Australian Airlines: "Business Sunday" Interview (transcipt)
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Australian Airlines: "Business Sunday" Interview (transcript)
Sun "Business Sunday"
QANTAS' NEW BUDGET CARRIER
7 April 2002
Helen McCombie
A cut-price Qantas, perhaps. Or a home-grown destabiliser of its basic business model, maybe. Whatever the view, the signing-off and commitment to the Australian Airlines low-cost international carrier operation for Qantas carries significant risk.
To put it bluntly, for the new airline to work, it will have to grow the market, without cannibalising Qantas' existing business.
But can it work, given it's based in Cairns in far north Queensland — hardly a major traffic area and well away from Sydney.
Helen McCombie reports.
Denis Adams, Australian Airlines: I’d like to introduce you to Australian Airlines, this is the only plane I’ve got.
Reporter: It’s not a case of big boys toys, it’s the resurrection of Australian Airlines, nine years after it disappeared from our skies, backed into Qantas by a Labour federal government determined to privatise the flying kangaroo.
Geoff Dixon, CEO QANTAS: We may have to start another airline.
Reporter: More than a year ago, on this program, Qantas, CEO, Geoff Dixon floated the idea of a discount international carrier, the aim to allow Qantas to fight rising costs in an aviation market which had yet to experience September 11 and the collapse of Ansett.
Dixon: A high standard airline but at a lower cost base and we are going to be talking to our unions about that.
Reporter: After some prolonged number crunching and negotiating, the Australian Airlines name is back as part of Qantas' growth strategy.
Adams: We finally achieved the cost targets that the board had set for us, we got conditional approval from the board in December, and then they set us some additional targets as boards do and we have been working diligently over the last three months to achieve those additional savings and we finally got, two or three pieces fell together for us on Tuesday and so we made the target.
Reporter: At the beginning of the week there seemed to be doubt about board approval, was it touch and go?
Adams: No, there was a lot of speculation. It seemed to me to build up over about a month prior to last Tuesday but there was nothing coming out from our point of view, I mean we were just working away at the task that had been set us and there were no particular setbacks, or problems, it was just a matter of bringing a few things together.
Reporter: Can you spell out those cost targets?
Adams: The cost targets were thirty per cent below the Qantas cost target. Now one of the major savings or major advantages have is our decision to go to all economy, which gives us an additional forty seats in the aircraft compared with a normal Qantas International 767 and that translates to about a 10 per cent saving in cost per seat, so that was the case and from that point on we were working in all sorts of areas. I think basically to try and keep the whole concept as simple as possible and not add any complexity.
Reporter: You were seeking to reduce the crew numbers from 8 to 6 but lost that battle, was that a big setback?
Adams: No, well the battle, so called battle is not really lost. I mean it is a matter that is being discussed and worked through with CASA at the moment and they’re co-operating in that discussion. Obviously it adds cost but it was not what I’d call fundamental to the success or otherwise of the case, and if there’s a safety issues involved we’re just not going to compromise.
Reporter: But are you still hoping it could come down to 6?
Adams: Oh yes, we believe that we can operate the aircraft safely with six people and we believe that we can deliver the in flight service that we plan quite effectively with 6 people.
Reporter: And where are you at with CASA?
Adams: We are talking to them at the moment and that process will take my best guess is a few months to sort out.
Peter Beattie, Queensland Premier: : Cassandra is about to arrive in Cairns in a 767.
Reporter: With Cairns as its hub, Australian Airlines is talking about three hundred and fifty thousand passengers in its first year. The start up is scheduled for October, and while a lot can happen in six months, there’s apparently no turning back.
Adams: Nothing that will stop it, we are totally committed now.
Reporter: What about the Middle East, if things escalate there and there is a blow out in oil prices, that couldn’t top it?
Adams: Not that won’t stop it either. I think one of the things is that we have looked at the markets very carefully, and even September 11 didn’t affect travel between Australia and Asia as much as other parts of the world were affected. So I think the basic position from my point of view is that the demand is there, and we believe that we have made so much ground on the cost front that it can absorb changes that will happen in the marketplace or changes that will happen to things like fuel prices.
Reporter: Nevertheless you are taking a gamble, there is no guarantee this airline can make money, it is high risk.
Adams: I think that we have done enough to reduce the risk to an acceptable level. Now I mean there is risk in any business and it would be absolutely foolish to suggest there was no risk in the aviation business because we have all observed the events of the last 12 months in particular. All you can do is eliminate the risk, or reduce the risk to something that is acceptable. We believe we have achieved that position.
Reporter: Can you guarantee you will be profitable?
Adams: Yes.
Reporter: When?
