Thai Airlines: Interview with Teerapol Chotichanapibal

Thai people are famed for their friendly smiles, but given the violent political protests afflicting the country since 2008, one could forgive Thai Airways International employees if they were less than optimistic about travel demand in the coming year.

This article orginally appeared in Asian Aviation magazine, February 2011

Thai people are famed for their friendly smiles, but given the violent political protests afflicting the country since 2008, one could forgive Thai Airways International employees if they were less than optimistic about travel demand in the coming year.

Yet Teerapol Chotichanapibal, the airline’s acting commercial executive vice-president, is decidedly upbeat. The airline reported a net profit of 136.4 million baht (US$4.5 million) for the third quarter of 2010 – its first positive quarterly result since 2008. The carrier had previously never run at a loss.

The profit figure, although about seven times less than most Thai analysts predicted, came largely because of a recovery in tourist demand and aggressive cost-cutting. In the same July-September quarter a year earlier, the carrier lost 4.03 billion baht.

“We are not doing badly, despite everything, and we are looking forward to 2011,” Terrapol says.

He describes the protests by the United Front for Democracy Against Dictatorship, commonly known as the ‘red shirts,’ as being one of the biggest “dents” in annual figures for the 2010 business year. But he adds that the flight disruptions caused early in the year by the ash cloud from Icelandic volcano Mount Eyjafjallajökull caused a dent of equal or greater size.
Regardless of the protests and volcanic eruption, Thai had already had an eventful few years, including battling natural disasters and a coup d’état. Indeed, things could be much worse, Teerapol says.

“If you look at our books, we’ve not been doing too badly. We’ve been doing very well at controlling costs,” he says.

Catering –a department in which Teerapol is also managing director – was one element of the business affected by cost-cutting plans. Thai’s kitchens in Bangkok produce up to 80,000 meals per day for the airline’s own flights and for 50 other carriers. Many of those airlines have re-tendered recently, putting more pressure on the commercial kitchen to have lower costs while maintaining quality, the executive says.

But Teerapol is most proud of the 10 billion baht saved in fuel and indirect costs this year, which came in addition to 14.8 billion baht saved over the past two years. Better fuel-management has been the result of data reporting and analysis of the way the carrier uses jet fuel. Thai has managed to bring its average fuel burn down to 388ml/km, from 406ml/km in 2006.

All costs, including fuel, are down by 5 percent per available seat kilometre, he says. Much of this has been achieved by procedural changes to reduce controllable elements like off-block taxiing time and better use of flexible flight plans, he said. Minimising on-ground use of auxiliary power units was also given priority at Suvarnabhumi, which itself has energy saving design built in.

The carrier, which celebrated its 50th anniversary in May, has embarked on a plan for the next half-century, which it is calling its TG100 Strategy. The plan builds upon Thai’s heritage as an aviation pioneer in Asia to combat new threats – chiefly competition from low-cost carriers – and reduce its environmental impact.

Part of TG100 is the joint venture being formed with Singapore’s Tiger Airways to form Thai Tiger Airways, announced in August. This plan comes despite Thai already being a major shareholder in no frills airline Nok Air, which is based at Bangkok’s older Don Muang airport, Thai’s former base. In contrast to Boeing 737 operator Nok Air, Suvarnabhumi-based Thai Tiger will operate 14 Airbus A320 narrowbodies and is expected to commence services around March next year.

Thai Tiger will allow route expansion without overstretching the mainline carrier. Teerapol says that during the mid-2000s the airline got caught up in a race to announce new routes, in part to satisfy investors and the press.

“It’s not economical to have thin routes. Instead, we will solidify our existing routes, adding more frequencies,” he says. Services to Moscow’s Domodedovo airport will increase to a daily frequency, for example, as will flights to Madrid and Munich.

The slow, steady fleet expansion will go hand-in-hand with fleet renewal.

The carrier is momentarily stuck with its Airbus A340-500s, which are used for services to New York’s Newark Airport, where fellow Star Alliance carrier Continental Airlines has a hub. But under a government-backed four-year aircraft acquisition plan, Thai will retire its six ageing Boeing 747-400s, ten A300-600s, four Airbus A340-500s and three Boeing 737-400s.

To replace these, the airline will acquire seven A330-300s, eight 777-300ERs and a rumoured six A380-800s. A parallel aircraft-refurbishment program will see the entire fleet refitted over the coming five years.

Teerapol acknowledges that Thailand has been experiencing turbulent times. But he also knows that Bangkok remains one of Asia’s foremost cities with world-class onward air connections, allowing the Thai flag carrier to face the future with confident optimism.

Summit Report: The 54th Assembly of Presidents of the Association of Asia Pacific Airlines

The folloiwng article originally appeared in

AAPA Summit Report

Even as the Asia-Pacific is poised to be a driver in global aviation growth over the next 20 years, airlines in the region are suffering from regulations being imposed overseas, writes Justin Wastnage

Asian aviation is in the ascendancy, but it risks leaving its regulation to other parts of the world. This, in essence, was the message given to delegates at the 54th Assembly of Presidents of the Association of Asia Pacific Airlines (AAPA), held in Brunei in November.

Statistics from the International Air Transport Association (IATA) show that the Asia-Pacific region will overtake the world’s busiest air-traffic regions, North America and Europe, within 20 years. This year, passenger traffic in the Asia-Pacific region will grow by 15 percent and air cargo by some 30 percent, compared with more sluggish growth of 1-3 percent expected from the two mature markets.

The AAPA comprises some of the region’s biggest carriers: All Nippon Airways, Asiana Airlines, Cathay Pacific Airways, China Airlines, Dragonair, EVA Airways, Garuda Indonesia, Japan Airlines, Korean Air, Malaysia Airlines, Philippine Airlines, Royal Brunei Airlines, Singapore Airlines, Thai Airways International and Vietnam Airlines.

