38 39 Funding our Business Aviation In the international arena, Qantas competes with some carriers that pay no corporate tax and with many Government owned carriers, somef o which benefit from a ‘Sovereign CHAPTER SIX Knowledge Risk Rating’ allowing them to carry debt levels far higher than privately-owned airlines. Many carriers are also supported indirectly by governments, for example, airlinesn i the US can rely on Chapter 11 bankruptcy protection. The Qantas Sale Act, designed by the Government to protect Qantas’ position – Regulatory Constraints— o access t The Aviation Industry asn a Australian company, limits total routes and timeslots is constrained by Aviations i recognised as one of the world’s foreign ownership of Qantas to 49 per cent. governments and airport authorities In particular, there is a very strong link most complex and challenging industries, A side-effect of this limit is to constrain – External Shocks— economic downturns, between premium yields (travel on First, in t which i can be hard to make a sustained Qantas’ access to global capital, making it security threats, health pandemics, extreme Business, Premium Economy or full-fare profit. A number of factors contribute to this: harder and more costly to raise funds for weather and natural disasters can all affect Economy tickets) and ASX (Australian – High Costs— High fixed costs (e.g. aircraft expansion. industry returns Securities Exchange) top 200 company and airport infrastructure) and unstable Allf o this means that to grow and prosper share prices. This is because this index variable costs (e.g. fuel) Qantas has to work much harder and be Airline Economics tracks the expected future earnings of leaner and more efficient. It is a credit to – Labour Intensive— labour costs account corporate Australia — if high, then corporate for a very high proportion of overall costs The Link between the Global Economy Qantas’ financial stewardship that it is the and Airline Travel budgets, part of which includes spend on (around5 2 per cent) only airline in the world to have continually The strength of the economy greatly affects air travel, will be more generous. – Low Margins— airfares have continued to heldn a investment-grade credit rating demand for airline travel. In simple terms, in falln i real terms since the Second World The Impact of Exchange Rates which enables the company to borrow a strong economy with low unemployment, War, and the margin on the sale of a ticket is Foreign exchange rates have an impact on moneyt a a preferential rate. more people will have more disposable lown i comparison with other industries airline revenue. income and are therefore able to afford to – Perishable Product— when a flight leaves A stronger Australian dollar leads to: spend more on travel. with empty seats there is no further – More outbound travel— Australians choose FAST opportunity to sell those seats to holiday overseas rather than at home FACT – Low Barriers to Entry—ts i i relatively easy for because their dollars will buy more abroad a new airline to set up in Australia – Less inbound travel— Australia becomes AFTER FUEL, 2006 foreign exchange movements are – Over-Capacity— competition from lower- Jetstar launches long relatively expensive for overseas visitors Qantas’ second largest financial risk cost and government-supported airlines haul international – Less foreign earnings— the value of money (Qantass i exposed to 80 different serviceso t Asia and earnt from tickets sales overseas is worth Hawaii, and further foreign currencies) extends the brand in less once converted into Australian currency 2008 with Jetstar Pacific (Vietnam) 40 AVIATION KNOWLEDGE 41 Alliances Air Services Agreements FAST FACT Airlines enter into cooperative Air Services Agreements (ASAs) are arrangements with each other in order negotiated between governments, typically to expand their network reach, improve bilaterally, and set out the entitlements the customer experience and deliver The three largest passenger airline of each country’s respective airlines, THE AIRLINE INDUSTRY is a low-margin business — Australian banks operational efficiencies. Customers benefit alliances are oneworld, Star Alliance and regarding which cities may be served, produce similar revenues to Qantas, but enjoy oneworld from a broader range of flight destinations SkyTeam. The alliance was frequency, routing, aircraft type and profit margins 10 times greater than Qantas and frequencies, plus enhanced services launchedn i 1999 by founding members limitations on passenger and cargo suchs a reciprocal frequent flyer programs. Qantas, British Airways, Cathay Pacific traffic that may be carried between Airlines benefit from cost savings through and American Airlines. In addition to particular