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1. Alan Joyce defends new path for Qantas

QANTAS boss Alan Joyce has rejected suggestions the airline's international red tails are on a flight path to extinction and says he hopes to ultimately resume growing the mainline international operation.

As neighbouring carrier Air New Zealand undertakes its own review of long-haul operations to staunch losses on $NZ1 million ($786,000) a week, Mr Joyce predicts the Qantas strategy of linking into major gateway hubs will eventually pay long-haul dividends.

But he concedes that the mainline's market share will shrink in the short term -- an observation underscored by recent government figures showing that Qantas's share of the international market into and out of Australia fell 1.6 percentage points in June to 18 per cent.

The June drop is part of a longer-term trend that prompted the Qantas restructure as the long-haul operations lost an estimated $216m last year.

The losses come as capacity growth into Australia due to the strong economy and higher dollar has seen competition intensify markedly on key routes.

The airline's move to axe 1000 jobs and set up a full-service airline in Asia, along with union fears that this would undermine international mainline operations.

The decision to retire four Boeing 747s and defer until 2019 the delivery of the airline's final six A380s further inflamed fears.

But Mr Joyce is hoping the airline's strategy to boost product, switch to gateway hubs and broaden its alliances will ultimately see growth for the international mainline.

Unlike highly competitive routes to Asia and Britain under increasing threat from mid-point hub carriers, the airline sees its North and South American, South African and Japanese routes as healthy and relatively attractive -- at least for now.

Part of the new strategy relies on forging deeper relationships with airlines operating from the hubs, several of them existing Oneworld partners, to provide Qantas with feed and distribution.

A first step was taken in May, when Qantas pulled out of the leisure-dominated San Francisco market in favour of partner American Airlines' hub at Dallas-Fort Worth.

The decision, criticised because the route is on the edge of a Boeing 747-400ER's operational envelope, opened up 52 one-stop destinations in Central and North America. It meant the airline's long-range jumbos are unable to get back directly to Sydney. They must transit via Brisbane and even then are subject to headwinds that have caused a handful of high-profile diversions.

The diversions have drawn flak, but Mr Joyce argues the situation will improve as the company gets more experience on the route. And he says the move has resulted in a big improvement. "The resizing of aircraft to New York from a 747 to (an Airbus) A330, and Auckland-LA to A330s -- all of those changes have resulted in North America going back into profits," Qantas's chief executive says.

"So we'll be looking at growing Dallas, we'll be looking at growing the North American operations as that profitability returns. That's the next big stage for us."

North America is also likely to receive a boost from the arrival of Boeing's larger Dreamliner, the delayed 787-9, in 2014.

The 787-9, with a range of 8000-8500 nautical miles, should be able to handle the 7500 nautical miles trip between Sydney and Dallas-Fort Worth both ways.

Qantas is also taking advantage of LAN Airlines' growing South American network to move its gateway to the continent from Buenos Aires to Santiago from April.

LAN serves more than 70 destinations, is a market leader in Chile and Peru as well as an important player in Argentina, Ecuador and Colombia. Mr Joyce sees potential for Qantas to develop the fast-growing trade, tourism and cultural tiers between the Asia-Pacific and South American markets and aims to build up to daily flights.

There are changes, too, on the kangaroo route, although these also have attracted criticism. Qantas has also restructured the joint services agreement with British Airways and will concentrate its flying to London using its daily A380 services from Sydney and Melbourne via Singapore.

It is also moving to strengthen its relationship with Oneworld member-elect Malaysia Airlines and is likely to seek a deeper alliance with the Malaysian carrier, a proposition that has developed new dimensions since news of an equity swap between the Kuala Lumpur-based flag carrier and AirAsia.

The idea is to provide one-stop access via Kuala Lumpur to European destinations.

Qantas caused some consternation, however, with moves to axe flights to London from Hong Kong and Bangkok, transferring passengers instead to a beefed-up British Airways service.
This will improve profitability on the London routes and allowed for the early retirement of four older Boeing 747s. He is also optimistic the airline will see growth on the route and will take back the Heathrow slots it has leased to BA for the next three years.

"If we can make the significant changes we believe we need to make in our cost base, you can see a re-entry into that Heathrow market," he says. "And if we get the Asian hub right, we are looking at Asian hub entry into the European markets as well."