These carriers will see growth accelerate over the coming decades, said Chris Buckley, Airbus executive vice-president for Europe, Asia and the Pacific. “North America is actually saturated, and thus almost no growth will happen over the next two decades and most aircraft sales will be for replacement. Europe still has room to grow, but our focus is now on Asia,” he said.

New-aircraft demand

Over a third of the world’s requirement for 16,977 single-aisle aircraft will come from the Asia-Pacific region, Airbus estimates, and almost half of all demand for A380 or Boeing 747-class very-large airliners.
US airframer Boeing agreed, with Dr Fariba Aladari, Asian vice-president for the Chicago-based manufacturer describing the airlines of this region as “standout” in terms of traffic growth. “The airline industry made US$9 billion globally last year, of which US$5 billion was from Asia Pacific,” she said.

AAPA membership encompasses 60 percent of the Asia-Pacific region’s capacity, similar to its counterparts the US Air Transport Association (ATA) and the Association of European Airlines (AEA).

Yet unlike those groups, the AAPA has no single government to lobby for regulatory change. Most new aviation rulemaking comes either from Washington DC or Brussels, where the association now focuses most of its efforts. This leaves AAPA carriers at a disadvantage, notably since much of the regulation passed by the US Department of Transportation and the European authorities become global standards, said the association’s Director General Andrew Herdman.

There are several lead aviation safety regulators in the region, notably those from Australia, Hong Kong and Singapore, but little common lobbying against the raft of what Herdman views as "well-intentioned", but "ill-conceived and counterproductive" aviation legislation emanating from the old world.

“Aviation is a heavily regulated industry and this regulation is dominated by the US and European Union, because together they represent 60 percent of the industry. But as the emergence of the G20 [group of twenty finance ministers from major economies] as the world’s primary economic forum rather than the G8 [group of eight leading industrialised nations] shows, there’s a new world economic order. Asia has shown it can lead commercially, but it needs to take a larger role in shaping regulation,” he said.
The AAPA passed five resolutions at the assembly, all aimed at fighting a more concerted campaign in the face of this mounting legislative pressure. “Governments need to rethink unwarranted and ineffective policies on the environment, taxation and passenger services,” Herdman said in the assembly communiqué.

Passenger rights

The association’s chief fear is the spread of mandatory passenger protection rules. The European Union was the first to guarantee minimum customer service and compensation guarantees in the event of flight delays and cancellations.
The EU Regulation 261 on air-passenger rights has drawn criticism not only from low-cost carriers (Ryanair is locked in a court battle over its refusal to compensate for delayed flights) but also from Asian carriers. This irritation turned to anger during the volcanic-ash related European airspace shut-down earlier this year.

Tony Tyler, chief executive officer of Cathay Pacific pointed to the "absurdity" of his Hong Kong-based carrier having to pay for two weeks’ hotel accommodation in London for stranded passengers.

Brian Johnson, the European Parliament's transport-committee chairman, defended the regulation, which guarantees stranded passengers between 125 euros and 600 euros compensation, depending on flight distance and the delays incurred when rerouted.
“It’s like drunk-driving laws. I would never drink and drive, but laws let people know it’s wrong. So airlines now know it’s wrong to overbook and then bump passengers off,” he said.

However, he also admitted that the rules as they stand were not designed for such extended periods of disruption as the ash cloud and said that “his bet” was that 261 would now be altered to limit the duration of any payments as well as being extended to other forms of transport, levelling the playing field.

Nonetheless, Herdman points out that in the US there is a notice of proposed rulemaking passing through Congress on similar broad passenger-protection regulations for US airlines. The rulemaking on enhancing airline-passenger protection proposes a minimum of US$650 compensation for overbooked flights and similar penalties for severe delays and lost bags.

Within the AAPA’s own region, China, the Philippines and Thailand are all, for example, tentatively considering passenger-protection rules.

Herdman said these minimum levels of compensation amount to a "compulsory insurance" that would raise air fares and effectively take choice away from consumers. Asian airlines are known for better service than US and European carriers, but these rules could make them lose that competitive advantage, he warned.

"Introducing overly prescriptive legislation to regulate customer care constrains the airlines' ability to innovate and use superior level as a point of difference," he said.

Urging restraint

“The AAPA calls on governments to refrain from introducing legislation that would act as a disincentive to compete freely on customer service standards, and also [to] ensure mandated regulations related to passenger processing and treatment are designed from the outset to be practical, cost-effective, efficient and sustainable,” the 17-member association agreed.

Many of the calls for passenger-protection regulations arise from the varying service standards allowed by airline deregulation.

“We used to have standardised baggage allowance rules but we were accused of collusion, so every airline went [its] own way and now we see passengers confused when they interline from one carrier to another and get fined when there are different allowances. So now the regulators say we should standardise our baggage allowances,” Herdman said.

He further argued that if any denied-boarding compensation standards or passenger-protection regulations are needed, the right forum for such discussions would be the International Civil Aviation Organization (ICAO), ensuring that globally harmonised rules can be formulated.

The AAPA’s preferred solution would be to push for better adoption of travel insurance that covers force majeure and other airline eventualities. “If you want to stop bad things happening, then you have to insure against it. In other areas of life people take chances, risking not insuring, so why not travel?” Herdman said.

Discriminatory taxes

The AAPA also railed against a series of new taxes being imposed, largely by European countries, many of which are distance-based, thus discriminating against Asian carriers flying into the Old Continent. Austria, Germany and the UK were singled out as worst offenders.

