PUBLISHER Wilson Press Ltd VOL. 10 NO. 10 SEPTEMBER 2003 GPO Box 11435 Tel: Editorial (852) 2893 3676 Fax: Editorial (852) 2892 2846 E-mail: [email protected] Web Site: www.orientaviation.com

Chief Executive and Editor-in-Chief Barry Grindrod E-mail: [email protected]

Publisher Christine McGee E-mail: [email protected] Chief Correspondent COVER STORY Tom Ballantyne Tel: (612) 9638 6895 Fax: (612) 9684 2776 E-mail: [email protected] CLUB Page 12 Melody Su Tel: (852) 2893 3676 E-mail: [email protected] Japan and Korea BENEFITS Daniel Baron Tel: (813) 3406 4694 E-mail: [email protected] Alliances prove Photographers their worth Patrick Dunne (chief photographer), Rob Finlayson, Andrew Hunt, Hiro Murai in times of crisis Design & Production ü Design + Production

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ADVERTISING South East Asia and Pacific NEWS Shirley Ho Tel: (852) 2865 1013 THAI confirms US$1.4 billion fleet upgrade 6 Fax: (852) 2865 3966 Hong Kong plans to privatise; in joint venture talks with Shenzhen 6 E-mail: [email protected] Four new low-cost airlines planned in Asia 6 The Americas/Canada IATA supports ’ Air New Zealand buy-in 7 Barnes Media Associates Mid-year traffic surge for Asia-Pacific carriers 8 Ray Barnes Tel: (1) 434 927 5122 SARS has devastating impact on Cathay Pacific’s bottom line 10 Fax: (1) 434 927 5101 First quarter loss for SIA Group 10 E-mail: [email protected] Airservices leading push to rationalise air traffic services 16 Europe Bombing puts Indonesian carriers under extra pressure 18 REM International New look Lao Airlines enters the jet age 24 Stephane de Remusat Tel: (33 5) 34 27 01 30 Fax: (33 5) 34 27 01 31 EXECUTIVE INTERVIEWS E-mail: [email protected] As their western counterparts thrive, the presidents of two of Japan’s New Media & Circulation Manager low-cost airlines outline their struggle for survival 20 Leona Wong Wing Lam Tel: (852) 2865 1013 E-mail: [email protected] FEATURE Mercy missions big business for the flying doctors 28 Association of Asia Secretariat Suite 9.01, 9/F, SPECIAL REPORT – Kompleks Antarabangsa, It’s cooperation and competition for airports in China’s Pearl River Delta 30 Jalan Sultan Ismail, Countdown to opening of new Guangzhou Airport 36 50250 Kuala Lumpur, . Director General: Richard Stirland No-shows a problem for Noto 38 Commercial Director: Carlos Chua Asian airports could be first with one-stop check-in 40 Technical Director: Leroy Keith Tel: (603) 2145 5600 Fax: (603) 2145 7500 HELICOPTERS E-mail: [email protected] Sikorsky strengthens its presence in Australia 42

Published 10 times a year February, March, April, May, June, COMMUTER AVIATION July/August, September, October, New Hong Kong carrier takes off 42 November and December/January. © All rights reserved Wilson Press Ltd, Hong Kong, 2003. REGULAR FEATURES Comment 5 The views expressed in this magazine are not necessarily those of the Association of Asia Pacific Airlines. Business Digest 43

September 2003, Orient Aviation 3 COMMENT ALLIANCES STEP UP TO THE MARK

or Asian airlines a crisis is no longer something that SARS passed they helped spread the word that flying to Asia comes along every decade. It has become an ongoing was safe. state of affairs for airline managements. More importantly, alliances have matured through crisis, They must wonder what the next shock will be, moving from being mainly marketing tools to a more crucial where it will come from and how they will deal with role as a means of cutting bottom line costs. All alliances are F it. We may now be talking about recovery from the impact now tackling the serious issues of joint purchasing of high- of SARS, but the bombing last month of a five-star hotel in cost items. These include aircraft, fuel, information technology reminds us there are other, ever-present threats to systems and co-operation on maintenance and spare parts. business stability. Asian airlines have achieved a great deal in recent years in Ravaged by SARS, regional operators not only have trimming expenses, but they know they have to do more. In the to nurse their way back to fiscal health, they have to do years ahead, the savings for in joint purchasing what senior industry bodies such as the International Air will be immense. Transport Association and the Association of Asia Pacific As with all opportunities, alliance membership is not for Airlines have been urging for months: find new ways of everyone, at least not at this stage. Indeed, it would likely be doing business. possible to achieve some of the same goals through a variety As our cover story this month shows, one key component in of bilateral co-operative agreements with airlines. that quest may be membership of a major global airline alliance. One suspects, however, that all major international airlines Often controversial, sometimes maligned, alliances appear to will ultimately align themselves with an alliance to take full have played a critical role in helping members confront the advantage of the cost saving and efficiency gains they can trauma of recent crises. bring. The airline groupings did not stem all the losses, but they allowed operators to react quickly, in co-operation with partners, to adjust capacity and networks and fine-tune them to meet precise levels of falling demand. Alliance members TOM BALLANTYNE were able to swap ideas and not face the shock alone. When Chief correspondent

THE ASSOCIATION OF ASIA PACIFIC AIRLINES MEMBERS AND CONTACT LIST:

Air New Zealand Dragonair Philippine Airlines Chief Executive, Mr Ralph Norris Chief Executive Officer, Mr Stanley Hui President, Mr Avelino Zapanta VP Public Affairs and Group Corporate Communication Manager, VP Corporate Communications, Communications, Mr Glen Sowry Mrs Laura Crampton Mr Rolando Estabilio Tel: (632) 817 1234 Fax: (632) 817 8689 Tel: (64 9) 336 2770 Fax: (64 9) 336 2759 Tel: (852) 3193 3193 Fax: (852) 3193 3194 Qantas Airways EVA Air Managing Director and CEO, President and CEO, Mr Yoji Ohashi President, Mr Steve Lin Mr Geoff Dixon Senior VP, Public Relations, Mr Koji Ohno Senior Vice President, Group General Manager Public Affairs, Tel: (81 3) 5756 5675 Fax: (81 3) 5756 5679 Mr K. W. Nieh Mr Michael Sharp Tel: (8862) 8500 2585 Fax: (8862) 2501 7599 Tel: (612) 9691 3760 Fax: (612) 9691 4187 Asiana Airlines President & Chief Executive, Garuda Royal Brunei Airlines Chairman, Dato Paduka Haji Hazair Mr Park Chan-bup President, Mr Indra Setiawan Chief Executive, Mr Peter Foster Managing Director, PR, VP Corporate Affairs, Mr Pujobroto Tel: (673 2) 229 799 Fax: (673 2) 221 230 Mr Hong Lae Kim Tel: (6221) 380 0592 Fax: (6221) 368 031 Tel: (822) 758 8161 Fax: (822) 758 8008 Airlines Japan Airlines Chief Executive Officer, Cathay Pacific Airways President, Mr Isao Kaneko Mr Chew Choon Seng Chief Executive Officer, Mr David Turnbull Director, Public Relations, VP Public Affairs, Mr Rick Clements Corporate Communications General Mr Geoffrey Tudor Tel: (65) 6541 5880 Fax: (65) 6545 6083 Manager, Mr Alan Wong Tel: (813) 5460 3109 Fax: (813) 5460 5910 Tel: (852) 2747 8868 Fax: (852) 2810 6563 Thai Airways International President, Mr Kanok Abhiradee Korean Air Director, PR, China Airlines Chairman and CEO, Mr Yang Ho Cho Mrs Sunathee Isvarphornchai President, Mr Philip Hsing-Hsiung Wei Managing VP, Corporate Communications, Tel: (662) 513 3364 Fax: (662) 545 3891 VP, Corp Comms, Mr Roger Han Mr Jun Jip Choi Tel: (8862) 2514 5750 Fax: (8862) 2514 5754 Tel: (822) 656 7065 Fax: (822) 656 7288/89 Airlines President and CEO, Malaysia Airlines Mr Nguyen Xuan Hien Chairman, Tan Sri Azizan Zainul Abidin Dep Director, Corp Affairs, Mr Nguyen Huy Hieu Tel: (603) 2165 5154 Fax: (603) 2163 3178 Tel: (84-4) 873 0928 Fax: (84-4) 827 2291