In terms of fleet, slot restrictions and scheduling windows at Heathrow means it will remain the perfect destination for the double-decker A380. But he sees the arrival of the 787-9, with its lower seat-mile costs, as the killer aircraft for opening up new destinations and boosting frequency. Qantas has 35 of the 787-9s on order, but problems at Boeing mean the first plane is not scheduled for delivery until 2014.

One option, according to Joyce, would be to re-jig the network to fly with 787-9s to more destinations past LA, freeing up A380s to go back into London.

"Making sure Qantas International is a strong and viable airline and if we don't do something about it, it will wither on the vine and die," he says.

Despite a generally positive reception of the restructuring by analysts, Qantas unions are convinced the main game is to eviscerate international mainline operations and move operations to cheaper offshore labour markets. They are particularly worried about plans to establish a full-service, high-end airline in Asia.

The Asian venture will help boost group market share and allow increased destinations and frequencies. But he concedes there will be some "rebasing" as a result of the high Australian dollar.

Qantas has yet to say where it will base the new airline, which will use Airbus A320 aircraft equipped with lie-flat beds and more spacious economy seating to offer intra-Asia connections to business travellers, but has indicated Kuala Lumpur and Singapore are high on the list.

Unions and some analysts believe it will cannibalise existing traffic from Qantas international.

The Australian and International Pilots Association believes that Qantas mainline over the next three to five years will be "reduced to a shell" and there are worries about what is happening about the regional fleet. "No matter which way you do the spreadsheet, on aeroplane delivery dates and their statements, the airline is going to physically shrink quite a large amount," vice-president Richard Woodward says.

Commonwealth Bank analyst Matt Crowe agrees that the new Asian carrier is likely to eat some of the long-haul mainline's lunch.

"I don't see how it can't and I think (management) is probably quite happy for it to do that to some extent, to get some of those passengers on a lower cost-base business," he says, noting that Qantas marketshare to and from Asia has dwindled to 14 per cent.

2. AVIATION/TOURISM: Regional airlines lure Europeans to our shores
Europeans who travel to New Zealand and Australia to work on a short-term basis can now also visit the Pacific at giveaway fares.
Six airlines in the region have launched a Discover South Pacific Pass that will enable travellers who frequent the two nations to have the chance to hop onto a South Pacific destination or destinations of their choice at a reduced price.
The airlines are Air Calédonie International (New Caledonia) Air Tahiti Nui (Tahiti) Air Vanuatu (Vanuatu), Solomon Airlines (Solomon Islands), Air Niugini (Papua New Guinea) and Our Airline (Central Pacific).
The airlines are members of the Association of South Pacific Airlines (ASPA) and the initiative was announced at the ASPA meeting in Nadi in July.
ASPA secretary-general George Faktaufon said the pass would be marketed at their agencies and retail outlets in Europe, Asia, the Americas and the Middle East beginning September this year.
Faktaufon said Air Pacific which has its own ‘Pacific Bula Pass’ has yet to commit to the initiative but ASPA was hopeful the Fiji international carrier would commit to it soon.
Air Pacific’s Pacific Bula Pass enables one to fly to Nuku’alofa in Tonga; Apia, Samoa; Port Vila, Vanuatu; Honiara, Solomon Islands; and Tarawa and Kiritimati in Kiribati. The pass can only be purchased in conjunction with an Air Pacific, Cathay Pacific or Qantas Airways international ticket, where travel originates outside of Fiji and the Pacific Islands.
However, the Discover South Pacific pass provides travellers with cheaper access to Nuku’alofa (Tonga), Apia (Samoa), Port Vila (Vanuatu), Honiara (Solomon Islands), Tarawa and Kiritimati in Kiribati.
Faktaufon said they had found that many travellers who had four-month visas or longer stays in Australia and New Zealand found it expensive to visit other nearby Pacific locations.