Adams: Well the business case calls for profits, albeit small profits in the first year, and that is why we are confident of the position that we have got on costs and as I think I mentioned earlier, we’re absolutely satisfied that the demand is there and without going into too much detail I think one of the key routes in this is Cairns-Singapore, which two years ago had a daily Qantas service, had several services a week with Singapore Airlines, had Malaysian flying to KL and now none of those services exist. When they were operating the flights were pretty near full, the problem was that the revenue was below the costs because the yields were so poor, so our position is that if we can get the cost base down to a point where we can recreate the margin, then there is no doubt that the demand is there, and we’re only running three services a week, so.
Reporter: The big question is where are the passengers going to come from, is it going to be inbound traffic or outbound?
Adams: Phase one into Cairns is 90 per cent inbound. Japan routes, 90 per cent of the business on Japan routes are Japanese nationals. In terms of Singapore and Hong Kong, there's a lot of local traffic from China and Singapore but there’s also a lot of traffic that flows through from the UK and Europe.
Reporter: Australian Airlines will have small beginnings, starting with just 4 aircraft.
Adams: We will have two aircraft from October 27 and although not finally decided, they will probably be devoted to our daily services to Nagoya and Osaka and then the next one will come mid November and that will do another two routes either Singapore, let’s say Singapore and Hong Kong, and then the fourth aircraft will be available in early December and that will do Taipei and Fukuoka., and then there is a possibility that we might even come south fairly quickly, I mean early in 2003 to a southern capital and start some outbound operations.
Reporter: Would that be Melbourne?
Adams: Could be Melbourne or Sydney?
Reporter: And what would determine that?
Adams: A number of issues clearly. I think first of all the market has to be there and any assistance that is forthcoming from governments and airports and other people is obviously a consideration for us.
Reporter: So you’re in negotiations currently?
Adams: We have been talking to virtually every airport and every government in the country, every state government in the country. We are not quite at the point where we are negotiating as yet, but we have certainly had a high level of interest from all of them.
Reporter: If everything goes according to plan, is Australian Airlines likely to be floated?
Adams: It is something we haven’t talked about yet, but anything is possible.
Reporter: At what point would you look at that?
Adams: Well I suppose simple logic says if the thing is successful and meets its targets and is expanding rapidly and is making good profits and so on it is something that you would consider but down the track.
End
QANTAS' NEW BUDGET CARRIER
7 April 2002
Helen McCombie
A cut-price Qantas, perhaps. Or a home-grown destabiliser of its basic business model, maybe. Whatever the view, the signing-off and commitment to the Australian Airlines low-cost international carrier operation for Qantas carries significant risk.
To put it bluntly, for the new airline to work, it will have to grow the market, without cannibalising Qantas' existing business.
But can it work, given it's based in Cairns in far north Queensland — hardly a major traffic area and well away from Sydney.
Helen McCombie reports.
Denis Adams, Australian Airlines: I’d like to introduce you to Australian Airlines, this is the only plane I’ve got.
Reporter: It’s not a case of big boys toys, it’s the resurrection of Australian Airlines, nine years after it disappeared from our skies, backed into Qantas by a Labour federal government determined to privatise the flying kangaroo.
Geoff Dixon, CEO QANTAS: We may have to start another airline.
Reporter: More than a year ago, on this program, Qantas, CEO, Geoff Dixon floated the idea of a discount international carrier, the aim to allow Qantas to fight rising costs in an aviation market which had yet to experience September 11 and the collapse of Ansett.
Dixon: A high standard airline but at a lower cost base and we are going to be talking to our unions about that.
Reporter: After some prolonged number crunching and negotiating, the Australian Airlines name is back as part of Qantas' growth strategy.
Adams: We finally achieved the cost targets that the board had set for us, we got conditional approval from the board in December, and then they set us some additional targets as boards do and we have been working diligently over the last three months to achieve those additional savings and we finally got, two or three pieces fell together for us on Tuesday and so we made the target.
Reporter: At the beginning of the week there seemed to be doubt about board approval, was it touch and go?
Adams: No, there was a lot of speculation. It seemed to me to build up over about a month prior to last Tuesday but there was nothing coming out from our point of view, I mean we were just working away at the task that had been set us and there were no particular setbacks, or problems, it was just a matter of bringing a few things together.
Reporter: Can you spell out those cost targets?
Adams: The cost targets were thirty per cent below the Qantas cost target. Now one of the major savings or major advantages have is our decision to go to all economy, which gives us an additional forty seats in the aircraft compared with a normal Qantas International 767 and that translates to about a 10 per cent saving in cost per seat, so that was the case and from that point on we were working in all sorts of areas. I think basically to try and keep the whole concept as simple as possible and not add any complexity.
