With the world in financial meltdown, crippling jet fuel prices and currency fluctuations, Air Pacific is still eyeing a profit for its current financial year.
Compared to its 2007 post-tax profit of US$16 million, the projected surplus said airline Chief Executive John Campbell would however be “a greatly reduced” one. A major contributing factor Campbell said has been the jet fuel price.
While this has dipped below the US$100 a barrel in recent weeks, the constant high fuel price had taken a huge chunk off the airline’s bottom line.
“Overall our fuel bill is going to run pretty close to F$250 million this year and that’s a growth over the previous year of about $80 million,” said Campbell.
“It was going to cost us $300 million if prices had remained where they were.”
Jet fuel prices actually peaked at US$181.42 a barrel in July, and while it had taken a downward spiral since then, the now under US$100 price does not translate to real savings for Fiji’s international carrier.
The problem is the price hedge cover Air Pacific had signed, which was really meant at giving the airline some protection during excessive price spikes.
“Unfortunately, the fuel prices have dropped below the hedged level and as a consequence we are paying more than the market price.
“It’s a risk assessment and an insurance policy in the sense that should fuel price bounce back to very high levels, the hedges will protect us.
“But at the moment, they are costing us.”
Fight the fuel spike
Like other airlines, Air Pacific went into overdrive with its cost-saving programme as a way to beat skyrocketing jet fuel prices.
Asked to explain money saving measures, chief executive of Fiji’s national carrier, John Campbell listed seven.
• Water in the aircraft’s drinking tanks is monitored carefully and only sufficient load supplied.
• Dry stores onboard the aircraft galleys are scrutinised and only adequate number supplied for each flights.
• Frequent engine washes done to ensure minimum carbon residue.
• Flexible flying tracks employed to take advantage of favourable winds and altitudes.
• Fuel sufficient for the sector is uplifted but not excess fuel which adds to weight and in turn causes fuel burn.
• Ferrying fuel from destinations other than Fiji is abandoned in cases where the financial result is adverse, measuring prices against consumption.
• Dynamically managing the fleet where for example Air Pacific has a flight where a Boeing 737-700 can carry the load, instead of operating the 160-seater Boeing 737-800, it will operate the 120-seater Boeing 737-700 and reduce fuel burnt to some extent.
The head of one of the South Pacific’s successful airlines spoke to Islands Business in mid-November, at a time when it was a little bit too early to assess the impact of the world’s financial crisis on its operations.
However, Campbell admitted there have been some tell tale signs.
Since most of its costs are in US dollars, the global crisis had seen a strengthening of the greenback as well as the consequent weakening of the Australian currency.
“The Australian dollar in particular has weakened by about 24%, so in effect we’ve had a pay cut of 24% when we convert back to Fiji dollars and we are still coming to grips with the currency impact.
“Under the laws of Fiji, we must repatriate all our earnings from overseas to Fiji, converting everything into Fijian dollars and we are not permitted to hedge currencies under Reserve Bank regulations.
“So we do have full exposure to currency fluctuations and we do experience the impact instantly because of the requirement to repatriate all of our funds.”
Is the global credit crunch also casting its shadow over forward bookings?
Campbell said if the booking numbers for the months of November 2008 to January 2009 are used, then the answer is no.
Forward booking for the three month period is pretty much in line with the budget, said Air Pacific’s CEO.
“From February to March, the next two months to the end of our financial year and then April and May, the start of the next financial year, we can see a softening, a very definite softening in forward bookings.
“As a consequent of that, quite naturally we are going to promote and market Fiji.
“We got very close partnership arrangements with what is now Tourism Fiji (the old Fiji Visitors Bureau), the hotel association and the travel agent association as well as our partners offshore, the tour operators and the tour wholesalers so we’ve devised a number of strategies, marketing strategies individually for each of the markets.
“We are putting those into effect right now and help close the remaining gaps that exist for November, December and January and to close the major gaps in February and March.”
Over 2008, Air Pacific had announced major changes to its flying routes.
It has pulled out from its twice a week service to Vancouver through Honolulu from Nadi last month. That flight will now terminate in Honolulu, and this Nadi-Honolulu sector will continue to be a thrice a week service.
