WHAT'S THE STATE OF PLAY: How regional airlines are faring?

Open skies? An unfettered South Pacific airline business market?

These ideas make most of the region's airline chiefs and the Association of South Pacific Airlines (ASPA) shudder. The trouble for the airlines is that they are policies that most of the governments that own them support.

A contentious issue is the Pacific Islands Air Services Agreement (PIASA) approved at government level by most governments except, notably, Fiji.
PIASA's intention is to open Pacific Islands airlines routes to one and all island airlines in place of services restricted by bilateral agreements between governments.

Australia is pressing island governments to accept PIASA by creating a common market to allow airlines to fly as they like.

Fiji's opposition is influenced by its desire to protect Air Pacific from competition. PIASA is also opposed by ASPA, which represents most of the region's airlines.

ASPA fears that the agreement would expose its mostly weak airline members to become overwhelmed by foreign airlines, particularly Australian ones, it suspects would "cherry pick" profitable routes and leave government-owned regional airlines to run unprofitable social service services required by their governments.

While PIASA exists, few of the countries that signed it have yet to implement it.

ASPA's secretary-general, George Faktaufon, says that a PIASA impact study-an assessment of what would actually happen to the region's airline industry under the PIASA regime-is being conducted by an Australian aid-funded consultancy, MacGregor Consultants.

Faktaufon isn't optimistic for the future of some of the Pacific's battling airlines. Too much is stacked up against them, he says-political interference, fuel price worries, the heavy cost of obligatory security measures forced on them by American and Australian civil aviation authorities gripped by terrorism paranoia, the difficult technical and financial environment of the region and lack of resources and management expertise.

"There will be fewer and fewer airlines," he forecasts.

Massively higher costs for fuel only being partly recovered by fare surcharges are burdening airlines everywhere. This burden is particularly hard on Pacific Islands routes since operational costs are high and passenger and cargo traffic business is frequently lean.

Air Pacific, Air Vanuatu and, until Samoa's government entered into an airline deal with Australia's Virgin Blue Polynesian Airlines, have been forced to cut their fares by margins of around 30% just as fuel costs began to flare. They have had to match the competition of lower fares offered by the Australian budget airline. This has been great for tourism and tourists crying for cheaper fares, but painful for airline bottom lines.

Air Pacific must also fend off competition from Freedom Air, a budget subsidiary of Air New Zealand.

The impact competition from the aggressive Virgin Blue, operating as Pacific Blue, has had on Air Pacific and Air Vanuatu is debatable. The island airlines say that business on their Australian routes is not only holding up but increasing since fares are cheaper.

But buoyant business, especially for Fiji, could also be the consequence of alarm caused by terrorism incidents in Asia, the SARS flu outbreak and now the chicken flu threat and perhaps the 2004 Asian tsunami disaster. These alarms steered to the Pacific Islands visitors who may instead have gone to Asia or other regions.

The Pacific Islands exploit such events by selling themselves as being safe places to visit. Now the frightening impact of some of the events is fading.
Pacific Blue claims that it is creating new business for the region's tourism business and not poaching it from older islands.

Pacific Blue operates also to Vanuatu, the Cook Islands, Tonga and to Samoa as Polynesian Blue, a joint venture with the Samoan government.

It has New Caledonia on its list of other ports but delayed the opening of a service because of what it complained were charges for it at Tontouta Airport compared with cost for the government-controlled Air Caledonie International. It ran into other problems about New Caledonia that remain unsolved.

Freedom Air weekly service loads up New Zealanders in Boeing 737 jets cheaply to Fiji and Australia from Wellington, Christchurch, Palmerston North and Hamilton.

Rachel Gardiner, Freedom's sales and marketing manager, says it has no plans at present to operate to other Pacific Islands holiday destinations but there could be later.

Some industry observers believe that growth of fresh business into the islands generated by budget airlines may be beginning to tail off.

They predict that newcomers will begin to bite into the business of Air Pacific and other regionally headquartered airlines. Within a year or so, lack of growth may cause the hard-bitten Pacific Blue to rethink its position in the region and withdraw from some routes, particularly if the views of Patrick Corporation, the major shareholder, prevail. Patrick Corporation is said to prefer to see the parent Virgin Blue concentrate on Australian domestic services rather than the main Pacific flights at the expense of the Australian domestic market.

In February, Virgin Blue quietly dropped its Melbourne-Fiji service without explanation.

The financial collapse of Tonga's international government-owned carrier, Royal Tongan Airlines, in May 2004 was followed in 2005 by the partial demise of Samoa's government owned- Polynesian Airlines.

This has been relegated from international to sub-regional and domestic business.

The extraordinary topsy-turvy history of the government-owned Air Nauru, launched in the 1970s, in January, is in survival mode.

Its only aircraft, a Boeing 737-400, was seized by the United States government at the end of 2005 because of arrears of repayments of a loan for buying.

In March, Air Nauru was struggling to carry on day-to-day with aircraft hired from Air Pacific and Air Vanuatu but was expecting to soon obtain a replacement jet with financial help from the Taiwan government..

The international carriers of New Caledonia and French Polynesia-Air Caledonie International and Air Tahiti Nui-continue to subsidise their national tourism industries with a pile of mounting losses.

The government-owned Air Vanuatu, with a history of being plagued by political interference reckons that it is doing all right, despite competition from Pacific Blue.

Solomon Airlines is rebuilding a domestic route network disrupted by the small civil war on Guadalcanal and would like to be able to lease its own jet as a replacement for the Air Vanuatu Boeing 737 it operates flights to Australia and Vanuatu with.

Air Marshall Islands, ever short of cash, struggles to keep going internally.

In Fiji, Air Fiji, a domestic operator for more than 30 years but controlled by foreign investors including the Tuvalu Government and a Chinese aircraft builder, is reappraising its future now that Air Pacific has decided to return by next June to domestic services it abandoned years ago.

In Tonga, with a local tour company, Teta Tours, it has begun domestic services operated as Airlines Tonga.

The domestic airline service scene is less gloomy than the regional one, with most of Papua New Guinea's dozen or so internal airlines making reasonable money.

The two strongest domestic carriers are Airlines PNG, which has inquired about buying into other small airlines in the region, and the busy Cook Islands airline, Air Rarotonga.

Air Tahiti, the main internal airline in French Polynesia, continues to steadily enlarge its fleet of ATR prop-jets and the New Caledonia internal airline, Air Caledonia, is confident enough about the future to have placed a US$50 million order for three ATR aircraft (an ATR-42 and two ATR-72s) as replacements for older aircraft of the same type.