September 2003, Orient Aviation 5 news REGIONAL ROUND-UP

THAI confirms Tang’s announcement US$1.4 billion received widespread en- fleet upgrade dorsement from airlines hai Airways Interna- and the chairman of the tional (THAI) received Airport Authority Hong T government approval Kong, Vic-tor Fung. Fung in August to buy eight new said privatisation “will bring Airbus aircraft and seven discipline” to the authority’s five-year-old B747s from U.S. operations. Chief executive Chapter 11 carrier, United of the authority, Dr. David Airlines. Pang, said privatisation gen- THAI president, Kanok erally takes about 18 months Abhiradee, said the order of preparation. was part of the airline’s five- year US$3.11 billion invest- Thai Airways International: fleet to be expanded to 92 planes ... joint venture ment plan to expand the air- with Shenzhen line’s fleet to 92 airplanes, to buy the planes from United istrative Region (HKSAR) Airport mooted increase its weekly services because their aircraft and Henry Tang announced in Twenty four hours after by 154 flights worldwide by equipment are the same speci- August that Hong Kong In- the privatisation plans were 2007 and add 27 destinations fications as Thai Airways is ternational Airport would announced it was revealed to its network. THAI operates using,” said Abhiradee. be partly privatised with the the airport authority was seri- 825 services a week at present, Meanwhile, THAI is ex- IPO slated for a Hong Kong ously working on a proposal but the carrier would like to pected to announce its plans Stock Exchange listing in that would bring together the increase its direct flights to for the sale of 23% of the carri- 2004. Hong Kong International cities such as New York and er’s equity in an IPO at present Tang said legislation Airport (HKIA) and its sis- Chicago. scheduled for later this year. would be introduced early ter airport across the southern The president said the Air- THAI plans to offer 400 million next year to authorise the Chinese border in Shenzhen. bus order of three A340-500s shares to the market in a sale part privatisation, a step Dubbed the one airport and five A340-600s would be that would reduce the Thai long planned by the HKSAR two countries plan, it is be- delivered to the - Government’s holding in the government. lieved the management of the based carrier in 2005 and 2006 flag carrier to 70%. At this stage he would not two airports – which in fact and would be financed up to be drawn on how large the are only about 50kms apart 85% by loans, with some of Hong Kong IPO would be, but he intends – are discussing the idea of the the funds baht denominated. Airport to the sale to help the govern- Airport Authority Hong THAI will buy the B747s from be privatised ment manage a predicted Kong buying into Shenzhen United for cash. Financial secretary for short fall in capital funds in Airport. “It is good timing for us Hong Kong Special Admin- the next few years. Bonded ferry services from Four Asian low-cost carriers planned

our more Asia-Pacific cost carrier called . fly to four destinations from mid-year (see page 42), it low-cost carriers are on Lim Chin Beng regis- Bangkok, starting with serv- was reported by Agence F the drawing board, tered ValuAir with Singapore’s ices to Sydney in October. France Press from Yangon adding to the list of budget Registry of Companies and Other destinations reported in Myanmar that a Hong operators already operating Businesses in March and ap- to be on TPA’s route radar are Kong company, Strate- in the region: Malaysia’s plied for an operating licence Bangkok to Seoul, Osaka and gic Investments, would AirAsia, Air New Zealand’s with the Civil Aviation Au- Honolulu. launch United Myanmar Freedom Air and Austral- thority of Singapore recently. Separately, Thai Airways Airlines (UMA) in August, ian domestic carrier, Virgin Lim was reported to intend to International (THAI) is be- in a joint venture with state- Blue. commence ValuAir services by lieved to be still proceeding owned domestic carrier, In June, a former chair- mid-2004. with its plans to set up a low- Myanmar Airways. man of Singapore Air- Meanwhile, in early Au- cost subsidiary and is currently Tan said UMA would lines, who is now non-ex- gust, the transport ministry seeking partners interested in fly from Yangon to Bang- ecutive chairman of Singa- of announced it had taking up minority equity in the kok, Singapore and Kuala pore Press Holdings and issued traffic rights to a new venture – including tour opera- Lumpur and expand services the chairman of Singapore airline, Thai Pacific Air- tors. THAI plans to lease aircraft to Hong Kong, Shanghai Technologies Aerospace lines (TPA), which is owned and operate on domestic routes and Penang within a year, Ltd, announced he was by a medical doctor, Wasant and routes within Asia. offering up to 30 flights a heading a consortium that Singhamanee. In Hong Kong, where week on two leased Boeing would set up a regional low- TPA said it planned to CR Airways was launched B737-400s.

 Orient Aviation, September 2003 HKIA to four ports in the Pearl Ridgway of Macau. At present direct ternational (THAI) is now River Delta – Macau, Shenzhen, wooing HK flights between China and code-sharing with bmi Brit- Tai Ping and Shekou – are to government Taiwan are banned. ish Midland on the UK car- commence soon. Virgin Atlantic’s chief rier’s services to Belfast, Glas- Some analysts believe executive, Steve Ridgway, CODE-SHARES . . . gow, Edinburgh, Manchester, the Shenzhen partnership is was in Hong Kong in July with China Southern Airlines Leeds, Bradford, Teeside and important to the HKSAR’s his manager of government (CSA) and KLM Royal to Dublin, Ireland. airport privatisation plans. and external affairs, Chris Dutch Airlines will expand They believe the success of the Humphrey, to lobby govern- their current agreement to COMMUTER JETS . . . IPO could not be guaranteed ment officials and the industry allow KLM to code-share Sumitomo Mitsui Banking unless the deal provided a about Virgin Atlantic’s desire with CSA to the Chinese cit- Corporation and Embraer platform into China. to fly from London to Aus- ies of Guangzhou, Shenzhen, have finalised a US$200 mil- tralia via Hong Kong. Wu-han, Changsa and Guilin. lion syndicated seven year Qantas-AirNZ Talks between Britain and Royal Brunei Airlines loan to fund the purchase of buy-in supported Hong Kong on expanding air (RBA) and Singapore Air- parts, components and equip- by IATA rights through Hong Kong lines (SIA) will begin code- ment for the manufacturer’s Giovanni Bisignani, the to destinations in the Asia- sharing on flights between 170 & 190 jet programme. director-general of the In- Pacific are expected to start Singapore and Bandar Seri ternational Air Transport in September. Currently, only Begawan from September 15. FLEET . . . Air China Association (IATA) said in oneworld alliance carriers RBA will operate 14 flights a took delivery of its first Airbus Sydney in August that the Qantas Airways and week and SIA five services A319, powered by IAE V2500 Australian and New Zealand Cathay Pacific Airways fly weekly between the two cit- engines, in July. The aircraft regulatory bodies should ap- between Hong Kong and Aus- ies. SIA also has announced will join the fleet ofAir China prove Qantas’ plan to buy tralia. If Virgin is successful an economy class code-share Zhejiang, which has eight 22.5% of Air New Zealand, in its quest for fifth freedom with its part-owned partner, Airbus planes in its fleet. All despite concerns about com- rights out of Hong Kong, the Virgin Atlantic Airways, Nippon Airways (ANA) has petition issues. route would be served by a on SIA’s five times weekly received the first of four 74- Bisignani said the regula- third, and Star Alliance af- service on the Singapore- seat Bombardier Q400 turbo tors should look at the interna- filiated, carrier. Manchester route. The two aircraft, which it ordered in tional picture when assessing Virgin, said Ridgway, carriers also operate code- 2002. China Airlines (CAL) the benefits of the deal and would like to be flying onward shares on SIA’s three daily has received the first of its consider the difficult operat- from Hong Kong to Australia flights from London to Sin- new Boeing B747-400 freight- ing conditions airlines are six or seven times a week in gapore. Thai Airways In- ers ordered in 2002 as part of experiencing since the 9/11 the first half of 2004. terror attacks, the global eco- nomic slowdown, the Iraq war BRIEFLY and most recently, SARS. AIRPORTS . . . Bei- Bisignani met with the jing Capital Airport has Australian Prime Minister, slashed the prices at its food John Howard, and the trans- and beverage outlets by 70% port minister, John Ander- after being accused of charg- son, during his Australian ing first world five-star hotel visit. Anderson personally prices. Outraged passengers supports the proposed acqui- said the same products cost sition. The Australian compe- five times less at other retail tition regulator is expected to outlets in Beijing. announce its decision on the matter in September. CARGO . . . Air Macau, whose main business comes ... no-frills from Taiwanese passengers across Tasman stopping at the airport before Air New Zealand’s flying into China, is consider- (AirNZ) chief executive, ing establishing a cargo serv- Ralph Norris, said his airline ice on the Nanjing-Macau-Tai- plans to introduce a no-frills pei route, with up to six Boe- Tasman Express service ing B727 freighter services a to head off competition from week from October. Shang- Virgin Blue and the an- hai Airlines has launched ticipated establishment of three freighter services a Qantas low-cost Tasman week to Macau, a Special Ad- carrier, Jet Connect. Virgin ministrative Region of China, Blue will start trans-Tasman after it was granted increased services in October. Norris onward cargo space to Tai- said in August the carrier’s wan. The expanded services recently established domes- are part of the new through tic Express Class was easily transportation agreement that transferable to trans-Tasman allows the Shanghai carrier to routes. He expected AirNZ to transport up to 1,600 tonnes slash its trans-Tasman costs of cargo a month on by double-digit figures. bound EVA Air flights out