The taxes, often dressed up as security charges or departure fees, do not go to fund airport infrastructure or even rival transportation like fast trains, instead ending up in general consolidated government revenue, Herdman said.

“These taxes are paid by the passenger and collected by the airline on their behalf. They come under a number of different labels and are contained within the ticket price, so whether it’s an arrival fee, a departure fee, security surcharge, airport passenger duty, visa processing fee or whatever, these all appear to the passenger as being part of the ticket. Around 15 percent of most tickets are taxes of some kind,” he added.

The AAPA is “very concerned about the proliferation of new taxes,” he continued. Such government charges are counterproductive and could lead to fewer new routes as the cost of flying rises. It is now cheaper, for example, for passengers travelling to London from much of the Asia-Pacific to fly into Brussels and take the Eurostar high-speed train.

The Netherlands is alone among European nations to realise the negative impact of high airport taxes. The country was praised at the Brunei meeting for having scrapped its passenger-movement charge after a study showed its negative effect on business traffic.
"Unjustified taxes do untold damage to the economy of the state imposing [them]," Herdman said. “Fortunately economies in this part of the world know the value of tourism and aviation to their economies.”

Environmental rules

Another example of European legislation that has generated much industry opposition is the emissions trading scheme, which will apply to airlines for the first time from 2012.

All airlines must buy carbon credits for the entire duration of any flight entering the EU, not just that part flown over European airspace. Asian airlines object to the plan, arguing that on a flight from Seoul to Paris, for example, the majority of the emissions would occur outside EU airspace.

Singapore Airlines' outgoing Chief Executive Chew Choon Seng, said the scheme discriminated against Asian carriers whose journey into Europe was far longer than those of their Middle-Eastern rivals. "We are halfway around the world. Why not pay at point of entry [into the EU]?" he asked European parliamentarian Johnson.

Johnson replied that the emissions trading scheme was the responsibility of the parliament’s environmental committee, not his own transport committee. The environmental committee comprises ecological fundamentalists, he said.
His is the voice of reason within the European Parliament, watering down the initial proposals for a 100% charge for aviation, he claimed. "You want to see what the Taliban – I mean the environmental committee – first proposed and believe me, this is a whole lot better," he said.

No matter. The AAPA wants a global approach for the global industry. ICAO should be the forum where a new global standard should be decided, Herdman said.

Rather than shy away from the need to control emissions, Asian carriers have more incentive to work towards greener fuel initiatives, since they fly longer stage lengths than European and North American counterparts, he said. Just as with passenger-rights legislation, the AAPA fears emissions trading schemes in Australia and California may seek to include aviation and could be followed by a series of other such schemes.

“Even though governments reached a consensus at the ICAO 37th Assembly last month, this may not prevent the introduction of a patchwork of nationally- or regionally-imposed, market-based measures,” Herdman said.

Aviation safety

The final two resolutions passed by AAPA covered safety and security. On safety, too, European and US legislation putting pressure on Asian carriers. But unlike the costly consumer-protection or emissions-trading legislation, the AAPA is broadly supportive of the US Federal Aviation Administration’s (FAA’s) Category 2 watch-list of airlines and even the blacklist of carriers banned from European airspace due to fears over their safety records.

But safety problems often originate not with airlines themselves, but with national aviation safety agencies and their relative lack of oversight, Herdman argued. “You’re only as good as your regulator,” he said.

Johnson, who personally signs off the blacklist after consultation with the European Aviation Safety Agency (EASA), pointed to the case of Garuda Indonesia, which undertook the International Air Transport Association’s Operational Safety Audit (IOSA) and was able to demonstrate acceptable standards using its own procedures-led safety standards, despite the country’s overall record being poor.

As a result, Garuda became the first Indonesian carrier to resume flying to Europe after the country’s airlines received a blanket ban from the EU in 2007, due to concerns over the safety culture within Indonesia’s National Transportation Safety Committee.
Johnson said the EU’s latest area of concern is the Philippines, where the national carrier Philippine Airlines (PAL) has been subject to Category 2 status since 2008, despite completing its own IOSA. PAL’s tentative plans to return to Europe with the restoration of it services to Zurich and Paris was dealt a blow in September when all Philippines-based airlines were prohibited from operating within the EU. Similar concerns exist for a number of other, smaller Asian nations, Johnson said.

Herdman said the Asia-Pacific region needs properly resourced safety regulators. “All our member countries are signatories of ICAO, but the track record in implementing its aviation safety regulations has been imperfect and some need help to pull up,” he said. A pooling of oversight capabilities across the region, similar to what has happened in Europe and is now taking place in the South Pacific would be one potential solution, albeit politically unlikely.

Staff secondment from the region’s leading oversight bodies was another short-term option, he proposed. However, since much of the role of the aviation authorities is to ensure international treaty obligations are met and that the intricate texts of annexes are made into national law, Herdman said the issue remains largely about recruiting and retaining good government employees.

“[In the] long term, the pay scales need to be high enough to retain staff and take away the temptation for corruption,” he said.

Airline security

Similarly, Asia must work with Europe and the US on the issue of security, Herdman said.

The presidents’ assembly came just days after the attempt to ship liquid explosives hidden inside printers from Yemen to two Chicago synagogues using airline belly freight and the association was anxious that governments should not leap to rash decisions. Martin Eran-Tasker, the AAPA’s technical director, said airlines should be grateful that key lawmakers including the US secretary of homeland security Janet Napolitano, were attending the IATA aviation security conference AvSec World in Frankfurt when the attempt took place, allowing experts to counsel them immediately.

