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VH-FTS
10th Dec 2010, 23:32
Not quite sure why the previous thread was locked, but for the rumour network and following on from the AFAP job ad...

ATRs with Virgin branding but owned by a number of investors?

The Green Goblin
11th Dec 2010, 00:44
I heard Caravans with the hope of Jetstreams or a Bombardier fleet. They want to keep things small, and compete on service.

Good luck to them.

Horatio Leafblower
11th Dec 2010, 00:53
Jetstreams :ooh:

I would have thought the market for small-operators-trying-to-go-broke was pretty saturated already?

Sharp, Brindabella and Aeropelican have been around for many years, wouldn't they have identified these highly lucrative markets already? :confused:

...and I can't help but wonder if David Miller is involved...

MCKES
11th Dec 2010, 02:04
Haha this is great they should call it Mystery Air. First they were operating Saabs, then ATR's, then Caravans with the hope of Jstreams or Dash's in the future. No advertisement or public knowledge of the operation, and everyone seems to have a different idea of the operation. I hope that it does get off the ground, as it will give some guys an opportunity, but at the moment it seems a bit strange unless they aren't starting for a long time yet. :confused:

mustman
11th Dec 2010, 05:08
Sound like they have a lot more to organise before employing pilots

THE ORACLE
13th Dec 2010, 00:42
Qantaslink is the biggest regional is AUS with the newest and fastest planes and the deepest pockets. REX is only slightly smaller than Qlink with 50 Saabs and it has lower costs than any sizeable regional in AUS.

Both operators are highly profitable and they are constantly on the lookout for possible opportunities to deploy any excess capacity. Other smaller operators, including those operating Dash 8-100's, have very limited capacity to contest existing markets against Qlink and REX.

If there are 'real' opportunities in the market for mid to large size (34+ seats) regional RPT work, one or both of these operators will look at it!!

Both are at the 'top of the tree' in terms of 'boat driver' employment conditions and BOTH have lost large numbers of skilled pilots moving on to Jet operators. Any experienced pilots remaining in GA who don't get a gig with DJ, JQ, etc, and don't want to fly for the RFDS, would find more secure and better paid work with either of these operators than a new start-up

Qlink and REX control the majority of regional slots in SYD for the all important morning and evening daily business(men/women) 'peak' services, although there may be slot capacity in in other Capitals.

Establishing alternative business models, such as flying between secondary airports, would (and in the future perhaps will) require massive funding in order to withstand the inevitable losses necessary before travellers (particularly business) change their thinking. So this is not territory for a new startup to explore unless they want to turn a large fortune into a smaller one - before they withdraw!! REMEMBER - aeroplanes are tools for making money!!

Given these facts it is very difficult to see how a new entrant could fund any kind of serious business plan to contest money making 34+ seats turboprop markets.

Conspiracy theorists who think the AD might be a stalking horse for an existing jet operator to start 'boat' operations, think again. Qantas/Jeststar have Qlink and NJS to feed them and the 'other' Jet operator is scratching to make a respectable profit, with NO spare cash to successfully fund such a clandestine venture.

Anyway, the job advertisement is a very amateurish effort which seems to have been written by someone more hopeful than able.

The Oracle!

VH-FTS
13th Dec 2010, 02:41
But who is saying the 'other' jet operator is funding it all? If they were able to brand a particular turboprop, such as an ATR (which I believe is on their AOC), but have other people invest most of the cash then this removes significant risk for them.

Time will tell, but I believe my theory won't be as far fetched as some people think.

THE ORACLE
13th Dec 2010, 03:42
VH,

Pruners have lots of theories, so you certainly are entitled to yours. However, any investor or group of investors in a new regional airline would need to clearly see how, when, and where, their potential investment will yield a return in order to gauge the level of risk.

With the existing level of coverage provided in the eastern states by Qlink and REX the risk would be very high indeed. So the potential gains for these investors on their speculative investment would need to be correspondingly high. Unfortunately, airlines are and have always been, very poor risks because of their high setup costs and uncertain and changing market conditions.

Highly profitable existing airline operators don't just roll over when a competitor comes along, they fight for their 'turf' using all their resources, including price discounting, schedule frequency variation and service. So in the end the winner is always the operator with the deepest pockets and this is generally not a new competitor who is trying to both manage their start-up costs as well as get 'bums on seats'.

You mentioned the ATR, which at the moment is $16-18 Mill (USD) per copy for an ATR 42-500, with the new 600 series even more expensive. The ATR 42-500/600 has only slightly better performance than the Saab 340's operated by REX and much higher capital costs on lease or purchase. So that means REX Saab's could compete head on with the ATR and beat it on price and frequency all day every day.

Apart from the capital fixed costs there are other substantial setup costs, not to mention the hourly direct operating cost of the operation.