September 2003, Orient Aviation  news

CAL’s planned purchase of 22 origins of THAI bookings. The MANUFACTURING . . . mences its five times weekly new aircraft. The aircraft will be Bangkok-based carrier also Dirgantara Indonesia (DI), service to the southern Chi- used on the carrier’s Taipei-U.S. operates Lufthansa Systems’ the Indonesian aerospace nese city next January, with route. In the first delivery of an SalesAdvance system. Star manufacturing group, will Airbus A340-300 aircraft. order of five airplanes, China Alliance has introduced a be closed for six months by Leisure operator and Qan- Eastern Airlines began oper- comprehensive travel service order of its board, “because tas Airways subsidiary, ating its first Airbus A340-600, for its members, which in- of its financial problems”. DI , will in- powered by Rolls-Royce Trent cludes the use of flash technol- had orders to build parts for crease its Cairns-Hong Kong 500 engines at the end of July. ogy to provide detailed maps the Airbus A380 as well as services to three times weekly It is the fifth operator of the of 42 major hubs serviced by assembling European helicop- from October 26 and will A340-600 worldwide. Taiwan’s the alliance’s airlines. ters and aircraft produced for add an extra service to Bali second international carrier, Spain’s Casa. from Melbourne via Sydney. EVA Air, has taken delivery LEASING . . . Hong Pre-SARS level daily flights of its first Airbus A330-200, Kong’s Dragonair has MROs . . . Depending to Osaka and three times powered by GE CF6-80EA3 en- signed a US$100 million on Indonesian Government weekly services to Fukuoka gines. EVA has leased eight of loan with BOC Hong Kong approval, the SIA Engineer- also commence at the same the airplanes from GE Capital (Holdings) Ltd. The loan ing Company intends to time. Chinese airline groups Aviation Services (GECAS) is expected to help fund the purchase 49% of PT JAS. The are considering launching and will buy one more of the regional carrier’s purchase joint venture company will services to Queensland, Aus- aircraft directly from Airbus of two A321 aircraft, to be operate at 10 major airports tralia, following the signing In-dustrie. delivered by the end of 2003. in Indonesia. of a new air services agree- Singapore Aircraft Leas- ment between Australia and INFORMATION TECH- ing Enterprise (SALE) has PEOPLE . . . At its 16th China two months ago. China NOLOGY . . . All Nippon announced deals with four annual board meeting, the Airlines (CAL) launched Tai- Airways (ANA) has bought carriers. The lessor and UK directors of Taiwan’s China wan’s first service to on the Sabre Global Distribu- low-cost carrier, easyJet Airlines (CAL) re-elected July 29, and now flies between tion System for its electronic signed a sale and leaseback both Yun-ling Lee as CAL’s Taipei and Hanoi three times ticketing system operations deal for six next generation chairman and Philip Wei as a week. CAL has operated to in the U.S. Thai Airways Boeing B737-700s. Also, SALE the carrier’s president. since 1992. International (THAI) has has delivered an Airbus A319 CAL also has commenced four chosen Lufthansa Systems’ to Blue Moon Aviation ROUTES . . . Air France times a week charter services NetAdvance to assist the in the U.S., an A310-200 to will be the first European car- on the Taipei -Seoul route carrier in analysing world- Jordan Aviation and an rier to fly directly to Guang- and introduced twice-weekly wide traffic flow, changing Airbus A320 to Um Air of zhou from Charles De Gaulle non-stop flights from Taipei to market requirements and the the Ukraine. Airport, Paris, when it com- Honolulu. Mid-year traffic surge post SARS

By Tom Ballantyne helping to lure passengers sengers daily at the height of back into the air. “The second SARS. In August the carrier s the shadow of SARS half of 2003 provides us with reported its largest first half c o n t i n u e s t o f a d e , an excellent opportunity to loss of US$159 million. Days A Asian airlines and glo- get the industry back to full earlier, three other major bal industry executives expect strength. Not only are we wit- operators, Japan Airlines, capacity to return to near nessing an ongoing recovery, All Nippon Airways and pre-crisis levels by the end of but also a surge of travellers an- September. They also predict to destinations in Asia and nounced combined losses of a return to profitability for the beyond,” he said. nearly US$1 billion for their industry next year barring International Air Tran- first quarters, ending June 30. further shocks. sport Association (IATA) (see Business Round-Up) Carriers in the region re- director general, Giovanni Global air traffic was ported a strong resurgence in Bisignani, remained cau- down 11.8% in June, com- bookings in July and August. tious, but predicted the world’s pared with the same month In China, the geographic heart airlines will be back in profit IATA director general, Gio- a year earlier, a marked im- of the SARS epidemic, traffic next year. “SARS has now vanni Bisignani: the road to provement, however, from returned to normal quicker come under control and with recovery will be long the 21% plunge in May, ac- than expected, according to the travel warnings lifted, air- cording to IATA. aviation officials. lines are rebuilding schedules ed the global airline industry Asia-Pacific airlines suf- Don Birch, president and seeing passengers return. will lose US$6.5 billion this fered a traffic decline of 35.8% of Asia’s largest travel and The worst is over, but the road year in addition to the US$25 in June, compared with a drop airline ticket reservation to recovery will be long,” he billion lost in 2001 and 2002. of 55% in May. company, ABACUS, said said, during an Asia-Pacific Asian carriers were worst SARS affected more than travel bookings in the region tour in August. affected of all airlines by 8,400 people and more than doubled between May and The impact of SARS has SARS. Traffic at Hong Kong’s 800 individuals died from July, after the containment of left deep scars on airline bal- Cathay Pacific Airways the disease, most of them in SARS, with discounted tickets ance sheets. IATA has project- plunged below 7,000 pas- Asia.