The fear of knee-jerk reactions to the latest attempted act of terrorism is greatest for Asian carriers, who together carry some 40 percent of all air cargo. Eran-Tasker said the most extreme counter-terrorism idea being considered in some world capitals is to ban all unaccompanied cargo from passenger aircraft.

In the US, where there are dedicated freighters and a vast segregated air-cargo infrastructure, this would be a terrible idea, he said, but in Asia it would be catastrophic. Only half of all air cargo is carried by freighters, he said.
Luckily, Herdman said, reaction to the latest incident appears calmer than in the past.

“We long ago learned that it is human nature that each new security incident prompts a desire to introduce yet more security measures, but it takes a certain political maturity to remain calm and not fall into the trap of knee-jerk reactions by the imposition of new security measures of unproven effectiveness,” he said.

Need for co-operation

The AAPA has consistently emphasised the need for government agencies and the aviation industry to work together to ensure a secure supply chain.

“This plot was foiled after Saudi Arabia tipped off British authorities. The lesson from this incident is that the biggest pay-offs come from intelligence gathering and sharing,” Herdman said.

The US is now calling for 100 percent cargo screening, which would also place Asia at a disadvantage, since few airport terminals have the equipment to process LD3 containers. Similarly, much freight starts off in remote locations, consolidated only at major hubs. Total freight screening would further complicate and delay procedures, Herdman said.

Much of the Asia-Pacific region’s exports are fresh produce or perishable goods, which would spoil if left in containers awaiting scanning, he said.

“The Americans are great believers in technological solutions, not procedural. But a technology that works in the US might not work in Fiji and might not be affordable across our region,” he said.

The fear of unfeasible security regulations being imposed from afar symbolises the AAPA’s wider struggle to be heard. There is no central regulator in Asia, although those in Hong Kong and Singapore act as leading regulators for the region and are “more engaged in the international debate,” Herdman said.

One potential heavyweight national regulator is the Civil Aviation Administration of China (CAAC). However, the problem for the AAPA is that it has no mainland Chinese member airlines. On this, Herdman is pragmatic: the association was set up for international airlines, and the Chinese market, while representing some 7 percent of global passenger traffic in revenue passenger kilometres (RPK) and 2 percent of cargo traffic in freight tonne kilometres (FTK), is still largely domestic in focus.

Herdman said that while “obviously” he would like a Chinese carrier “or two” to join the AAPA, he is prepared to wait for them to see the value the association brings.

Open to LCCs

The same view holds for the lack of low-cost carriers in the association. The AAPA was established as a flag-carriers’ club 54 years ago and today its members still reflect the old world order of full-service, scheduled international airlines.

Herdman said he would like to see Asia’s new long-haul low-cost carriers join, just as hybrid airlines have joined the EAA. However, rather than recruit new members, his focus this year has been to prevent existing members from leaving. Australia’s national carrier Qantas Airways let its membership lapse earlier this year, citing lack of value for money. Herdman said the door is still open to Qantas to cooperate in any AAPA meetings.

With no regional regulator to lobby, the association needs to try and influence each national regulator to move in the same direction.

“We are not naive enough to think that the world will change as a result of our resolutions. We’re part of a debate and we try to engage in dialogue and at a time when most regulation in our region is still domestic, we would like to help shape sensible policy in the region,” Herdman said.

The AAPA is certain about one thing: next year, fares will rise across the region. After a year of super-low fares, the association expects to see ticket prices rise as demand for air travel outstrips supply next year.

Still, many other external factors, in the form of taxes and charges, still lie beyond the control of an Asia-Pacific association, leaving the AAPA still beating a path to Brussels and Washington.

JAL’s Onishi targets turnaround

Japan’s most recognisable recent Prime Minister, Junichiro Koizumi, succeeded in large part because he was a pragmatist. By confronting several of Japan’s structural problems, he won a landslide election for his Liberal Democratic Party.

This article orignally appeared in Asian Aviation magazine in December 2010

Masaru Onishi, president of Japan Airlines (JAL), has a similar task ahead of him: facing up to the structural issues that saw the former national carrier of Japan file for bankruptcy protection in January, after losses of nearly 100 billion yen (US$1.2 billion) in a single quarter. His main priority is to change the mindset of JAL employees from that of quasi-governmental salarymen to employees of a competitive, efficient airline.

Onishi avoids comparisons with US Chapter 11 bankruptcy-protection laws that have been criticised for unfairly sheltering failed carriers from outside competition.

“I don’t know Chapter 11 rules well enough. I know our own corporate rehabilitation law better,” he says. These conditions include a pledge to repay the 300 billion yen cash injection the company has received within seven years and slash its workforce by a third.
JAL’s 730 billion yen debts were also wiped out as part of the deal with the government-backed stimulus fund, the Enterprise Turnaround Initiative Corporation of Japan, thus reducing working capital to zero.
Onishi has experience in working with cash-strapped entities, having come in to the presidency from running JAL’s regional airline subsidiary Japan Air Commuter. He is joined at the helm of JAL by new Chief Executive Kazuo Inamori, founder of both ceramics giant Kyocera and telecommunications supplier KDDI.

While Inamori has an outsider’s view of the restructuring, Onishi has the aviation experience to ensure the carrier does lose more market share to All Nippon Airways (ANA), which already leads domestically. Onishi and his board are waiting for the Japanese courts to authorise JAL going into administration, although work has started already to transform the company.

Onishi is bullish. “We will try to repay the loan quicker than the seven years,” he says. He adds he is confident that other developments in Japan’s aviation sector, such as the opening up of Tokyo’s Haneda airport to international routes, will help in reviving the carrier’s fortunes.