Governments in the states and or territories of the proposed operations need to issue route licences, which in NSW occurs on a 3 yearly cycle for existing licence holders. If the 'new' operator wants any of the existing licences they need to apply well in advance, immediately alerting the incumbents who will fight to retain profitable licences.

If your 'new' operator wants to operate to currently unserviced ports such as Cowra or Ivanhoe or Young, etc, they could apply for these licences, again telegraphing their intentions to the incumbents. However, these towns and others like them currently don't have RPT services because they are within reasonable country driving distances to larger centres that are serviced by Qlink and/or REX.

Earning enough profit from these smaller towns sufficient to justify the investment would be difficult indeed and the restrictions on 'slot' availability at Sydney may not enable the operator to offer a schedule that would be attractive for the all important business travellers.

As you said, time will tell.

The Oracle

startingout
13th Dec 2010, 04:09
No possibility to run RPT ops out of Bankstown instead of Sydney? If they can get a convair into there then most regional turbines under say 50 seats should be able to land there.

THE ORACLE
13th Dec 2010, 04:51
Startingout,

The problems with BK have nothing to do with the runway length and strength.

SACL would love the regionals to move to BK, however, the BK surrounding residents would oppose such a move with all their might on noise, safety and other environment grounds.

BK would require a substantial facilities upgrade and the airport owners would be reluctant to make any such investment for a speculative single new start-up operator due to the possibility of business failure.

Regional 'slots' are Government protected in SYD in order to ensure regional and rural passengers are not disadvantaged and the regionals have successfully seen off all challenges to their access on this basis.

Every regional flight carries passengers connecting with other domestic and international carriers. Without a costly super frequent and very high speed ground transport connection between BK and SY, to ensure seamless flight connections, BK is a 'dead duck'.

Of course a 'brave' operator could offer both intrastate and interstate connections from BK, but the operator would need the mix aircraft to provide such services and any such attempt would be fought commercially by all existing operators. Eventually some passengers would be re-educated but probably not before the airline ran out of funds.

The Oracle

Under Dog
13th Dec 2010, 05:50
The Oracle
I think your on the money,
There are plenty of smaller airlines in NSW VIC who would be investigating the lessor paying routes.ie Brindabella,Aeropelican,sharp (to name a few)etc.who already have infrastructure in place.

The Dog:ok:

Mr. Hat
13th Dec 2010, 07:06
ATRs with Virgin branding but owned by a number of investors?

Nah thats for when the Embraers go :}.

THE ORACLE
13th Dec 2010, 23:27
Hat,

DJ markets their Embraers to customers on a Jet schedule, which is a particularly important selling point on the long routes north of Brizzie through to Cairns where Qlink competes with the Q400.

When the 170's go, DJ will replace them wherever they can with 190 capacity in order to preserve the perceived 'Jet' appeal. This tactic will either work for them or eventually lose them even more money. Only time will tell.

Fixed costs for the ATR are not that much less than a 170, however, the ATR DOC's would be much less than the 170. So, where would the investors outside of DJ operate these aircraft for their business partner?

In NSW they could take over the Albury and Port Macquarie routes and be eaten alive by Qlink/REX and Qlink respectively as the 'Jet' speed appeal is now removed, and the competition comes down to ticket prices and frequency.

In Qld the ATR would not be an effective competitor against the Q400 on the long routes north of Brizzie due to the 60 to 100 KT speed advantage of the Q400.

Anyway, for the price of a single ATR, your 'investors' could buy 10 to 12 percent of REX shares on the market (trading this morning for around $1.14), force a seat on the REX Board and try to re-direct business activity in a way more favourable to their business partner!!

As REX is large, diversified and highly profitable, such a move would be seen as a much more sensible and secure way forward than speculating on the succcess or otherwise of start-up operations.

The Oracle

F111
14th Dec 2010, 00:29
Word from within DJ is if they outsource the proposed turboprops (they will be new aircraft) to replace the 170's the job will go to Alliance. The owners of REX are to hard to deal with and want everything their way.
If DJ goes down the turboprop route it will provide the schedules the regional ports want and will go head to head with QF.

THE ORACLE
14th Dec 2010, 01:43
F,

There is an old saying that there are no friends in business. Historically, DJ is reputed as being arrogant and also difficult to deal with, particularly under the previous MD. So, perhaps DJ may have met their match in any dealings they may, or may not have had with REX.

Contracting with a third party (you suggest Alliance), gives you just that, a contract, which can be broken and/or varied by either party in the future as needs may demand. Usually the party most desperate for the contract (Alliance?) gets the least favourable terms, particularly when it comes to price variations.

This model has been well tried in the U.S. and each time a supporting third party regional goes bankrupt due to the price paid per passenger being insufficient the major carrier simply re-contracts with another player, who re-paints their aircraft in the major's livery and the cycle re-commences.