Travel without hindrance
“The Discover South Pacific Pass allows travellers from Europe—who travel to Australia and New Zealand—to also travel to a destination or destinations in the Pacific at lower fares,” Faktaufon said.
“In order to do that, we need to allow them to travel without hindrance. Right now, every airline has its pass and this South Pacific Pass encompasses six airlines.
“In other words, you can travel in any of the six airlines or sectors and use the same fare. We hope this new initiative will generate interest amongst travellers particularly those who travel from afar to Australia and New Zealand.
“I am sure they will be able to see as many places as possible.
“This pass is not for Australia and New Zealand so we do not dilute our market share. It is meant for people from areas like Europe.
ASPA president Didier Tappero, who is also Vice President of Aircalin, said one of ASPA’s major goals is to promote the South Pacific destinations.
He said the ‘Discover South Pacific Pass’ is aimed at allowing its members to cooperate and jointly assist in making the South Pacific price competitive and easy to travel region.
“By taking advantage of its comprehensive South Pacific network, ASPA strongly believes the pass is an appealing product to anyone willing to discover the great opportunities the South Pacific has to offer,” Tappero said.
“With sales permitted almost anywhere in the world, tourists will be able to enjoy some of the 15 destinations operated by the airlines by creating their journey that will best suit their needs; from shopping to diving, from relaxing to trekking.
“Simple, flexible, and competitive, the Discover South Pacific Pass is the perfect product to visit and enjoy this world-famous part of the globe,” Tappero said.
Also at the Nadi ASPA meeting was leasing giant Loftleidir Icelandic, who updated members on its various leasing arrangements and how it can help small airlines with its wide variety of flexible arrangements.
Loftleidir Icelandic operates Boeing aircraft in Europe and North America. It provides full charter service, ACMI leasing, crew leasing, and flight operation services for tour operators and airlines. The company was founded in 1944 and is based in Reykjavik, Iceland.
Their executives Erlendur Svavarson and Sigfus Olafsson were at the ASPA meeting seeking to extend their client base in the Pacific.
So far, only Air Niugini has a leasing arrangement with them.

3. NZ Govt. Targets Air Service Negotiations

Expanding airline service to important East Asian and South American markets is a high priority for the New Zealand government as it looks to launch new rounds of aviation negotiations.

The government in July said it had given its negotiators a mandate to begin air service talks with China, Brazil and eight other countries that it would not reveal. AviationWeek has learned from industry sources that the others are Japan, Thailand, Vietnam, Indonesia, Argentina, Peru, Uruguay, and Colombia.

Negotiations are not expected to occur simultaneously, and will probably be tackled one or two at a time. Not all of the governments on the list have been approached to begin air services discussions, but the list represents those with whom the NZ government will seek talks.

Industry lobbying for these negotiations is believed to be mainly from New Zealand’s airports rather than airlines. However, Glenn Wedlock, Auckland International Airport’s general manager for business development, says there has been a collaborative approach.

When shown the negotiations list, “signals where growth opportunities” are expected. He says Auckland Airport has been pushing for greater access to some of these markets, although not because of specific requests from airlines. Rather, the airport is targeting countries and regions that have good potential for increased traffic.

Although there has been interest shown by some carriers, in general new service from the countries on the negotiation list is not expected in the near term, Wedlock says. However, when an airline does look to expand or launch service to Auckland, it will be helpful to have the air rights already available rather than having to apply to the government.

“We don’t want to have restrictions around new opportunities,” says Wedlock. “If [an airline] is looking at two markets side-by-side, and one needs to gain [service] rights, with all else being equal the carrier will choose the other one.”

When the negotiations mandate was first announced – with only two of the 10 countries revealed – Associate Transport Minister Nathan Guy said the intention was to remove restrictions in some current agreements, and launch talks with other countries where no such agreement exists.
New Zealand’s long-standing approach is to pursue “open skies” type deals, although the government “recognizes that some countries still prefer a restrictive approach.”

All the nations on the list are from East Asia or Latin America, recognizing that New Zealand “has a strong interest in promoting trade and tourism with growing regions.

4. Extracts from the Ansett files, before the towers fell

In the days immediately before Ansett’s first receivers padlocked the terminals on the morning of 14 September 2001, even before the last midnight horror from Perth to Sydney could unload its passengers, it became clear to everyone, even those who were in denial, that the airline was in severe crisis.

Ansett was 100% owned by Air New Zealand, which was 25% owned by Singapore Airlines, which had in preceding months, seen its plans to lift its equity in the Air New Zealand/Ansett entity to 49% torpedoed by Qantas orchestration of government disapproval in both Canberra and Wellington on the ground that this would create an encircling ‘behemoth’.

The efforts to head off Singapore Airlines’ grand designs on Australia and New Zealand was the biggest airline story since jet engines, or more recently, the Qantas purchase of Impulse Airlines which was to morph into Jetstar in 2004.

Virgin Blue v Singapore girl

At Virgin Blue’s first birthday parties in Brisbane and Melbourne at the start of September 2001 Branson was privately in two minds about the airline’s future.

