December 2001 issue

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Air industry tries to regain control

Travel Update

Australian low-cost carrier, Virgin Blue, has announced it intends to triple the size of its fleet within two years, in stark contrast to the restrained business strategies at many other airlines at present. Virgin Blue's Chief Executive, Brett Godfrey, said his company was negotiating to buy nine additional planes already in production for other carriers. 'There's a lot of orders being cancelled and there's a lot of airplanes that are not going anywhere,' he said. 'I think we're Boeing's best friend.'

Fellow low-cost carrier, Ryanair, which operates in Europe, sold a million seats for US$15 in September to counteract the effects of declining sales following the terrorist attacks in the USA on September 11. The tickets sold were valid until the end of the year. Ryanair commented that its expansion plans remained unchanged and that no staff would be made redundant. 'Our solution is to get back in the air [following the terrorist attacks] with more passengers and lower fares,' said Ryanair's Michael O'Leary. EasyJet echoed this view, promising full-year profits in line with market expectations. The carrier commented that low-cost airlines are 'more resilient, particularly if they fly point-to-point within Europe'.

An aviation regulator in Ireland has ruled that many of the proposed investments in Ireland's aviation infrastructure cannot be justified, and it has recommended that Aer Rianta, the Irish airport authority, cuts its IR£1 billion (US$1.15 billion) expenditure plan by up to 75 per cent. At risk is the planned extension at Cork Airport and improvements to Dublin Airport.

Thai Airways International is considering increasing its capacity on Australian routes because of heavy demand on both outbound and inbound routes, according to the carrier's Marketing Manager, Grant Symonds. 'We've had 23 per cent growth in passenger numbers for the first six months of this year [compared with] 2000,' he reported.

A hypersonic aircraft, which is five times faster than the speed of sound, is being developed in China, according to a Chinese news agency. The Xinhua news agency reported that the aircraft, which would be able to cover 6,105 kilometres per hour, might be ready within 10 to 15 years. 'It will be key in the world aviation and space field to develop hypersonic aircraft in the 21st century,' said Zhuang Fenggan, a member of the Chinese Academy of Sciences, which is overseeing the project. According to the news agency, other countries, including the USA, Russia, France and Germany, are all conducting similar research inot hypersonic aircraft.

According to figures from the Federal Department of Transport in Australia, a record 17 million people flew to and from Australia in the year to April. This represents a 10 per cent increase on passenger numbers in the year to April 2000. Journeys to Australia from Auckland in New Zealand and Singapore were the busiest routes, while other top 10 routes originated in Los Angeles, USA, Hong Kong and Tokyo in Japan. Almost half of all international passengers passed through Sydney International Airport.

US carrier, United Airlines, is withdrawing its services to India as part of a 20 per cent cut in capacity. Operations only began again in April this year. Michael J Purchon, the airline's General Manager in India, told the publication Business Line, 'We have no plans of coming back to India in the foreseeable future.'

Middle Eastern carrier, Emirates, has announced its intentions to begin a new service from Dubai to Perth in Western Australia from October 2002. Almost 1,000 extra visitors per week are expected to fly into the state capital. The service will mean Emirates offers a third destination in Australia and the first non-stop service from the Gulf. Bianca Panizza, from the Centre of English Language Teaching (CELT) at the University of Western Australia, said the move would help university enrolment. She added, 'What [CELT needs] is a direct flight between South America and Perth.'

A new daily service between Helsinki in Finland and Sydney in Australia has been announced by Finnair and Qantas. The two carriers will code-share on the route, which will be in operation from February next year. However, Michel Bichri, of MLC International in Finland, commented that the new service would make little difference to the language travel market in the country. He said most students currently study on European Union-funded programmes, such as Erasmus.