 Orient Aviation, September 2003 news BUSINESS ROUND-UP

SARS swings the first time, said interna- Cathay from tional passengers carried profit to loss during the quarter declined by o n g K o n g b a s e d 46% to 1.9 million and services Cathay Pacific Air- to China (one nation with sev- H ways reported a first eral thousand reported SARS half net loss of HK$1.24 bil- cases) dropped by 68%. lion (US$159 million) for the Revenue from interna- six months ended June 30, a tional operations collapsed by result that revealed the dra- 39% to 93.86 billion yen. matic impact of SARS on the However, domestic rev- international carrier. enue for the amalgamated The airline’s chairman, carriers rose 1.2% to 155.57 James Hughes-Hallett, said billion as many Japanese trav- the results compared with a ellers decided to travel in Ja- profit of HK$1.411 billion in pan rather than abroad while the same period in 2002. He SARS presented a health said the year started out much threat in the region. in line with the management’s SIA SEES RED JAL Group executive of- expectations, but that the ficer, Haruka Nishimatsu, onset of SARS in March “had said: “The effect of SARS is a devastating and immediate evastated by the impact of SARS, the SIA Group taking longer than expected impact on our business”. reported a first quarter loss of S$312 million to wear away. As the numbers of SARS D(US$177.8 million) to June 30, compared with a profit “But that is being made patients in the region rose, of S$478 million in the same period last year. The company up for by a strong recovery in Cathay Pacific’s passenger said group revenue fell by 35% in the three-month period to business travellers.” numbers dropped by 32%, or S$1,653 million, operating losses had amounted to S$377 mil- The JAL Group has not 4.01 million compared to the lion and losses per share were 25.6 cents. As SARS emptied changed its forecast for the same period in 2002. aircraft across the region, the group’s airline, Singapore year and said it expected a Average passenger load Airlines (SIA) said passenger load factor dropped 18.1 net loss of 43 billion yen in the factor collapsed by 13.7 per- percentage points to 57.4% and the number of passengers year to March 31, 2004 com- centage points to 64.4%. carried fell by 49.2% to 1.9 million for the quarter. pared to a net profit of 11.65 Cargo revenue rose by 4% In June, SIA retrenched 414 ground staff and, in July, billion yen last year. in the first half, but turnover laid off 156 cabin crew and 26 pilots. The carrier later ne- declined by 21% compared to gotiated pay cuts of 5%-16 % for its employees including ANA sticks to the first half of last year. ground staff and cabin crew. SIA management has accepted profit forecast At the peak of the SARS salary reductions of 16.5%-20% and the group’s directors All Nippon Airways crisis the carrier parked 22 have taken a 50% reduction in their fees. (ANA), also releasing quar- aircraft, cut capacity by 45% Pilots agreed to take up to two days no-pay leave every terly results for the first time, and instituted a month of un- month from July this year while the carrier’s cabin crew reported a net loss of 18.32 paid leave, later amended to are operating on a roster from May 1 that incorporates billion yen (US$151.29 million) three weeks, for every Cathay seven days no-pay leave into their work schedule every for the three months to June Pacific employee. two months. 30, but the airline said it still Hughes-Hallett said the Chief executive, Chew Choon Seng, said he was seek- expected to report a profit for industry was recovering rap- ing another S$200 million in savings at the carrier, but added the full year. idly now the region had been he believed the worst was over for the group. “The worldwide spread of established as SARS free and “The outlook for the next quarter and the rest of the SARS dealt a severe blow to that he expected operations at year is uncertain. The success of marketing promotions to our group’s mainstay business Cathay Pacific to break even rebuild traffic would be at the expense of yields as sizeable of air transport, as well as the in August. fare discounts have to be offered and business travel is still travel and hotel business,” The airline will have re- relatively weak given current global economic conditions,” a group company statement stored all services it cut during an SIA Group statement said. said. “And despite the smooth SARS by September. How- progress of our cost-cutting ever, both Hughes-Hallett and efforts, consolidated earnings the carrier’s deputy chairman like in October, November System, reported a loss of ended up lower.” and chief executive, David and December,” said Hughes- 77.28 billion yen (US$644 To offset the effects of Turnbull, stressed that al- Hallett. million) for the first quarter SARS and the Iraq War, ANA though Cathay Pacific is ex- of the 2003-2004 fiscal year cut back international services periencing rapidly increasing JAL GROUP HIT as the impact of the Iraq War and reduced domestic operat- loads, the carrier “still has a BY CHINA SLUMP and SARS cut into passenger ing expenses. Load factor on problem with yields”. The JAL Group, cre- bookings. domestic routes during the “It is very difficult to es- ated last October from Japan Japan Airlines (JAL), re- period declined by 3.4 per- tablish what yields will be Airlines and Japan Air leasing quarterly results for centage points to 55.8%.

10 Orient Aviation, September 2003 PAL posts full-year profit Philippine Airlines (PAL) reported a profit of 295 million pesos (US$5.4 million) in the year to March 31, a turna- round from losses of 1.6 billion pesos a year earlier. PAL said the improved result was a consequence of higher passenger confi- dence post the September 11, 2001 terror attacks in the U.S. and efforts to contain costs, especially for aircraft maintenance and fuel purchases. However, the Manila-based carrier added that the impact of the war in Iraq and SARS began to take its toll on the carrier’s bottom line in March and would affect results for the April-June quarter.

CSAH launches domestic IPO The China Southern Airlines Group (CSAH), the Mainland’s largest carrier, which already is listed on the Hong Kong and New York Stock Ex- changes, raised an estimated 2.7 billion yuan (US$327 million) or 23% of its share capital, when it launched its domestic ini- tial public offering (IPO) in late July. The money raised, topped up with some loans, will be used to finance air- craft purchases and fund the group’s expansion. CSAH has said it will post a first half loss, caused by SARS and the Iraq war, when it announces its interim results at the end of August. Analysts predict the losses could be as high as 317.7 million yuan.

Briefly .... Asiana Airlines, South Korea’s sec- ond international carrier, reported a first half loss of 38.5 billion won (US$32.5 mil- lion) compared with a profit of 10.7 billion won for the same period in 2002. The carrier attributed the dramatic decline to the outbreak of war in Iraq, SARS and higher jet fuel costs for some periods in the six-month cycle. China Eastern Airlines (CEA), based in Shanghai, said passenger rev- enue during July doubled from June to more than 800 million yuan (US$96.6 mil- lion), but the airline said it still expected to report a first half loss as a result of SARS. Passengers carried at CEA dropped in May and June by 84% and 47% respec- tively as a result of SARS. SIA Engineering reported a first quarter profit to June 30 of S$22.9 million (US$13.03 million), a decline of 51.3% over the same period in 2002. The MRO company said it suffered a decline in business as airlines cutback on capacity during SARS, thereby re- ducing demand for line maintenance and airframe and component overhaul contracts.

September 2003, Orient Aviation 11 main story

Global alliances have been operating for more than six years. How have they survived a tumultuous three years of industry crisis? For most major carriers in Asia, it appears being a member of an airline “club” has be- come a significant tool in softening the blow of down cycles and rising costs in the indus- try. TOM BALLANTYNE reports. CLUB BENEFITS

s SARS savaged Asia’s major airlines, tipping passenger traffic and cash flow levels into an unprecedented finan- cial abyss, most of the region’s Aoperators had an ace in reserve: member- ship of a global alliance. While the alliances, be it Star, one- world or SkyTeam, did not save them from the worst of the commercial impact of SARS, they allowed member carriers to share the pain with their partners. Air- lines interviewed by Orient Aviation said co-operative measures and the exchange of ideas played a key role in helping them cope with the trauma. Importantly, alliance partners in North America and Europe are playing a crucial role in spreading the message it is safe to fly to Asia. And that’s not all. Asian alliance car- riers insist: • the adversity of the last three years, in Star Alliance chief executive, Jaan Albre- Managing partner of oneworld, John which airline losses worldwide have cht: “three years of crisis has shifted [our] McCullough: airline’s creative ideas approached US$30 billion, has made thinking” adopted by its partners membership of an alliance more im- portant than ever. engineering, fuel purchasing and the bombing, the Iraq war and SARS – had • alliances have matured from market- prospect of significant gains from joint produced a major shift in alliance tactical ing tools to strategic assets promising aircraft purchasing. thinking. greater revenue opportunities and In a wide-ranging series of interviews Devotion to the ‘club’ is not univer- significant cost savings. airline alliance managers and global alli- sal, however. Japan Airlines (JAL) and • major breakthroughs are being made ance chiefs told Orient Aviation industry Malaysia Airlines (MAS) are two major on big ticket items like Information volatility in recent years – the pre-9/11 regional carriers that have maintained Technology (IT), joint maintenance and global economic downturn, 9/11, the Bali their independence and some analysts