The airport’s new international terminal opened in October and airlines were queuing up to get their services into the airport, which is just 14km away from central Tokyo, compared with 58km for Narita International Airport. Around 100 new services to points in Europe, North America and Asia are scheduled to start before mid-2011.

JAL is in the best position to capitalise on the airport’s development, Onishi says. “We have the biggest domestic network and our hub is Haneda,” he points out.

Still, Onishi’s top priority is to change the mindset of the workforce, which will be a challenge given JAL’s history as a government-owned carrier. “The mentality was not only to pursue profit but only to be cautious. We have to realise that we’re a commercial business and this needs to be the priority for all staff,” Onishi says.

There will be casualties, with the workforce set to be reduced by 15,700 employees. Onishi and Inamori must then try to expand the business without replacing these staff members. The airline chief’s second priority is to keep the business as small as possible, running on minimal costs.

“We need to be a very lean company; at a business unit level and at an individual level as well as an enterprise,” he says.

The third priority on Onishi’s list is to establish a system of communicating feedback throughout the company, so that every employee knows the current standing of their business unit, their department and the entire company. “Everyone needs to know the results to be involved,” he says.

Such thinking would be typical of a US firm, but is still radical in a Japanese business, especially one that started out as a government-owned enterprise. Onishi’s plan is to reset the priorities of workers more familiar with bureaucratic procedures than chasing business opportunities.

Onishi would clearly like to go further than the airline’s rather conservative restructuring programme sets out. He talks of setting up California-style thinking cells within business units to drive new projects, and the ruthless pursuit of cost savings. Yet he says no other airline in the world offers an adequate business model to follow.

“Our management studied lots of models but did not find one to base ourselves on,” he says.

The new board of JAL is promoting a “bottom-up” flow of ideas, attempting to shape an agile, lean company that takes good ideas from workers on the ground. Such practices work at egalitarian outfits like Ireland’s Ryanair, but in a hierarchical structure such as JAL’s this may be tougher to put into practice.

Yet Koizumi proved that the Japanese can accept change – once convinced, coerced or charmed into doing so. The former prime minister was capable of all three approaches. At JAL, Onishi will have to emulate Koizumi’s skills if he is to turn the business around.

Hawaiian Airlines eyes Asian expansion

Over a million Japanese visit Hawaii every year, drawn by the tropical beaches, the US culture and relative proximity.

This article appeared in July 2010's Asian Aviation

There is one particular quirk of Japan’s love affair with Hawaii that visitors never forget: Hawaii’s favourite snack is the ‘Spam musubi’ – a Japanese-style ‘onigiri’ roll of rice and seaweed, but with pink processed meat replacing the traditional raw fish.

Over a million Japanese visit Hawaii every year, drawn by the tropical beaches, the US culture and relative proximity. There are about a dozen daily flights between the US island chain and Japan, divided among two US carriers – United Airlines and Delta Air Lines – and two Japanese – Japan Airlines (JAL) and All Nippon Airways (ANA).

Despite being based in Hawaii’s capital Honolulu, Hawaiian Airlines has never had rights to serve the route under the existing bilateral air services agreement. This is about to change, as Hawaiian, along with American and Delta, is now set to begin operations to Tokyo’s downtown airport Haneda in October once the airport’s fourth runway is completed. The US Department of Transport has now granted Hawaiian access to the market in order to stimulate competition.
Hawaiian has been growing in competitive strength over the past five years, expanding to become the tenth-biggest US airline. In the mid-2000s the carrier expanded its services to the mainland USA, building up a network of ten destinations on the US West Coast connecting to Hawaii’s three main islands.

Westward Ho

But for Hawaiian Airlines Chief Executive Officer Mark Dunkerley the future is west. Westward from Hawaii lies Asia, offering potentially fatter yields than the carrier could gain by chasing its US rivals for a larger slice of the leisure traffic to the archipelago.

“Asia is a growth-region economically and with that will come a desire to travel among the middle class,” Dunkerley says. He points to Australia, a country that has successfully lured Asian tourists, with massive inflows not only of Japanese, but also Chinese, Korean and Thai visitors.

The expansion plans are underlined by the aircraft orders Hawaiian has placed. The carrier ordered six Airbus A330-200s in November 2007, as part of a Memorandum of Understanding with the European manufacturer covering 24 long-range jetliners in a US$4.4 billion deal.

In addition to the six A330s, the airline also took purchase rights on a further six, the first of which it exercised in March for a 2011 delivery. The deal was completed with six firm orders and six options for Airbus’s planned long-range A350-800, which Hawaiian hopes to fly non-stop to US east coast cities after it enters operational service in 2013.

Deliveries of the A330s have already started. Two will be in service this year, with the remainder joining the fleet over the next two years. But Asia’s potential is such that Dunkerley cannot wait that long. Hawaiian has now agreed to lease two additional A330-200 aircraft from Ansett Worldwide Aviation Services (AWAS), beginning in 2011, and one from CIT Aerospace, which arrived in April.

Hawaiian Airlines officially welcomed the first of the widebody twinjets into its fleet on 1 June, saying that the aircraft heralds “a new era” in the company’s history. The 294-seat aircraft completed its first commercial service from Honolulu to Los Angeles on 4 June.

Long-range capability

The new aircraft has been named ‘Makali’i’, the local term for the constellation of the Pleiades, or Seven Sisters, which guided ancient Polynesian voyagers across the Pacific and was seen high in the sky when Inter-Island Airways (renamed Hawaiian Airlines in 1941), launched its first scheduled flight on 11 November, 1929. Each of the new aircraft will be named after a constellation used for astral navigation by Polynesian voyagers.

The aircraft first arrived in Honolulu on 3 May and had been undergoing final preparations for service since then. Hawaiian’s second A330, named ‘Hokule’a’ (‘Star of Gladness’), arrived from the manufacturer’s Toulouse plant on 29 May.