According to Campbell, the Vancouver service had never struck profit since its launch in 2000, although he did express the hope that this service would be re-visited once Air Pacific takes delivery in 2013 of two of the eight wide-bodied Boeing 787 Dreamliner aircraft it had ordered.
FJ ‘flies’ under the microscope
Concerned about what it termed as the stagnation of the national airline, Fiji’s interim government early this year launched a review of Air Pacific. Submissions—both oral and written—were invited before a cabinet taskforce chaired by then interim civil aviation minister, Ratu Epeli Nailatikau.
Several submissions were received and all would be studied and perused by a three-man team of independent overseas consultants—all from the United States.
Air Pacific's John Campbell said the airline had been promised it would meet the reviewing experts who in turn would be expected to provide cabinet with recommendations and comments. Fiji’s travelling public were asked to comment on Air Pacific’s on-time performance, its perceived deteriorating service standards, staff recruitment and retainment processes.
“There were also concerns about the airline’s “declining profitability, stagnation over new destinations and an unacceptable shareholders' agreement” between the Fiji Government and QANTAS. Certainly, the government has every right to conduct the review, that’s their prerogative as the principal shareholder,” said Campbell.
“I understand the taskforce has received somewhere around 30 submissions, as well as an uncertain number of oral submissions. Some of the results of those submissions I understand have been taken more as a comment or information type of input.
“We have not been advised on whether the consultants have been selected and if so, who they are at this stage.
“But the government has said they would allow Air Pacific to meet with the consultants and to provide our comments and feedback in relation to the recommendations or comments that have been received.
“There’s obviously a need for us to become involved in the process because at times comments can be made which are not necessarily accurate, so there’s always a need for balance in these studies.
“They would also need to sit down with the other shareholders because many of the issues that have been raised simply had nothing to do with the management of the airline but they are all about shareholder entitlements and rights.
“That’s not something that the management or the board can become involved with, it’s absolutely between the people that own the company to decide the direction they want the company to go in.”
Such aircraft has the capacity to fly non-stop between Fiji and Canada’s west coast.
He said Vancouver customers would now be diverted through its six times a week flights from Fiji to Los Angeles on an arrangement it was sealing with Alaskan Airways.
“We expect to conclude a codeshare agreement with Alaskan by the end of November for through routing of passengers on a connecting flight number all the way and we would be able to issue boarding passes, seat allocation, through checked baggage, all of the things that make a journey convenient to our Vancouver destined customers with a higher frequency .
“I guess the other benefit is that from a customer viewpoint, they will have the full normal North American baggage allowance of two pieces whereas for our B737 service between Vancouver and Nadi, they were restricted to 30k.
“So the baggage allowance has virtually I won’t say doubled but it has increased very significantly.”
With the freeing up of its two B737 aircraft from the Vancouver sector, Air Pacific is launching a new destination from December 1, a twice a week flight to Coolangatta on Australia’s Gold Coast.
“South East Queensland and the northern NSW area have been areas of quite rapid population growth.
“Retirees and people moving from Victoria and NSW into south east Queensland have made quite a buoyant market, quite a buoyant community.
“Very often the retirees are the people who are building the population and they tend to have quite a bit of discretionary income, a desire to travel and the convenience of Fiji just two and a half hours away is one that is proving to be quite popular.”
Red carpet out for ASPA in Christchurch
Aviation leaders in Christchurch will come all out early December to host members of the Association of South Pacific Airlines (ASPA).
ASPA representing airlines based or operating in the islands of the Pacific including QANTAS and Air New Zealand will hold their three-day conference at the Sudima Hotel in Christchurch on December 3 to 5.
CEO of Air Pacific, John Campbell, is currently chair of ASPA.
He has confirmed his attendance.
“This represents a fantastic opportunity for New Zealand aviation manufacturers, suppliers, trainers and officials to meet face to face with the CEOs and senior management of most of the airlines, along with aircraft manufacturers and firms involved with insurance and engine leasing and airspace management, all of whom are busy in the South Pacific Region,” said Alan Peacock of Flightsigns.
Peacock and Barrie Malloch are helping ASPA Secretary-General George Faktaufon organise the conference.