Alliance, as the name suggests, undoubtedly would be very keen to diversify their business to serve DJ as NJS serves QF, but, have they got the $$$ to both guarantee the ATR leases AND lose lots of money in the fight for market share against Qlink with the Q400?

The capital cost of a new ATR isn't that much less than a Q400. So, if the fixed costs are similar the DOC's need to be much less in order to offer attractive ticket pricing, but, even Alliance pilots won't work for nothing, so the ATR DOC's won't be much less than Q400 costs AND the Q400 will be a lot faster on sectors over 200 NM's, guaranteeing greater productivity than the ATR. Which means the ATR schedule won't be competitive with the Q400!!

REX get around this problem by having cheaper aircraft, which lets them offer greater schedule frequency than their competitors. If, however, Alliance/DJ's 'new' aircraft costs nearly as much as the competitor's to own and operate, schedule frequency increases (ala REX), adds signficantly to costs and consumes the additional revenue. Economists call this - the law of diminishing returns!

DJ's flat share price will guarantee their having no interest in sharing losses with their contractor in a turboprop 'turf war'. Price and service wars are all about attrition and they continually bleed competitors until one withdraws on the basis of unsustainable losses. No prizes for guessing who will the the last kangaroo standing!

I metioned NJS earlier. Part of the reason why NJS has survived and partnered QF for so long is the very deep pockets of the UK parent Cobham PLC. Alliance is not in that league and therefore would be placing itself at considerable risk. Perhaps the proposed 'risk sharing' terms and proportions are/were the sticking points in any similar discussions DJ may or may not have had with REX?

The possible 'no risk' alternative I mentioned in an earlier post, would be for the investors to buy a stake in REX sufficient to force seats on the Board. Such an action gives you respect and under ASX guidelines guarantees your right to look after your investments. Whereas a business contract by its very nature is finite and often benefits one party more than the other!

Australian aviation history is full of risk takers. Some of the risks paid off spectacularly, such as Qantas, many of them proved to be costly pipe dreams. As was said earlier - time will tell!!

The Oracle

VH-FTS
14th Dec 2010, 02:35
Oracle,

Every comment in this thread has been met by a well written reply from yourself. Your knowledge of the subject is so strong one might wonder whether you could be involved in what is happening. Sounds like it is all doom and gloom, but there are people with some serious cash trying to get something started.

My initial post wasn't made up - people are trying hard to keep it all a secret but there are a number of leaks. I've heard the rumours from different sources over the last seven days and it seems I'm not the only one who has heard similar things. Pilots are terrible for gossiping - nothing stays secret for long.

VH-FTS
14th Dec 2010, 02:37
Pilots are also very good at embellishing the truth - I'm not ruling that out either but it's all very interesting!

Horatio Leafblower
14th Dec 2010, 03:01
Small point of order

The only routes in NSW that require licencing are between Sydney (KSA) and regional ports with less than (x),000 pax per year.

Intra-state routes that don't go to/from Mascot do not require licencing and a State govt requirement to licence interstate routes would be unconstitutional.

The whispers and snippets I have heard would seem to indicate that the proposed operation may not need route licences OR slots :confused:

With respect to the rest you have posted Sir, I could not possibly disagree.

THE ORACLE
15th Dec 2010, 02:48
H,

In NSW the state government determines RPT route licencing requirements based on the perceived and/or actual level of passenger activity. Some ports due to their large passenger traffic volumes may be declared 'open' where others are restricted to single, dual or more operators.

Ports which 'grow' traffic under a single licenced operator may be assessed as being able to support the competition of a second operator, etc, during subsequent NSW governmental deliberations. All operators require route licences due to NSW state government 'quality assurance' safety and service requirements.

Your 'whispers and snippets' seem to be suggestive of a 'hub by-pass' proposal. In Australia we generally have 'Hub and Spoke' operations with regionals feeding major cities and domestic and international service providers. In the northern hemisphere 'hub by-pass' operations have given real wings to regional jet operations since the late 1980's, commencing with Lufthansa Cityline and the CRJ 100. In a sense the Q400 and other high speed aircraft were partly developed to assist in servicing 'long and thin' secondary/regional routes.

When ATR announced development of the 600 series they were questioned in the media as to why they were not offering a speed increase (over the 500 series - 270/290 knots) with their product upgrade. In their reply EADS stated the ATR is optimised for high frequency short haul work and therefore additional speed was not necessary.

Industry route studies have shown that our population doesn't have the necessary density to sustain frequently scheduled point to point 'hub-by pass' operations between regional centres and secondary airports and with the distances between say Wagga Wagga and Brisbane, a transit speed of 350 knots would be needed in order to offer attractive schedule times and frequencies.

Although the demographics indicate insufficient regular business to support the necessary frequency of services, that doesn't mean someone won't try their hand.

The Oracle