He needed cash for other ventures in the Virgin Group, including Virgin Mobile in Australia, and his seed capital in Virgin Blue had taken root and multiplied more richly than he had expected in such a short period.

But he was reluctant to sell out. In one interview he said, “Qantas lost hundreds of millions of dollars getting rid of Impulse. But they can’t get rid of us. Whether its easyJet, or Ryanair, or Southwest, or us, this is how the vast majority of the people want to fly, which is as cheaply and cheerfully as possible.

“I’ve told our people that we are building up small armies of support all over Australia. In Adelaide we made the traffic to Queensland more than double, and the same between Townsville and Brisbane. And we are doing it in Tasmania and … lots of other places as we bring in our new jets.

“How come we charge a quarter of some of the other’s fares but fly in brand new Boeings compared to their tired old aircraft?”

As the pressure increased from Air New Zealand CEO Gary Toomey for a deal to sell the airline Virgin Blue began reviewing the numbers.

It decided that even if Ansett was loosing only $1 million a day (which proved far less than the true amount) the complete elimination of Virgin Blue and its then fleet of 9 jets would only lower its losses by $200,000 a day, which meant that more drastic measures had to be planned for the ailing airline.

Godfrey thought Branson would be offered a price of around $ 250 million for the airline, and began to urge his ‘war cabinet’ comprising senior management to close ranks on the need to persuade him not to sell.

It was a difficult argument. Rob Sherrard (the chief operating officer who ‘conspired’ with Godfrey on the original business plan that was sold to Branson) pointed out that this could be his only shot at getting a reward out of Virgin Blue at his age, where Godfrey was young enough to come back later and try to launch another new carrier.

But Sherrard also sensed that however attractive the September 2001 price might have been, it would become much higher because the business model had started to perform far better than expected.

2 September 2001 was the start of three crucial days for Virgin Blue.

That day Branson took a phone call from Dr Cheong Choong Kong, the CEO of Singapore Airlines, in Godfrey’s presence. It was the hard sell. Branson said that CK had reminded him they had been good friends for a long time, but that “I was going to do this deal, and that if I didn’t, he would destroy me and destroy Virgin Blue.

“If I didn’t take this money Singapore would throw everything they could into Ansett and drive us from the market place.

“A lot of these things are like a game of poker but to be perfectly frank, we could have done with the money they were offering elsewhere, while Virgin Blue to me is like a child with a terrific future, and the welfare of your children is everything.”

On the night of 3 September Branson was hosting a Virgin Mobile party in Sydney.

While Godfrey had another function to attend his communications strategist David Huttner and his wife dined at Beppi’s Restaurant.

“I told my wife Beppi’s was clearly the place to go if you were going to sell out your airline like Gerry McGowan, and the food was said to be good. (Impulse owner Gerry McGowan sealed the deal to sell to Qantas at Beppi’s in April that year).

“At that stage I don’t think any of us knew what decision Richard would make.”

“I decided, what the hell, if Richard didn’t take our advice and sells, then we’ll all be cashed out and unemployed and need a holiday in any case.”

But it was an early dinner. At 10 pm when Branson returned to the Potts Point Holiday Inn, the Kings Cross hotel used by Virgin Blue crew, and Branson when he was in town, he was joined for drinks by Godfrey, Sherrard, Huttner, Amanda Bolger (Virgin Blue’s original media officer) and a surprise appearance from the forceful media personality Derryn Hinch.

Several hours earlier Godfrey had rung Hinch, expecting he’d be in Melbourne, to see if there was any way he could help dissuade Branson from selling to the Singaporeans.

“We knew we could do better. We didn’t have to do the deal that day. But we had no idea that better meant a $2.5 billion airline.

“Our view was simple. If we killed the deal Singapore will come at Ansett with a big knife, like why are you flying to five places in Tasmania, why are you flying 10 different kinds of aircraft, and why are you doing this or that…

“We figured that they would force Toomey to lay off 6000, 7000 even 8,000 people. They would cut back the routes, and do one of those massive US style restructurings.

“It would be a painful major bloodletting. We assumed that we had two to three years to get our sh*t together before a leaner, meaner Ansett came back to whack us.

“We thought the Singaporeans would burn another $200 million or so getting the thing into shape because they knew in the end it would be a good investment. We did not know, in fact had no idea, that it was that close to the edge.”

Godfrey’s recollection of the same events included his early conviction that it would be the end of the road for his airline for certain.