, ISLANDS.
“In our endeavour to be competitive and affordable, we cannot pass these costs to our customers.
“And although we know you have paid a fuel surcharge because of the impact of extra fuel costs, in fact the surcharge covers only 25% of the extra costs involved.”
PIASA claims nonsense
The policies of individual islands governments are not helping either, especially in their support for the Australian-pushed open sky policy referred to as PIASA, the Pacific Islands Air Service Agreement.
Despite the airlines protesting that PIASA wouldn’t work, Canberra through the Suva-based Pacific Islands Forum Secretariat is getting islands governments to sign and ratify the agreement.
It argues that PIASA would open airline routes in the Pacific to all islands airlines instead of flights restricted by bilateral agreements negotiated by governments.
Most islands governments have signed up with the exception of Fiji, because unlike other islands states, Suva, is protective of Air Pacific.
Said Campbell: “We believe PIASA has been greatly oversold to governments and other stakeholders and that it will not and cannot deliver the touted benefits.
“Traffic rights do no create flights. Markets create flights so if there is no traffic between two points, then a proliferation of traffic rights will not create flights.
“PIASA advocates claim that flights will be created, airline frequency will be increased, airfares and cargo rates will be reduced, and unserved markets will receive flights.
“We are a practical, experienced and knowledgeable operator and we say these claims are absolute nonsense!”
ASPA’s Faktaufon expressed equally strong sentiments against PIASA, saying that the Australian-touted concept is not the “panacea” for the region’s air transport ills.
“We believe there will be winners and losers, and only those that will benefit from PIASA should be encouraged to participate.
“However, the way PIASA has been promoted is that unless you are in, you will lose. There is absolutely no evidence to support this claim.
“The fact that some governments had gone ahead and accepted PIASA without waiting for an impact assessment study suggests that either the governments have been coerced into signing PIASA, or they just accepted blindly without the necessary evidence.
“The impact assessment study is now complete, but only after pressure from ASPA that AusAID through the Pacific Islands Forum Secretariat agreed to fund the study.
“The report has not been made public. But the findings are far from convincing about the so-called benefits of PIASA.
“We have this unfortunate situation that governments have different views on PIASA as opposed to their national airlines.
“Obviously one can conclude the airlines have vested interest and are more comfortable with the bilateral system.
“However, our argument is that there is not one route that is economically viable that has not been operated under the current bilateral system, therefore what other benefits will PIASA bring that cannot be satisfied under the existing system?”
Communication for air safety
Another hindrance to islands aviation is the unworkable and in some cases an absence of a good and affordable communication system.
ASPA said this is crucial as communication is not only a commercial matter, but also borders on safety and security issues.
In spite of repeated requests to islands governments and their air traffic management services, communication links between airports are poor, in some cases non-existent, ASPA claims.
“In other countries, there are no data links to the airline offices, let alone links between the towns/cities and airports,” said Faktaufon.
“With the new requirements for airlines to transmit passenger name lists in advance of flights, we have real serious communication problems that will not allow some of our airlines to meet these state requirements for security reasons.”
International Air Transport Association, IATA, estimates that a good and affordable communication system for the Pacific will cost US$3 million, something it says should be recovered from user fees in just one year, although the system have a 10-year life span.
IATA says a satellite base communication system will not only serve the airlines’ needs, but it can also be used for a Pacific-wide tsunami warning system.
Transparent with cost models
Apart from runaway fuel costs, bureaucratic restrictions and lack of good infrastructure, airlines in the region have to ward off attempts by airport operators to raise fees unnecessarily.
This is true for Fiji particularly, where airlines including Air Pacific, Pacific Blue, Air New Zealand, Air Vanuatu and Solomon Airlines are objecting a 250% fee rise sought by Airports Fiji Limited (AFL).
These airlines say the proposed fee rise was recommended by a French consultant but unacceptable since it lacked transparency and was based on shaky premises.
Pacific Blue’s commercial manager, Karen Greenlees said instead of basing fees on cost recovery, AFL seems to be using returns on investment—contrary to acceptable cost methodologies employed by other airport operators, like Sydney and Brisbane.
Questions sent to AFL’s chief executive Sakiusa Tuisolia remained unanswered by press time.
“We recognise that AFL has to make a fair profit for its service. But we do not accept the pricing proposals tabled to-date,” said Campbell.
“We believe the costing model is flawed and not transparent and we shall continue to pursue negotiations jointly with other airlines to establish a genuine level of cost recovery required to facilitate airport maintenance, growth, development and reasonable profits.”
Showing an incisive and acute knowledge of the industry, Keith-Reid had written in another ISLANDS BUSINESS editorial of January 2003: “The turmoil in the civil aviation industry is expected to continue for some years.
“Ignore the glamour. It is a hard, hard business. More airlines with illustrious names are expected to go to the wall.