12 Orient Aviation, September 2003 remain unconvinced alliances are the ship helped buffer the impact of difficult The British Airways/American Air- answer for all operators. economic times. “When SARS was at its lines-led oneworld has eight members. But the message from the committed peak we may have suffered a significant Qantas Airways and Cathay Pacific are is that while alliances were originally decline in passenger revenue without its regional partners. “nice to be in”, now they are a “must SkyTeam. Benefits from various cost- SkyTeam, with Air France and Delta have” for the long-term survival of the savings and incremental revenue from Air Lines leading the way, has six part- airlines. our code-share partners allowed us to ners, including KAL. Northwest Airlines The reason? They believe significant deal with the decline of passenger rev- and KLM, currently in their own Wings cost reductions and increased efficiency, enue in the Asia region without taking alliance, are expected to become part of achievable through joint action, can help a big hit. SkyTeam within 12 months. defeat the industry’s Achilles heel: high “The business environment is be- All the alliances were born out of a capital costs and intense competition coming more difficult and the regulatory desire to circumvent the straightjacket versus shrinking yields and low profit environment more open and liberal. With of bilateral regulation and cross-border margins. increased competition airlines must be ownership limitations by co-operating “At the beginning [of the alliance], prepared to compete by joining an al- multilaterally. Initially focussing on joint we were focussed on rolling out prod- liance. That’s the name of the game, to frequent flyer programmes, marketing ucts for the benefit of the customers. survive, to make the airline more competi- co-operation and code-sharing, the al- They were more revenue-up driven. tive and increase profit margins.” liance stakes have been dramatically Three years of crisis has shifted [our] Said Thai Airways International raised. thinking,” said Star Alliance chief ex- (THAI) vice-president alliances, Wallop But they are not seen as the answer ecutive Jaan Albrecht, “ Now we are by all players. JAL’s president and chief spending a lot of time redirecting our executive, Isao Kaneko, said the airline’s internal resources towards exploiting policy of concentrating on individual cost-down initiatives.” bilateral alliances works very well. “That John McCulloch, managing partner does not mean we are opposed to the of oneworld, confirmed the shift. Dur- multilateral alliance concept, but the ing the economic downturn leading up bilateral way serves us – and our custom- to the 9/11 terrorism attacks, oneworld ers – best. moved quickly from being marketing-led “We have alliances with oneworld, to targeting cost reductions. “The focus Star and SkyTeam members. We can became: what can we do to help our mem- offer our customers – and our partners bers conserve cash and take costs out of – an impressive range of benefits. It’s a their infrastructure,” he said. win-win for all involved. We can be more Alliance airlines have plucked most of flexible and in these difficult times flexibil- the “low hanging fruit”, joint purchase of ity is very important. Without closing the items like economy class blankets, food door on joining a multilateral grouping, trays, carpets and inflight entertainment we see no pressing reason to change our equipment and now they are tackling present policy.” the high-cost items, including common MAS managing director, Mohamad specifications of aircraft to allow joint Nor Yusof, recently told analysts the purchases (see separate story). carrier had shelved plans to join any al- Maintenance is another key area of liance and will focus instead on seeking the industry that is receiving greater at- more bilateral pacts for landing rights, tention from alliance members. “If you Japan Airlines president and chief code-sharing and joint marketing efforts. think of the number of spare parts airlines executive, Isao Kaneko: the bilateral way “Joining an alliance may have been the maintain at facilities globally and the lev- serves us and our customers the best trend a few years ago but not now. There els of inventory of these very expensive are new opportunities for those who can pieces, there is a great deal of room for Bhukkanasut: “We are seeing benefits reposition themselves. This is what MAS co-operation and rationalisation,” said from consolidated [Star Alliance] facili- is looking at, especially in Asia, and we McCulloch. ties like joint lounges, co-terminals, co- are fortunate to have strong support from Hong Kong-based oneworld member, counters and more IT collaboration. We the government,” he said. Cathay Pacific Airways, was one of the are working on joint purchasing of items JP Morgan transport analyst, Peter airlines hardest hit by SARS. Tony Tyler, like fuel, spare parts and inflight food and Negline, said alliance membership is a director corporate development, said the use of common facilities [like hangars and matter of “horses for courses”. They do alliance is more highly valued when times computer centres]. not suit everyone. Like any marriage, are tough. “We are talking more openly together particularly in a volatile industry that has “In the last six or seven years, we have and we are beginning to see what is pos- faced substantial shocks in recent times, had some terrible years, but we also have sible, like joint purchases of aircraft, en- alliances have had their ups and downs, had some very good ones. When your gines and IT. This is becoming even more he added. planes are full and you are making lots of important with the arrival of no-frills and He is right. Tricky internal issues, in- money the cost side is not seen as such a low-cost carriers. At the end of the day cluding financial problems, have erupted priority and you don’t necessarily want to we all see savings.” at United, American Airlines, Delta and have the oneworld revenue. When your Major airlines have divided into three Air New Zealand. revenue picture starts to evaporate, you major groupings. Star, led by United Air- Negline said alliances have not made look to the feed you get from partners lines and Lufthansa, has 16 members with significant advances. “They have maybe as valuable. Any help getting your costs another two – LOT Polish Airlines and US taken a sideways step, but that’s only down is very useful.” Airways – joining soon. The Asia-Pacific because of all those exogenous factors. A Bo Hee Won, senior vice-president partners are Air New Zealand, All Nip- lot of airlines that joined alliances prob- international affairs and SkyTeam at pon Airways, Asiana Airlines, Singapore ably see plenty of reasons why they make Korean Airlines (KAL), said member- Airlines and THAI. sense. I am not sure they have got into the

September 2003, Orient Aviation 13 main story

real nuts and bolts of it.” the two carriers had earlier agreed on said Won. He described alliance savings to date near-common specifications for the sin- KAL shares on 45 sectors with Delta as being mostly “around the margins”, gle-aisle jet. within the U.S., a number Won said will not in major areas such as labour, de- “That’s flexibility. The partners can increase to 100 by the end of 2003. preciation, fuel and maintenance costs. help each other out in these circum- Cathay’s Tyler agreed. “The overheads Nevertheless, agreed Negline, all savings stances,” said Edwards. of oneworld are very light and it employs are beneficial. The most important aspect of alli- relatively few people. The budget is quite “Alliances will remain relevant until ances during recent crises was informa- low, yet the benefits we receive in terms there is broader industry liberalisation tion flow. Oneworld’s McCulloch said of the brand, extending our reach into removing restrictions,” said Negline. exchange of non-competitive informa- markets we could not afford to cover, are Paul Edwards, Qantas executive tion was vital because creative ideas immense. To get every American Airlines general manager strategy and network, from one airline could be adopted by sales person selling Cathay is a massive said not having to face SARS alone was its partners. benefit,” he said. a major benefit. Qantas worked closely Star chief Albrecht reported a similar Cathay’s interline revenue from part- with partners ensuring capacity was trend. ners has grown enormously. reduced in line with demand during How each alliance partner benefits Japan’s All Nippon Airways has had SARS. “We helped each other overcome financially from membership is difficult to a rise in annual ticket sales of around the influence of some of those continu- assess, as many carriers are reluctant to US$85 million since it joined Star. Qantas’ ing shocks.” quote figures. Various studies have sug- Edwards said income from oneworld Edwards believed alliances have be- gested they could eliminate 10% to 12% had increased by 40% to 50% in the last come more important, but said the jury from base costs of operations. two years. is out on the reasons. “I don’t believe it is KAL is more specific. “We had about Airlines agreed alliances are not a because of the tough times, but because a US$45 million benefit from SkyTeam total solution. “At the end of the day, global alliances are industry’s response activities last year, or US$36 million in while every alliance airline will tell you to consolidation. With or without crises, incremental revenue and US$9 million of how much they value it, these are not profit margins are a perennial problem savings. We are expecting US$70 million common ownership alliances, they are so airlines always will try to find ways of this year,” said alliance vice-president commercial alliances,” said Tyler. “Sur- extracting better yields and margins from Won. vival depends on your own quick wits their seat sales,” he said. A key aspect of alliances is the pen- and good luck.” Qantas had taken advantage of the etration they offer through partners into “The alliance is the icing on the cake,” oneworld alliance to make speedy deci- massive overseas markets, especially said Albrecht. There were clearly identi- sions. As post 9/11 troubles hit partner those in the U.S. “We previously had some fied areas where an alliance approach American Airlines financially, it took difficulty in the U.S. market. It is so seg- was more efficient or could provide a way over the purchase of 15 Boeing B737- mented we could not cover it. Through of achieving additional cost savings, but 800 planes ordered by the U.S. operator. Delta we are now able to do that, help- airlines must do their own homework, This was possible with little fuss because ing our income stream and revenue,” too, he added. BIG moves in joint purchasing