“We have a New Zealand Aviation Capability Day planned for the Wednesday that is not to be missed,” Peacock told Islands Business.
“Association of South Pacific Airlines members don’t normally go out on “field trips” so we have an amazing day lined up where they’ll see first-hand some amazing cutting edge technology that Kiwi firms have developed to make aviation safer and more efficient.
“They will be able to see training facilities as good as any in the world and see the awesome new maintenance docking system that Air New Zealand has developed that has boosted productivity by some 25%.”
Strategic planning workshops are planned for Thursday and Friday.
“The formal conference dinner that evening is Gary McCormick will be the Master of Ceremony, and we’re winding up the conference with a “Kiwi Wine Appreciation Evening” which we’re putting on especially for our friends from Airbus, who may recall that when Aviation New Zealand sponsored the cocktail evening at Nadi in July, the hotel served Australian wines!
“You will find that our Kiwi wines are superb!”
For Air Pacific, an unexpected but welcoming development nevertheless has been the interest generated within country about its new Gold Coast service.
The availability of self-service apartments and the location of adventure and theme parks have made Gold Coast an attractive holiday destination for Fiji-based families.
Japan is the other destination that Fiji’s carrier is pulling out from. Continuing losses over the last four years, which Campbell said, had accumulated to an excess of F$35 million had forced the route withdrawal.
Changing demographics in the Japanese market is also a big contributing factor.
Despite huge marketing campaigns conducted jointly with Tourism Fiji, hotel and tour operators, Japanese are still not travelling to long-haul destinations in droves.
Air Pacific’s CEO said retirees, honeymooners and the so-called Generation Y are simply not travelling as they used to. From a peak of 45,000 Japanese visiting Fiji, arrivals from this destination this year is forecast at 18,000.
“It’s the same for the other countries in the South Pacific.
“For example in Australia, the market about seven or eight years ago was 840,000 and this year it is forecast to be 460,000.
“We note that Air Caledonie has removed two of their flights from Tokyo and re-directed them to Seoul.
“Air Tahiti has reduced their frequency of flights.
“QANTAS and JetStar have collectively reduced flights and destinations between Australia and Japan.
“All Nippon has reduced its services, 100% withdrawn from the South Pacific and JAL is only serving Sydney on a daily service.
“They are no longer serving Osaka or Brisbane or any of the other destinations in either Japan or Australia.”
With flights to Japan soon to be terminated, Air Pacific like it did with Coolangatta when it withdrew from Vancouver, is opening up a new service to Hong Kong.
The former British colony was selected ahead of other possible South East Asian airports that included Shanghai, Beijing, Bangkok, Kuala Lumpur and Singapore.
“The final choice actually came down to Hong Kong for two reasons.
“One is operationally; it’s the less expensive airport to get flights in and out. That always plays a part in the economics.
“It offered all of the same hub convenience as Singapore, there was really no difference between the two but it offers proximity to the Chinese market.
“It sits in the middle of the Pearl River estuary and that gives it a catchment area of some 70m people who actually use the airport right now.
“The other feature is that Hong Kong is a very strong origin market in its own right. Its population is only 7 million people but on average they take three international trips per annum so they generate 21m journeys from Hong Kong and many of those journeys are quite strong, long-haul destinations.
“For example, we compared Mauritius with Fiji where the flying time is pretty similar, the destination could be considered similar and we found that Air Mauritius has been very successful in that market and they are operating with a seat factor of about 85%.
“What we wanted to do is to offer one stop from Europe to Fiji, one stop from Middle East and one stop from the emerging markets of Russia and Eastern Europe, all of which are high growth markets.”
Air Pacific’s Hong Kong service will begin once the two countries have entered into an air service agreement.
Campbell said the company is tentatively eyeing June 2009 as a start date.
“We actually have a team going up to Hong Kong in early December to start the recruitment of staff, establishment of offices, setting up of market programmes, doing negotiations for ground handling, catering, land access, cargo handling, all of the normal operational requirements.
“I guess it’s an expression of our confidence that we are sending a team up as early as that to establish our operations there.
“We are very confident the air service agreement will be concluded.”