“Few airlines make a lot of money, except for brief bursts of prosperity. It is against this depressing background that a new era of folly in the saga of Pacific Islands aviation has dawned.
“Common sense is floundering beneath waves of nationalism and jealousy. Some countries will lose an awful lot of money, quite possibly ruinously so. The only competition will be in who loses the most money,” Keith-Reid had said.
Go lean on fuel
It is in trying to stop these losses that ASPA is exploring a joint fuel hedge and bulk purchasing of oil for its members.
Airlines in the region are also employing fuel saving measures as practiced by many bigger airlines.
Campbell in his in-flight magazine message said Air Pacific had purchased specialised equipment that “washes jet engine compressors in order to remove carbon and jet fuel residue, thereby allowing engines to burn cleaner with less fuel consumption”.
“We have fitted winglets on the B737 aircraft which, although having a high capital cost, provide around 4% reduction in fuel consumption per flight, as well as improving the performance of the aircraft.
“We have replaced all the aircraft door seals and the seals around the undercarriage to ensure a smooth flow.
“Our aircraft are washed and polished more often to reduce drag and we work hard to minimise weight on the aircraft as weight contributes to fuel burn.
“For example, on short flights or flights with a low number of customers, we reduce the amount of portable water placed into the tanks as a weight reduction contribution.”
Campbell added that Air Pacific is watching even smaller items like the amount of blankets and pillows loaded on each flight to cut down on aircraft weights.
“We also change aircraft size wherever appropriate so that when a B737-sized load is booked for a flight but a B767 aircraft has been allocated, we will switch to the smaller B737 in order to reduce fuel burn whilst carrying passengers as booked and scheduled,” the Air Pacific CEO explained in his response to our questions.
“We are also using the smaller B737-700 in lieu of the larger B737-800 for fuel saving when load allows and using the B767 in lieu of the B747 aircraft for the same reasons, only when the missions operated allow the aircraft change to occur.”
PIASA offers ‘equal footing’
On PIASA, the Forum Secretariat didn’t address specific issues raised by regional airlines at ASPA’s recent conference in Australia.
Forum aviation adviser, Seiuli Alvin Tuala could only say that 10 countries have ratified PIASA with two more—Samoa and the Cook Islands—completing ratification. The agreement will come into force when ratified by four more countries.
He confirmed the result of the PIASA impact study has yet to be made public. But he said some of the positive benefits of a common air agreement would be providing equal footing to all Forum members.
“This will open up, for example, inter-island tourism for all of us,” Tuala told ASPA members.
Under PIASA, Australia and New Zealand will become parties 30 months after all Forum islands countries have ratified.
Yet even without PIASA, regional airlines are striking up closer working relations. Air Niugini, after re-commencing its Port Moresby-Manila-Hong Kong service is keen to launch a Port Moresby-Nadi flight via Honiara most probably.
Airlines of these three countries are also exploring code-sharing and joint use of aircraft. Solomon Airlines is especially keen to do this after acquiring its AOC (Air Operators Certificate) from the Civil Aviation Safety Authority of Australia in July.
At its Australian meeting, ASPA wanted members to consider cost sharing in various areas like ground handling services, common auditor, insurance and aircraft leasing.
Partnership is nothing new to ASPA members as common concepts like code sharing and joint leasing were some of its initiatives now copied by other airlines worldwide.
V-SAT communications
Airways New Zealand volunteered to initiate work on covering the entire Pacific region of a satellite-based communication system, or V-SAT.
The New Zealand company will work on the likely costs of the system. ASPA members may be asked to foot part of the establishment costs.
Said Faktaufon: “ASPA has taken the initiative to resurrect the implementation of V-SAT communication links around the region in association with Airways New Zealand and IATA.
“We hope governments will support this initiative as it is their responsibility to provide a good and efficient communication system for the aviation industry. We shall however require some financial assistance for capital investments of around US$1.5 million.
“ASPA member airlines, airports and ATC (air traffic control) who will be the main users will be responsible for funding its operation and maintenance costs through the user pay system.”
Keep it fair
On exorbitant airport charges, airlines are asking airport authorities to enter into dialogue and be transparent about their costing models. Fiji’s unfair competition watchdog, the Commerce Commission, for instance, may be asked to intervene in the 250% fee hike sought by AFL.
Attempt at the unattainable
Seeing how ASPA is promoting joint partnerships to counter the ever growing challenges airlines are facing bring some truth to an observation made by Keith-Reid in the January 2005 issue of the magazine when he wrote:
“Two great historic failures were the quests by alchemists to devise elixirs for turning base metals into gold or silver, and for conferring eternal life and youth on the drinker.
“For the Pacific Islands, an equally hopeless quest has been to devise a formula for a regional airline to be able to run at a profit and please all its owners and passengers by meeting all their various requirements.
“ASPA members are evolving into a lose regional conglomerate that in the foreseeable future appears to be the closest thing unattainable Pacific travellers can hope for.”
|
|
|