“The A330 provides Hawaiian with an increased operating range of 6,050 nautical miles and the capability to expand its service area on both sides of the Pacific by offering non-stop flights between Hawaii and points in eastern Asia and all of North America,” the airline says.

The only long-haul routes Hawaiian currently flies, other than to the mainland US and Samoa, are to Manila in the Philippines, Papeete in French Polynesia and Sydney, Australia. However, the new A330s open up new choices.

For the moment, the airline has made an economic decision not to fly to the US East Coast with the A330s, due to operational restrictions, Dunkerley says. “We review the economics all the time,” the airline chief says.

The US has bilateral Open-Skies agreements with South Korea, Malaysia, Singapore and Thailand, which are all markets ripe with further tourism potential, Dunkerley says. Still, some markets will have to wait until delivery of the A350s in 2017.

“The A350-800s have a range of 8,000 nautical miles [15,000km] so we could even go direct to Europe, but we will certainly go deeper into Asia,” he says.

China hurdles

China, however, is a less likely prospect, having a “less progressive” air services regime that favours the larger US carriers, Dunkerley says. Also, the USA is not on the Chinese government’s list of approved destinations, making visas for travel to Hawaii hard to obtain for the ordinary tourists the island chain wants to attract.

Hong Kong, on the other hand, with its special autonomous region status, might be a suitable target market, Dunkerley says. Similarly, Taiwan has much of the same economic and cultural potential of South Korea and of Japan some 20 years ago. The carrier will weight up the merits and may launch services later this year, he says.

Hawaiian is also betting on the strength of the Virgin name to aid it in the wider Asia-Pacific region. It has signed a code-share agreement with Virgin Blue, Virgin America and V Australia that extends to frequent flyer reciprocity. The move will see Hawaiian codes placed on connecting flights to Adelaide, Brisbane and Melbourne from its daily Sydney service and Virgin Blue codes on Hawaiian’s inter-island routes.

Dunkerley says the deal will have “enormous impact” since the Virgin Blue brand is one of the best-known leisure brands in Australia, one of Hawaiian’s biggest source markets.

Australian passengers are also being targeted with stopover services to Las Vegas, Seattle or the eight other US West Coast ports served by Hawaiian. These destinations will also be promoted to the Tokyo market when it opens, with Honolulu a hassle-free alternative to Los Angeles.

The airport had better start stocking up on Spam musubi.

A fare sign of the times

Source: Travel Weekly
Australian cities saw the sharpest decline in average fares in the beginning of this year against other destinations, driven by strong low cost carriers, as Justin Wastnage writes

Viewers of Air Ways, the fly-on-the-wall documentary following the often-beleaguered passengers of Tiger Airways, must be forgiven for thinking
why the airline ever agreed to the project. Frazzled travellers scream abuse at its check-in staff, flight delays are dwelled upon and frayed tempers
are highlighted.
Yet Tiger, the Australian offshoot of Singapore’s largest low-cost carrier, know that the shots of its distinctly no-frills Melbourne barn-cum-terminal
reinforce the view in people’s minds that its fares are the cheapest. The show also reinforces the fact that you have to check in 40 minutes before the flight,
as Tiger saves on personnel by re using check-in clerks as gate staff.
The Tiger effect is marked when you look at average ticket prices last year in Sydney and Melbourne compared with other cities around the world. A
global study of over 400 travel management companies (TMCs) completed by Expedia’s corporate travel sister site Egencia, found a 27% drop in average ticket prices last year for tickets to Sydney and a 25% drop among those to the Victorian capital. The company’s
2010 Corporate Travel Global Benchmarking Study found airfares in other major cities around the world rose slightly towards the end of last year. Fares
between most North American cities were up by around 10% to 15%, while those between European cities were around 7% more expensive than the year
before.
Even looking wider in the region to other popular business destinations for Australians, many Asia-Pacific carriers have maintained or increased
capacity in contrast to their European and North American counterparts, resulting in downward pressure on prices. Thus other major Asia-Pacific
destinations showed a slight decrease in prices such as Shanghai (down 8%), Singapore (down 8%) and Tokyo (down 7%).
Egencia said the main driver for lower Australian fares was the
competition for domestic routes that heated up between Jetstar and Virgin Blue, as well as Tiger. There are currency fluctuations too, in that the global
report is collated in US dollars and the Aussie dollar’s strong performance has made domestic airfares appear cheaper than they really are to a foreign
audience.
Nonetheless, Ken Pfaffmann, country director for Egencia Australia said that June 2010 had a “different pricing picture” compared to the same time last
year. “Corporate travellers are returning to the air and road, but companies are still seeking to control spend. Given increased airline competition around
price in Australia, we believe continued focus on air policy compliance is the biggest cost savings opportunity for corporations versus 2009,” he said.
More specifically, some 54% of the travel buyers surveyed still saw cost control and reducing expenses as a top priority, compared with only 17% who
saw traveller satisfaction as paramount.
But there is definitely good news on the horizon, Pfaffman said. Firstly, there is proof of an upswing in another metric: average hotel room rates in
Sydney, which crept up 2% in the first half of this year for the first time in two years, according to the report.
But the detail of Egencia’s survey of more than 400 travel buyers points to better news. Over half expect their travel volumes to increase during the
remainder of 2010, with 17% planning to change their travel policies during the year. Additionally, 45% of travel buyers said they will negotiate more this
year than they did in 2009, he said.
It was changes in these policies that pushed many corporate travellers into the arms of the low-cost carriers such as Tiger last year. Many will have
found that, for the sake of a few frills, travelling cattle class can save a few shekels. Whether the trend will last is anyone’s guess.