irline alliances are negotiating cht, described it as “an amazing break- airlines and manufacturers alike millions with Boeing and Airbus through” and said there is reason “to of dollars. Industrie to thrash out a com- dream about the possibility of a Star Cathay Pacific Airways director cor- mon specification formula for standard for any new aircraft”. porate development, Tony Tyler, said joint new large aircraft designs. Oneworld’s managing partner, John aircraft purchase was the alliance “holy AOrient Aviation has learned these include McCulloch, is more cautious. grail” because “these big ticket items separate talks involving oneworld and He suggested the aim is not to agree make a huge difference if you get it right” Star alliances with Boeing on its proposed on a common specification for the entire and reduce the aircraft price. new B7E7. aircraft, but to reach a common standard He stressed it remained difficult to Moves on joint aircraft purchase on specific fittings, such as aircraft per- achieve this goal for big international have previously revolved around smaller formance, cockpit layout, avionics and airlines. “Specifying a B777-300 is a very regional planes, involving less complex positioning of galleys and toilets. “There different from specifying an A320. It is specifications. Four Star alliance carriers are some major opportunities going for- much easier to do it with a small aircraft – Austrian Airlines, Lufthansa German ward to be able to have one specification, than it is for the long-haul product. We Airlines, Air Canada and Scandi-navian yet one that can be personalised a little bit are working towards it but are quite a Airline System – recently agreed on com- for each carrier,” he said. way from achieving it.” mon configuration for a regional jet, the Senior insiders at oneworld con- Star member, Thai Airways Interna- first time this had been achieved on such firmed the alliance is talking to Boeing tional, vice-president alliances, Wallop a scale. about the 7E7. “It is the first new aircraft Bhukkanasut, said the recent break- The four European airlines issued a that presents an opportunity for [alliance through by four of its members on re- joint proposal to Boeing for the B717, to partners] to band together at the product gional aircraft specifications opened the Airbus for the A318, to Embraer for the definition stage and say what would best door for other partners. “This could apply ERJ 170-195 and to Bombardier on its suit the airlines in oneworld,” one official to big airlines buying bigger aircraft. CRJ 700/900 models. said. There is no limitation as far as what we Star’s chief executive, Jaan Albre- Common specifications would save can see right now.”

14 Orient Aviation, September 2003 air services

Australia’s aviation regulator, Airservices ly thorn in the side of airline operators Australia, is leading a push to rationalise for decades. Success probably depends air traffic services across the Asia-Pacific, as much on politics as common sense, simplifying a system that has been a cost- reports TOM BALLANTYNE.

ernie Smith, chief executive of Airservices Australia, is a busy man. He is not only running an Revolutionising organisation responsible for control of 11% of the world’s Bairspace, but he also has been quietly working behind the scenes to bring about control a revolution in airspace control on a wider front. For months now, informal discussions have been underway with countries in the of the skies region to map out a plan aimed at dra- matically reducing the number of Flight Information Regions (FIR) airlines use as they negotiate international airways. Suc- cess would bring dramatic cuts in costs a threat, as a larger country trying to and save millions of dollars in duplicated impose its will on a smaller country. We air traffic control (ATC) equipment. must avoid that perception at all costs. One proposal is to establish an in- It’s not what we are trying to do,” said ternational joint venture company with Smith. participating nations taking an equity Airservices itself has been restruc- share, seats on the board and assuming tured. Since the mid-1990s the workforce a role in decision-making. Huge areas of has been reduced from 6,500 to a staff the Asia-Pacific could be controlled from of 2,800. “We have, in a disciplined and a small number of ATC centres. diligent manner, set about putting our “Our customers [airlines] are asking house in order. We have trimmed A$120 why their aircraft need to fly through million (US$80.4 million) a year from our all these different FIRs owned by differ- costs,” said Smith. ent countries. By doing so they receive Airservices is pursuing vigorously slightly different service standards and non-core work like the Solomon Islands methodologies and are certainly receiv- project and assisting other countries ing different pricing regimes. There is a install air traffic systems and equipment complexity in the system that does not or training programmes. Airservices need to exist,” said Smith. chairman, John Forsyth, said the ultimate Today, satellite communication, data goal would be for revenue from non-core links, the global positioning system (GPS) activities to cover the air traffic service and other advances mean vast areas of costs of customer airlines. “It’s viable air space can be controlled from remote Chief executive of Airservices Australia, but I suspect [it will not happen] in my locations. Bernie Smith: there is a complexity [with lifetime,” said Smith. “It is a conceptual Theoretically, one ATC centre could the FIRs] that does not need to exist goal rather than an immediate target. It control all the world’s air traffic. Smith represents good intentions, to do the best conceded that, in practice, that is unlikely running Solomon Islands airspace. “The we can for customers.” to happen for parochial and sovereignty Solomons is a great example [of the con- With annual revenue of US$350 reasons as each country wants to control cept]. They could have chosen to install million – 70% comes from Australian its own air space. their own equipment and the cost would operators Qantas Airways and Virgin Nevertheless, there is a view that the have had to be factored into the pricing Blue – Airservices earned about US$18.8 world’s 180 ATC providers could eventu- regime,” said Smith. million from non-core work this year. The ally be reduced to about 30. Smith wants “Instead, they asked Australia to as- aim is to increase this revenue to around Australia and the Asia-Pacific to be at the sist. We said yes. We have the ability to US$33.5 million annually. Customers in- leading edge of that consolidation. provide a very cost effective service, at the clude China, India, Vietnam, Singapore, Smith, who was appointed deputy same time recognising the sovereignty Mauritius and South Africa as well as a chairman of the International Civil Air that still exists in that airspace. They gain number of Pacific islands nations. Navigation Organisation (CANSO) in a revenue stream from that airspace. We This year, an Airservices application June, said no existing provider wanted provide the charging mechanism, repatri- to Australia’s Competition and Consumer to disappear. “But we think there are ate the revenue to the Solomons and keep Commission (ACCC) for a modest 0.6% ways we might all share [control], yet an agreed handling fee.” price rise was rejected. Even if this small retain the sovereignty capabilities of In July, a similar deal was signed increase had been approved Airservices countries and give our customers a with Nauru, another South Pacific island 2003 profits would have been halved. better deal. Nobody should lose out state. The ACCC decision will likely see the on this.” “It is a very attractive proposition cancellation or deferral of a number of For some time Airservices has been to some, but to others it is perceived as projects.