Reporter: You were seeking to reduce the crew numbers from 8 to 6 but lost that battle, was that a big setback?
Adams: No, well the battle, so called battle is not really lost. I mean it is a matter that is being discussed and worked through with CASA at the moment and they’re co-operating in that discussion. Obviously it adds cost but it was not what I’d call fundamental to the success or otherwise of the case, and if there’s a safety issues involved we’re just not going to compromise.
Reporter: But are you still hoping it could come down to 6?
Adams: Oh yes, we believe that we can operate the aircraft safely with six people and we believe that we can deliver the in flight service that we plan quite effectively with 6 people.
Reporter: And where are you at with CASA?
Adams: We are talking to them at the moment and that process will take my best guess is a few months to sort out.
Peter Beattie, Queensland Premier: : Cassandra is about to arrive in Cairns in a 767.
Reporter: With Cairns as its hub, Australian Airlines is talking about three hundred and fifty thousand passengers in its first year. The start up is scheduled for October, and while a lot can happen in six months, there’s apparently no turning back.
Adams: Nothing that will stop it, we are totally committed now.
Reporter: What about the Middle East, if things escalate there and there is a blow out in oil prices, that couldn’t top it?
Adams: Not that won’t stop it either. I think one of the things is that we have looked at the markets very carefully, and even September 11 didn’t affect travel between Australia and Asia as much as other parts of the world were affected. So I think the basic position from my point of view is that the demand is there, and we believe that we have made so much ground on the cost front that it can absorb changes that will happen in the marketplace or changes that will happen to things like fuel prices.
Reporter: Nevertheless you are taking a gamble, there is no guarantee this airline can make money, it is high risk.
Adams: I think that we have done enough to reduce the risk to an acceptable level. Now I mean there is risk in any business and it would be absolutely foolish to suggest there was no risk in the aviation business because we have all observed the events of the last 12 months in particular. All you can do is eliminate the risk, or reduce the risk to something that is acceptable. We believe we have achieved that position.
Reporter: Can you guarantee you will be profitable?
Adams: Yes.
Reporter: When?
Adams: Well the business case calls for profits, albeit small profits in the first year, and that is why we are confident of the position that we have got on costs and as I think I mentioned earlier, we’re absolutely satisfied that the demand is there and without going into too much detail I think one of the key routes in this is Cairns-Singapore, which two years ago had a daily Qantas service, had several services a week with Singapore Airlines, had Malaysian flying to KL and now none of those services exist. When they were operating the flights were pretty near full, the problem was that the revenue was below the costs because the yields were so poor, so our position is that if we can get the cost base down to a point where we can recreate the margin, then there is no doubt that the demand is there, and we’re only running three services a week, so.
Reporter: The big question is where are the passengers going to come from, is it going to be inbound traffic or outbound?
Adams: Phase one into Cairns is 90 per cent inbound. Japan routes, 90 per cent of the business on Japan routes are Japanese nationals. In terms of Singapore and Hong Kong, there's a lot of local traffic from China and Singapore but there’s also a lot of traffic that flows through from the UK and Europe.
Reporter: Australian Airlines will have small beginnings, starting with just 4 aircraft.
Adams: We will have two aircraft from October 27 and although not finally decided, they will probably be devoted to our daily services to Nagoya and Osaka and then the next one will come mid November and that will do another two routes either Singapore, let’s say Singapore and Hong Kong, and then the fourth aircraft will be available in early December and that will do Taipei and Fukuoka., and then there is a possibility that we might even come south fairly quickly, I mean early in 2003 to a southern capital and start some outbound operations.
Reporter: Would that be Melbourne?
Adams: Could be Melbourne or Sydney?
Reporter: And what would determine that?
Adams: A number of issues clearly. I think first of all the market has to be there and any assistance that is forthcoming from governments and airports and other people is obviously a consideration for us.
Reporter: So you’re in negotiations currently?
Adams: We have been talking to virtually every airport and every government in the country, every state government in the country. We are not quite at the point where we are negotiating as yet, but we have certainly had a high level of interest from all of them.
Reporter: If everything goes according to plan, is Australian Airlines likely to be floated?
Adams: It is something we haven’t talked about yet, but anything is possible.
Reporter: At what point would you look at that?
Adams: Well I suppose simple logic says if the thing is successful and meets its targets and is expanding rapidly and is making good profits and so on it is something that you would consider but down the track.
End
Last edited by Wirraway; 7th Apr 2002 at 06:02.
Evertonian
It amazes me how the Feds continue to trumpet how they have no intention of interfering with private companies, yet the State pollies bend over backwards to get the nod from some companies. I don't have a problem necessarily with either scenario, I guess it's what you get with Liberal Feds & Labour States.