Fare go: long-haul costs rise

Justin Wastnage quoted in article by Jessica Mahar published in The Sydney Morning Herald and The Age on January 22, 2010

TRAVELLERS flying home to Australia from Britain in economy class have to pay air passenger duty of £55 ($98), and it will rise to £85 from November. For those in premium economy, business or first class the duty will be doubled.

The British Government raised the charges in November, the rate depending on the distance travelled. Australia is in the ''more than 6000 miles'' bracket and is charged at the highest rate.

Airlines and tourism industry representatives protested about the increased duties, and the president of Virgin Atlantic Airlines, Richard Branson, condemned them as ''unjust taxes''.

The duties were designed as a tax to account for the impact aviation has on the environment, which increases as people travel further. Virgin Atlantic encourages all its passengers to protest against the tax.

Nick Larkworthy of Virgin Atlantic said: ''A further increase in air passenger duty by the UK Government under the guise of an 'environmental' tax will adversely affect Australians travelling to the UK and vice versa.''

The news editor at Travel Weekly, Justin Wastnage, said the tax might appease people's guilt at travelling longer distances.

People might take flights from Britain to the Continent, and fly home from other cities on the Continent, he said. ''There will be dodges and weaves around it.''

A spokesman for Flight Centre, Haydn Long, said that while fares to Britain were cheap people were less likely to care about the taxes.

Read the article in its original form by clicking here.

Court in the act

This article originally appeared in TravelWeekly Ausralia

Judges hearing the travel agents' appeal of the fuel surcharge case have taken a more critical look at overrides and the travel trade in general, as Justin Wastnage writes

The trouble with dismantling something is that it is often impossible to get all the parts back together again. The baffling and complex jigsaw of master contracts, agency sales agreements, rule books, and guidelines make the Australian travel distribution system appear particularly tempting to pull apart.
This month a panel of appeal court judges in Sydney's Federal Court attempted to do just that. The system of overrides was examined in some detail.
The appeal brought by a thousand-odd independent travel agents is the last ditch bid to claw back unpaid commission on fuel surcharges. The original June judgment found that Qantas had misled the public in describing part of its overheads as a tax or charge, since the public would assume this went to a third party or government. However, the trial judge, Justice Michael Moore said that Qantas was within its contractual rights to withhold commissions on this surcharge.
Although far from the testosterone-fuelled verbal stoushes of Hollywood trials, the appeal was a lively affair. The panel of three judges took Qantas to task over its interpretation that fuel was somehow a divisible part of providing air transportation.
Many Australian agencies use the International Air Transport Association's (IATA) billing and settlement plan (BSP) to receive commission from the airlines on sales. But carriers offer extra remuneration through an override, paid either to the head office or franchisee. This quirk is contained in a seemingly innocuous clause in the agency sales agreement.
Qantas barrister James Lockhart SC argued in court that this clause gave airlines carte blanche to pay agents whatever they liked however and whenever they liked, so long as they communicated the changes. But one judge in particular, Justice Steven Rares, took exception to this argument, calling it "commercially not sensible". Justice Rares said the clause was redundant, as the "carefully constructed global" BSP rules already set out how commission was paid. The only reason to add an extra clause, Justice Rares suggested, was "to do something outside the ordinary". Or something dodgy, some would say.
By using the clause and defining part of its fuel costs as a surcharge, Qantas was able to withhold as much as one-third of the commission due to agents, claimed Justin Gleeson SC, who represented the agents.
Qantas denies pulling the wool over agents' eyes, Lockhart saying there were "many other ways" the airline could reduce its payments to agents. Qantas argued that fares and ticketing is a complex affair and it relies on agents to explain the various rules and tariffs to the public. In return, agents were rewarded either in commission or in bonus payments. "It would make no commercial sense to alienate agents," Lockhart said.
But, at times rattled, Lockhart was unconvincing when trying to defend the fuel surcharge. Justice Rares probed Lockhart several times on how Qantas could justify splitting out such an essential part of flying a plane as fuel, while a second judge, Justice Bruce Lander, posed the hypothetical situation where Qantas could call its entire cost of operation a "surcharge" and thus avoid paying commission altogether. Lockhart sheepishly admitted it could.
The Qantas defence rests on the fact that agents know the published fare in the global distribution systems is not the same as the total cost the passenger pays.
In the legal world two wrongs do sometimes mean a right. Airlines around the world all thought they could get away with the same trick. In total some 350 airlines have charged either fuel surcharges or insurance levies since the early 2000s, under the anonymous codes YQ or YR. IATA itself is divided over whether airlines have the right to use this to re-coup operating costs, with Michael Feldman IATA's former global director of passenger services reminding airlines in a memo tendered in court that "those codes should be reserved for charges that go wholly to third parties". Yet the IATA Australian regional manager Jeff Murdoch advised he had "no problem with Qantas using YQ for fuel surcharge," Lockhart said.
The agents' legal team appears to have convinced at least one appeal court judge of its arguments, but the devil is often in the arcane detail of contracts. Although the case has rumbled on since 2007, the final decision is not expected until February or March. But if the appeal court judges question the very validity of overrides, the ramifications could be felt for years to come. The carefully dismantled agency sales agreement may never be put back together again in quite the same way.