16 Orient Aviation, September 2003 news Indonesian carriers under added pressure

s the August bombing in Ja- karta put increased pressure on Indonesia’s airline and tourist industry, state-owned Merpati Nusantara already Awas facing tough decisions about its fu- ture after the country’s finance ministry rejected the carrier’s request for a US$24 million bail-out package. Merpati wanted a low interest loan. Without it, warned president Hotasi Naba- ban, the carrier would have to merge with national flag carrier Garuda Indonesia or launch a divestment programme to raise funds for working capital. Merpati has suffered badly from new domestic competitors offering low airfares. The government loan was needed to begin a fleet overhaul, open new routes and cover severance payments for em- ployees in planned major lay-offs, said the president. Poor financial performance has seen the value of the company’s assets drop from US$111.5 million at the end Merpati Nusantara: Indonesian Government rejected bail-out package of 2002 to US$105.5 million in the first quarter of this year. During the latest quarter the car- rier lost US$4.8 million, compared to a US$5.2 million profit in the same period last year. With debts of US$120 million, Merpati has revised down its 2003 profit forecast from US$163.2 million to US$6 million. Nababan said privatisation of the carrier may be an option. “Although we have not found any party interested in taking over Merpati, such an option should be given serious consideration,” he said. Merpati is not the only Indonesian carrier appealing for financial assistance. Bali-based Air Paradise International, which launched services to Australia in February with a leased - 300, wants to expand into new markets, but owner Kadek Wiranatha told local media the growth of his airline would be contained without government financial support. Air Paradise is struggling to break even and is seeking tens of millions of dollars in loans from state-owned banks Air Paradise: new Bali carrier under pressure to fund expansion. “The Balinese can- not wait; we need transport to bring the , Air Paradise has leased a second put additional pressure on Indonesia’s tourists here and for that we need help aircraft and plans direct flights to Seoul, tourist industry and its besieged airlines from the Indonesian government,” said South Korea, New Zealand and Japan just as they had started to recover from Wiranatha. by October. the collapse in their business caused by Currently flying twice weekly to However, the bombing of the J W the terrorist bombings in Bali in October Melbourne and four times weekly to Marriott hotel in Jakarta in August will 2002.

18 Orient Aviation, September 2003 executive interviews

By Daniel Baron No thrills In Tokyo As their western counterparts thrive, Japan’s low-cost carriers are fighting strong headwinds in their attempts to keep flying

hile start-ups in other countries appear to grow team of employees with no jobs and little chance of collecting exponentially overnight, Japan’s small, unpaid wages. independent airlines were, from day one, con Sapporo-based Hokkaido International Airlines (Air Do) ceived with muted ambitions. declared bankruptcy in 2002 and has since been rescued by Although the barriers to market All Nippon Airways (ANA), which has invested 320 million yen Wentry have, for the most part, come down, an operating environment (US$2.69 million) in the carrier. constrained by an overcrowded , through which 60% Will Japan’s small, low-cost airlines ever expand at a clip of the country’s domestic traffic passes, and high operating costs, keep seen by the likes of the U.K.’s Ryanair or JetBlue in the U.S.? the eager young birds forever battling a stiff headwind. Or are they destined to be eternal start-ups in a cottage indus- Indeed, one of them, Lequios Airlines, never took off at all. try? Orient Aviation spoke with the presidents of two of the Lequios, which was due to start service between Tokyo and cash-strapped carriers and learnt of the obstacles on the way Okinawa in June, abruptly threw in the towel, leaving a start-up to their success.

SKYNET ASIA AIRWAYS

n the summer of 2002, on the eve of as sales and reservations. On August 2, the merger between Japan Airlines SNA launched its second route, between I (JAL) and Japan Air System (JAS), Haneda and Kumamoto, with two addi- Orient Aviation paid a visit to Shoji Shi- tional B737-400s and new slots at Haneda, moda, president of Miyazaki-based Sky- the first available since 2000. “We will be net Asia Airways (SNA). His airline had competing with both JAL and ANA,” he just commenced operations with two said, “but we can hold our own with high aircraft and a single route, from Tokyo- frequencies. The 737-400 is just the right Haneda to Miyazaki, in southern Japan. size for the job.” Funded heavily by local municipalities Shimoda also attributed potential for and businesses in Miyazaki, SNA was success on the route to the favourable seen by many as having little chance leasing rates his airline has secured for of competing effectively with Goliaths the fleet. “The events over the past two JAL and ANA, which had been forced years – the 2001 terrorist attacks in the to surrender slots at Haneda to make U.S., the general global economic down- space for newcomers. turn, the Iraq war and then SARS – have One year on, SNA still had one route helped us negotiate extremely competi- and was very much in the red (a state tive rates,” he said. of affairs now shared by all of Japan’s The launch of the Kumamoto route airlines large and small). Nevertheless, has not been without glitches, however, an ever-optimistic Shimoda offered a notably the late delivery of the aircraft due glowing appraisal of his airline’s perform- Skynet Asia Airways president, Shoji to a certification delay. SNA was forced to ance to date. “With six return services a Shimoda: price war with majors has postpone the launch by a day, an action day, we have the most frequencies in the eroded yields that may have repercussions down the market,” he said, adding that average road in the form of closer scrutiny of all load factor was 85% in July, with strong that have built brand loyalty. “The repeat of the small carriers. advance bookings for the peak summer customers have brought us a lot of new With capacity doubling as a result of vacation period in August. business through word of mouth,” added the new route, SNA’s president estimated Shimoda lamented that a price war Shimoda, underlining the prohibitive cost turning out a net profit of 79 million yen with the majors had eroded yields, but of traditional advertising in the Tokyo in fiscal 2004. He also anticipated being cited generous seat pitch (34 inches) market, particularly for an airline serving able to eliminate the carrier’s heavy debt on his fleet of four B737-400s, inflight only two cities. burden of 1.1 billion yen by raising addi- snacks and beverages and a frequent The president is now counting on tional capital. The airline is already being flyer programme that rewards custom- another Kyushu city to generate much propped up in part by local Miyazaki busi- ers with cash as points of differentiation needed economies of scale in areas such ness groups eager to see the hometown

20 Orient Aviation, September 2003 executive interviews

airline succeed. by SNA and Skymark Airlines. The FTC set on ,” he said, referring Shimoda has another group on his intervened with a directive ordering them to the new off-shore facility due to be side: Japan’s Fair Trade Commission to halt the cuts, in turn setting a prec- completed in 2005. “The majors will not (FTC). Having granted JAL permission edent, i.e., that a protective arm will be be interested in competing there due to to merge with JAS, the FTC is now un- ready when the little guys cry foul. their existing operations at Osaka’s Itami der pressure to prevent the failure of the With little chance of capacity increas- and Kansai airports,” added Shimoda. smaller players. It flexed its muscles in es at Haneda Airport in the near future, “We aim to be the number one carrier September 2002, after the major carriers SNA will look elsewhere for growth, where we can achieve such a feat, and filed plans to slash fares on routes flown indicated Shimoda. “We have our sights Kobe will be that place.”