The terrorist attacks in the USA on September 11 led to extreme disruption in the air industry. Many flights were temporarily grounded or re-routed, causing severe delays to passengers and putting airlines close to bankruptcy. One of the first airline casualties was Swissair, whose flights were suspended in October (see below).
Many airlines laid off staff and reported substantial financial losses as customers stayed away from air travel and fears heightened about the future of the air industry. Air Canada, Alitalia, Virgin Atlantic and US carriers such as Delta, American Airlines, United Airlines and Northwest were just some of the carriers forced to cut staff numbers. Around the world, losses running into millions of dollars were reported. Korean Airlines alone reported an immediate revenue loss of US$11.5 million, while aeroplane manufacturer, Boeing, and the US airline industry as a whole were estimated to have cut 100,000 jobs. Continental Airlines had said it would go bankrupt without government aid.
US President George W Bush signed into law a US$15 billion aid package for the country's stricken airline industry and the government agreed to underwrite war risk insurance. 'The terrorists who attacked our country' will not shut down our vital businesses or thwart our way of life,' said Bush in a statement.
In Europe, national governments followed suit, as the insurance industry announced a US$50 million cap on third-party war and terrorism insurance. The call for government aid was expected to spread worldwide. 'We expect our government will work out some measures to help domestic carriers as [others] have done, because it is a global issue,' said a spokesperson for China Southern Airlines.
Group Taca, which includes the former flag carriers of Nicaragua, Guatemala and Costa Rica, expressed concern that smaller airlines without the help of government aid would get left behind.
The World Tourism Organisation (WTO) Secretary-General, Francesco Frangialli, called for a balanced perspective in the aftermath of the terrorism attacks on its effect on the tourism industry. Speaking in September prior to the WTO general assembly in Korea, he said world markets were over-reacting about losses in the share prices of airlines and tourism businesses.
Despite all the conflicts we've had in the world over the past 50 years, there has never been one year that experienced a decline in tourism,' he said.
Frangialli claimed that the full impact of the events would be dependent on subsequent action. 'If further actions are confined to a single region of the world, there [will] be less repercussion,' he said, adding that while Americans were worried about travelling, they only represented 13 per cent of the global outbound tourism market. 'Experience has shown that tourists from other big generating markets such as Germany, the UK and Japan will continue to travel,' he said. 'They may divert their holidays to different parts of the world that are perceived as safer, or stay closer to home, but they will still travel.'
In the meantime, carriers around the world moved swiftly to improve safety standards. Many airlines would not allow any hand luggage on to planes, and more thorough check-in procedures were introduced. In Europe, European Union governments agreed to coordinate security controls. The Federal Aviation Authority in the USA discussed the use of on-board video cameras, while US pilots pushed for permission to carry firearms, and for bullet- and grenade-proof cockpit doors.

Swissair struggles to stay afloat
Swissair was forced to stop all its flights suddenly at the beginning of October, affecting 19,000 passengers, as it faced financial meltdown and was temporarily unable to obtain the resources it needed to continue.
The Swiss government waded in with a rescue package, pulling the carrier back from the brink with CHF 450 million (US$277 million) in emergency financing. However, the deal was intended to keep Swissair afloat only until a bank-led salvage plan to transfer many flights to Swissair's subsidiary, Crossair, came into effect. Swissair's situation led to problems for airlines in which it has a stake too, such as Belgian carrier, Sabena, which was 49.5 per cent-owned by Swissair. At the time of going to press, Sabena had until mid-November to persuade the commercial courts that it can assure its future.
It too had received a bail-out from its government to buy it time to find new investors. Virgin Express was reported to be involved in talks about Sabena's future.
Swissair has been in financial turmoil for some time since it backtracked on its ambitious expansion plan to acquire stakes in various European airlines. For the first half of the year, it announced CHF234 million (US$144 million) in losses. Any plans to sell off its assets were scuppered when their value plummeted following events in the USA.