The world in 2029

The following article originally appeared in TravelWeekly Australia

If you want to know where demand for travel is going over the next two decades, ask Airbus and Boeing. Both manufacturers' forecasts place Australia in a fast growing part of the world, as Justin Wastnage found out recently

In tough times, you like to be able to see a way out. There is now a wealth of economic data showing that Australia has dodged the global slump bullet, but a little less data when it comes specifically to travel. But Airbus and Boeing, manufacturers of the bulk of the world's aircraft, have teams of econometrics experts crunching the numbers on air transport trends. And because planes fly for at least 20 years, their forecasts are pretty far reaching.
They are also remarkably reliable. Boeing has been surveying since 1961 and Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes says the almost 50 years of data provide some very clear examples of how air travel always digs itself out of recession. The charts also provide some long-term growth trends that are hard to mistake. His Airbus counterpart, John Leahy, the airframer's chief operating officer for customers, concurs, saying that growth in air transport always tracks growth in the real economy, but grows twice as quickly. Average growth in air travel has been 5.2% per year in the past 30 years, despite the economy growing by only 3% on average over the same period. Passenger ticket sales have doubled every 15 years, Airbus data shows, says Leahy.
When the economy will pick up is the big question on everyone's lips. Leahy neatly sums up the analysis by saying that while "history never repeats itself, history does tend to rhyme." Airbus sees a recovery in air transport by the middle of next year, with 6% to 10% growth again by 2011. Boeing, meanwhile says that next year will see a global economic recovery, but that it will take another year for airlines to become profitable and thus start buying aircraft again.
This augers well for anyone who sells travel for the next 20 years, both manufacturers agree. Boeing suggests demand for airline tickets will increase by 4.1% every year until 2029. However, both forecasts show flights to and from Australia growing at a much quicker rate than other parts of the world. Tinseth points to figures showing that only New Zealanders, Singaporeans and Hong Kongers take more airline trips than Aussies every year.
Currently around a third of the aircraft sold in the world (and thus airline tickets) are from the US or Canada. Europe has a quarter of the world's air traffic, while Asia provides another quarter. This ratio will be flipped on its head over the next 20 years, says Leahy. Asia will be the big growth area, with China and India <[stk -1]>unsurprisingly supplying the most growth. This will be good for Australia, he says, because we enjoy cultural links with both countries. India has Commonwealth links and enjoys beating us at cricket, while China sends so many students here, that word has gotten back about what a great place Australia is, he reckons.
The flights they arrive on will have seats heading in the opposite direction; pushing total capacity out of Australia up, adds Laurent Rouard, Airbus senior vice president for market and product strategy.
Regarding the doubling of flights, Boeing pointed to the US since Delta Air Lines and V Australia started competing on the Los Angeles route as proof of the wisdom of its earlier forecasts. Looking forward, Rouard suggests the Middle East will be the single largest growth area over the next decade, since the location is perfect for efficient hubbing, a prediction borne out by carriers such as Qatar Airways starting services in December. The number of seats available to the Gulf region will grow 8.2% on average each year. Other growth areas agents should expect in the next 10 years are Latin America, set to grow 7%, China 7% and Africa 5.9% (see graphic, right).
<[stk -1]>But while they agree on the general figures, Airbus and Boeing differ when it comes to where they see this growth occurring. Airbus points to the growth of "megacities" as proof of the need for more of its double-decker A380 superjumbos. Leahy says that today 92% of all traffic originates or ends in one of 37 cities (of which Sydney is the sole Australian representative). Los Angeles, London, Paris, Frankfurt, Tokyo and Beijing are all members of this club, membership of which is defined by having 10,000 passengers or more departing daily. In twenty years 82 cities will fall into this camp, so thinking anything but a super large aircraft is going to be used is "absurd" as Leahy puts it. "Our competitor seems to think people will be flying in lots of little aircraft, but look at environmental concerns, look at congested airports and look at the sheer logistics of moving so many people," he says. Airbus predicts 1300 passenger versions of the A380 or Boeing's new jumbojet, the 747-8 Intercontinental will be needed over the next 20 years, while Boeing thinks the figure will be closer to 600.
Boeing, meanwhile, is pinning its hopes on people wanting to avoid switching planes wherever they can. So Queenslanders will opt for more direct flights from Brisbane and Cairns than having to fly through Sydney as more services come online. Tinseth says that over the years growth in air travel has always led to more routes opening up, not fewer. "As people get fed up with airports, they will want to avoid hubs," he says. Boeing estimates that airlines will buy 6700 aircraft with between 200 and 400 seats over the next 20 years, while Airbus puts the figure at 4100. Significantly, Boeing has the 777 and the delayed 787 Dreamliner in this category.
Drill down to our region and the picture becomes more complex. For Boeing, Australia is the twelfth biggest market in the world. There are currently 400 aircraft based here, which will more than double to 850 by 2029, of which 670 will be new aircraft, Tinseth says. Boeing expects our gross domestic product to rise by 2.9% on average over the next 20 years, but airline traffic to rise by 5.1%. Of this, traffic to Asia will be the fastest growing destination.
Airbus only has a 26% share here, but Leahy says he was meeting Qantas chief executive Alan Joyce while in Sydney to exploit the national carrier's annoyance at 787 delays. But Airbus signed a new order for its smaller A320 aircraft with Air New Zealand this month, skewing its favouritism towards our Trans Tasman cousins. Together with New Zealand and the Pacific Islands Airbus estimates carriers in Australia will need a further 630 aircraft over the next 20 years. Passenger growth will average 5% over the period, higher than the global average of 4.7%, Leahy says. The region's fleet will more than double from 338 today to 698 by 2029, with 271 replacement aircraft and 360 additional aircraft coming in.
Significantly, Airbus sees a need for 60 very large aircraft such as the A380 or 747, against Boeing's prediction of just five. Rouard is adamant that Australia's proximity to so many of the emerging megacities will make anything less than this figure too small.
So while the big boys bicker about just how we will fly in years to come, at least their message is consistent: there will be richer pickings for many years to come.