points. more efficient use of airport facilities and oneworld partners, Qantas has codeshare In recent years, many of Australia’s ASAs other resources, and the opportunity for relationships with more than 25 other have been progressively liberalised, as Aviation Industry revenue growth. leading airlines, and interline/baggage many countries move towards more ‘open and Governing Bodies through-check agreements in place with skies’. However, Australia’s ASAs with ICAO— International Civil Aviation over 200 airlines globally. some countries, including France, remain Organisation A Joint Service Agreement (JSA) with very restrictive which limits the Qantas British Airways has been in operation Group’s ability to expand into otherwise IATA— International Air Transport since 1995, and gives Qantas and BA attractive markets. Association The three largest regulatory approval to coordinate Once air services rights are granted, IASC— International Air Services passenger airline networks, schedules and pricing on Qantas’ Government and International Commission their ‘Kangaroo Route’ services between Relations department generally applies to ASA— Airservices Australia alliances are Australia, Asia and Europe. The partnership the International Air Services Commission CASA— Civil Aviation Safety Authority oneworld, includes codesharing on both carriers’ (IASC) for an allocation of capacity to (Australia) flights, reciprocal frequent flyer customer enable passenger and/or freight services ATSB— Australian Transport Safety Bureau Star Alliance benefits, shared lounges and joint toe b operated by Qantas, Jetstar or OTS— f Office o Transport Security airport operations/sales offices. The JSA Qantas Freight. (Australia) and SkyTeam scope also includes both carriers’ freight DIT— Department of Infrastructure operations. and Transport (Australia) 2008 The first Qantas Airbus A380 commercial flight from Melbourne to Los Angeles on0 2 October 42 AVIATION KNOWLEDGE 43 ‘Freedoms of the Air’ Second Freedom Fifth Freedom Seventh Freedom Ever wondered why Qantas does not The o right t make a landing in another The right of an airline to carry passengers, The right of an airline to carry passengers, pickp u domestic passengers on its country for technical reasons only, e.g. to mail and freight cargo from one foreign mail and freight cargo between two foreign refuel—without picking up or setting down countryo t another foreign country while en countries on a route outside of its home Los Angeles–New York sector? passengers or freight. routeor t o from the airline’s home country, country, for example: To n land a aircraft in a foreign country, or (Airlines do not usually exercise this right due to for example: evenoy t fl within its airspace, is a privilege cost reasons) United grantedy b the government of that country. Australia Kingdom Singapore Bahrain Historically, international agreements Third Freedom (Pick-up) (Set-down) recognised eight levels of privilege, known The o right t carry passengers, mail and (Qantas does not currently exercise this right) as ‘Freedoms of the Air’, which are still freight cargo from the airline’s home country Singapore (Pick-up and Set-down) referredo t today in the airline industry: to another country, for example: Eighth Freedom (Cabotage) Sixth Freedom First Freedom The right of an airline to carry passengers, Australia Singapore The right of an airline to pick-up mail and freight cargo between cities within The right of an airline to overfly another (Pick-up) (Set-down) passengers, mail and freight cargo in a a foreign country, for example: country without landing, for example: foreign country and transport them to another foreign country having stopped New York Fourth Freedom offn e route at the airline’s home country. Australia (Set-down) Australia Singapore The o right t carry passengers, mail and Thiss i a combination of Fourth and freight cargo from another country to the Third Freedoms. Los Angeles (Pick-up) Indonesia (Overfly) airline’s home country, for example: (Qantas does not currently have this right) Singapore Australia (Pick-up) (Set-down) FAST FACT THE COMPOSITION OF MARKET SHARE has changed over time, with mid-point hub 2009 carriers, such as Singapore Airlines and Jetstar commences domestic New Emirates, expanding share at the expense of Zealand services end-of-line carriers such as Qantas Aerial photo © 2010 Nina Duric 44 45 Time Zones Plane Spotting The earth’s surface is divided into 24 time as GMT (Greenwich Mean Time) or UTC zones. Time differences between the zones (Universal Coordinated Time) or just ‘Zulu’, are measured east or west of the ands i the internationally agreed standard 0 degree meridian (or line of longitude) time. Many countries set their clocks ahead which passes