Ansett folds in Australia
Ansett in Australia collapsed in September, leaving 45,000 passengers stranded and a crisis in Australia's aviation industry in its wake. The company, which incorporated Ansett Australia, Ansett International, Hazelton Airlines, Kendell Airlines, Skywest and Aeropelican, was owned by Air New Zealand. It put the airline subsidiary into administration because of huge debts and losses of US$640,000 per day.
Ansett's administrator, Peter Hedge, said he had tried to keep Ansett flying but there was not enough money. 'We had no choice but to suspend flights,' he said. News first broke about Ansett's troubles when Air New Zealand's Acting Chairman, Jim Farmer, said a re-financing deal was being agreed between the New Zealand government and the carrier's shareholders that would not include Ansett. '[Ansett] is seen by the New Zealand government as a separate matter,' he said.
Seventeen-thousand staff lost their jobs and potential buyers were invited to make serious bids for the airline company. However, Qantas - Ansett's main rival in the Australian marketplace - turned down an offer to acquire Ansett, according to press reports, although it expressed interest in buying some of its regional and international routes, equipment and aircraft. There had been worries that such a move would lead to Qantas dominating the marketplace, with only Virgin Blue providing competition.
At the time of going to press, a solution was still being sought, and Aeropelican had returned to the air, operating services between Belmont and Sydney, as administrators deemed this service viable in the short term. Both Virgin Blue and Qantas stepped in to provide special services for Ansett customers, although many routes remained out of operation, leaving some Australian cities isolated. Ansett had controlled 38 per cent of Australia's domestic aviation market.

New budget airline from Qantas
Australian carrier Qantas has confirmed it is to launch a new international budget airline, which will be known as Australian Airlines. Scheduled to launch next year, it will take on some of the loss-making international routes that have been dropped by Qantas because of cost pressures.
We expect Australian Airlines to begin operating in the second half of 2002, initially flying routes into Asia,' explained Chief Executive of Qantas, Geoff Dixon. 'We believe Australian Airlines is the perfect name and brand to take this low-cost operation into the international arena.'
The carrier's newly appointed Chief Executive, Denis Adams, who was formerly with Qantas, said Australian Airlines would be a full service, two-class airline. 'It will be a simple, lower-cost operation,' he said. 'There are good operating efficiencies to be had from simplicity.'
Routes to China, Malaysia, South Korea and China are expected to be part of the new carrier's network, all of which were dropped by Qantas during the Asian economic crisis in 1997. Current Qantas routes, such as the Adelaide to Singapore service, might also be taken over by the new airline.
Australian Airlines represents potentially cheaper air services for many Asian students interested in studying in Australia, as well as cheaper travel opportunities for Australians. However, as Agent Nelson Chen, from ChinaElite International Consultancy Co. in China, pointed out, the new airline might not help build the student market to Australia. 'A single fare is now about US$500,' he said, 'but to study in Australia, [students] must usually prepare a deposit of more than US$25,000 to get a student visa.' Chen added that the fees for a year's tuition at an Australian institution were approximately US$13,000. 'So US$500 is really nothing compared with other costs,' he said.

Commission system crumbles in USA
US carriers, American Airlines and TWA, scrapped commission rates in favour of a flat fee for travel agents earlier this year. Other US carriers soon followed the move, and up to 15,000 travel agents in the country closed down for two hours to mark their dissatisfaction with the development.
The industrial action was intended to paralyse airline booking systems. 'The airlines have declared war against the distribution system and we intend to make the public aware of this outrage,' said Richard Copland, Chief Executive of the American Society of Travel Agents (Asta). He added that Asta intended to ask the US government to allow it to negotiate collectively with airlines.
Agents now receive a US$20 payment for a return booking and a US$10 payment for processing a single fare. This means that they may lose up to US$30 for each return fare booked. 'The government is permitting airlines to act collectively in ways that are directly harmful to our businesses and to the public,' said Copland.
In a positive development for travel agents, however, it was reported that customer concern following the terrorist attacks in the USA led to a surge in demand for travel agency advice at some centres. Copland said that many people could only find alternative travel and rebooking facilities via 'caring human beings'.