SKYMARK AIRLINES

asayuki Inoue, president of aged as business class. The airline’s fifth Skymark Airlines, echoed B767 will boast leather seats sporting M Shimoda’s determination to excel individual video screens. where the majors could not, albeit from Inoue conceded that Skymark’s high his base in Tokyo. Founded in 1996 as density configuration B767s provided Japan’s first new jet airline in 35 years, more capacity than needed at certain Skymark chugged along with one route times of the day. The choice of aircraft (Haneda-Fukuoka) for several years. was made in consideration of the dearth Now with four B767s, Skymark flies four of slots at Haneda prior to the carrier’s scheduled domestic routes from Haneda, launch in 1998. Asked where he would two (Haneda-Aomori, Haneda-Tokushi- like Skymark to be in five years, Inoue ma) taken over from ANA in April. The said: “We hope to double the fleet size and carrier will add a fifth B767 later in the become a strong leisure-oriented carrier year to boost frequencies. both within the country and between Inoue, who assumed the post in 2002 Japan and other Asian cities.” after 14 years with British Airways, lat- It is an aspiration that sounds strik- terly as their regional business analyst, ingly similar to that of SNA’s Shimoda. has faced a challenging first year on the With strong customer bases in Kyushu job. In February, a crack found in one of and complimentary fleets, why not put the aircraft forced the cancellation of 115 the two “skies” together to create a single flights, cutting profitability and putting at airline, forging synergies that would re- risk the airline’s hard-earned reputation duce costs and present the big boys with for safety. Adding to the headache was a Skymark Airlines president, Masayuki a more formidable challenger? static local economy and stiff competition Inoue: “sun is finally beginning to shine” The idea was promptly dismissed from JAL/JAS and ANA. despite facing its seventh successive year by Inoue and Shimoda, both of whom As a result, Inoue predicted that Sky- of losses were firmly determined to go it alone, mark would post a 640 million yen loss in citing differences in goals and corporate 2003, its seventh consecutive year in the national flights. culture. red. The carrier is now weighed down by The lights inside Skymark’s aircraft Which brings us back to square one. a negative net worth of 4.1 billion yen. are sometimes on at midnight for another It would appear that a unique operat- Inoue added the carrier was looking for purpose: cabin crew training. This is ing environment and cottage industry additional capital and noted it had the conducted in the wee hours in order to mindset may indeed prevent Japan’s backing of parent company H.I.S. Co., maximise aircraft utilisation for revenue independent, low-cost carriers from ever the travel agency group that formed the service. resembling their counterparts abroad, a airline. As for product differentiation, Sky- thought sure to be relished by the owners Inoue is positive that the sun is finally mark is now providing a hot meal service of the two biggest cottages on the block: beginning to shine through for his airline. in the front cabin, which it has repack- JAL and ANA. “Expansion from one scheduled destina- tion to four has produced much needed economies of scale, “ he said, predicting an operating profit for the second half of 2003. “Yields on the Fukuoka route are good and demand is very high for our charter flights as well,” he added, referring to a service that Skymark pioneered last year: late-night charters from Haneda to Seoul using aircraft that would have otherwise remained idle. The carrier is hoping to double frequencies on the route in the near future and is looking at additional destinations that, like Seoul, would allow operation within Haneda’s midnight to 6:00am window of exemption for inter- Skymark Airlines: A fifth B767 will join the fleet later in the year

22 Orient Aviation, September 2003 news Lao Airlines enters jet age

By Barry Grindrod strives to become one of the principal in Vientiane carriers in Asia’s Mekong Region. The A320 will fly international routes aos, the land-locked country of between the Laos capital of Vientiane and five million people in the heart Bangkok, Phnom Penh and Siem Reap in of Indo-China, is often described Cambodia and to Kunming, China. The as one of the last undiscovered aircraft also will service the main domes- destinations in Asia. tic route to Luang Prabang. LAnd with a new name, a new look and Lao hopes to add Singapore and its entry into the jet age, the country’s small Hong Kong to its network in the future. national carrier, Lao Airlines, is planning to Two ATR 72 aircraft already with the Lao Airlines president, Dr Somphone reveal its rich history to growing numbers airline will be used on secondary routes. Douangdara: airline seeking oversees of travellers in the 21st century. As well, Lao has two China-manufactured investment Formerly known as Lao Aviation, Y-12s to serve remote destinations in the Vientiane-based Lao Airlines took deliv- mountainous districts of Laos that only seeking foreign investment in the airline ery of its first leased Airbus A320 from can provide short landing strips. of between 40% and 60%. It hoped the Singapore Aircraft Leasing Enterprise Last year Lao carried 200,000 passen- buy-in could be completed by the end (SALE) in July. The delivery signified gers, with 60,000 of them on international of 2003. Interest had been shown from a new start for a carrier that has had routes. It hopes to double this figure by investors in Asia and Europe. a chequered history since its launch 2004 with 7%-8% growth per annum Dr Somphone said the airline had in 1976. thereafter. restructured early this year, had a new Two more A320s are scheduled to join Lao president, Dr Somphone Dou- business plan and was re-building its the fleet in the next three years as Lao angdara, said the state-owned carrier was image. The carrier had revenue of US$14 mil- lion last year, but failed to make a profit. The president said he expected Lao to be in the black in 2005 or 2006. Earlier this year Air France Consult- ing signed a contract with Lao. Today, two of the European company’s staff are working full-time with the airline, one as advisor to the president and the other as technical director of the airline. Advisor to the president, Guy le Sann, said the A320 would be flown by ’ (VNA) pilots until Lao pilots qualified to sit in the left hand seat. Four of the airline’s pilots were undergoing training in Toulouse, he said. They would be required to spend six to 12 months as first officers on the A320 before taking command. Lao has a close relationship with VNA and its president and CEO, Nguyen Xuan Hien, attended the delivery celebrations in Vientiane. The two carriers code-share on routes and VNA will perform A-check mainte- nance on the A320. Said SALE managing director, Robert Martin: “In the last two years the leasing market for this type of aircraft has fallen 30%-40% compared to 2000. Lao Airlines has chosen a very good time to enter the A320 lease market.” Airbus senior sales director customer affairs, Asia, Paul Tuck (back left) and SALE Between 1995 and 1998, Lao had a managing director, Robert Martin, pictured with Lao traditional dancers in front of Lao less than harmonious joint venture with Airlines newly leased A320 China’s Yunnan Airlines.

24 Orient Aviation, September 2003 general aviation

Mercy missions big business for the ... Flying doctors

Medevac company teams up with Deer Jet in China Dr Pascal Rey-Herme

By Charles Anderson still largely Asia-based, acquired Inter- cated air ambulances spread around the national SOS Assistance in 1998. The world,” said Dr Rey-Herme. edevac has become big investment gave the company greater “These are aircraft operated by business for the French global reach and it now has clinics in general aviation companies that work emergency services doc- countries as diverse as Myanmar and exclusively for SOS. They are reconfig- tor who identified a gap Australia, China and Nigeria, Azerbaijan ured into permanent air ambulances and in the market when he and Vietnam. the operator operates them exclusively Mwas transferred to his country’s embassy A broad range of services is offered for us. SOS provides the medical com- in Jakarta in the early 1980s to work in to companies working under challenging plement.” Indonesia. conditions. A Cessna Citation 2, based in Port It was a time when western compa- But the ability to transfer a sick man Moresby, for instance, transports clients nies were moving to take advantage of or woman from a remote location to a from the wilds of Papua New Guinea Asia’s development. “I realised the Eu- hospital with competent facilities remains and the Pacific islands to Australia. Lear ropean system of emergency transport central to its activities, to the extent that 55s operate out of Baden in Germany. of patients was a There is a Hawker concept that was 125-1A in Moscow not covered at all,” and a Lear 45 in said Dr Pascal Rey- Singapore, in use Herme. “Asia-Pa- temporarily while cific needed medi- a replacement is cal centres of ex- found for a Falcon cellence as well as 200 recently trans- transport to them. ferred to join a Fal- There was a lot of con 100, Lear 25 and foreign investment Beech King Air 90 and a lot of need for operating in Johan- this service.” nesburg and other From there, he © International SOS 2003 parts of Africa. and co-founder Ar- “If that’s not naud Vaissie, have sufficient, we have built a company, agreements in dif- International SOS, ferent parts of the headquartered in world with other Singapore, that is general operators,” staffed by 3,000 said Dr Rey-Herme. professionals at A new portable isolation unit was used by International SOS to transport a SARS “We can call on them alarm centres, in- suspect to hospital on a case by case ternational clinics basis. They can be and 100 remote medical facilities on five last year aviation companies working better [for us] because of their location.” continents. for International SOS flew 383 missions Aviation auditors are used to ensure the Dr Rey-Herme is group medical involving 1,798 flight hours in the Asia- quality of the companies. director and Vaissie the company presi- Pacific alone. All this requires much advanced dent. The last few months have seen Globally, the figures were 1,192 planning, especially when it comes to them unveil a promising partnership in missions and 7,759 hours. The company flight clearance. Three regional centres, China, with Hainan Airlines’ Deer Jet expects to top 10,000 flying hours in in Singapore, Stuttgart, Germany, and subsidiary. 2003. Philadelphia in the U.S., are manned by They have proved their worth by International SOS, in fact, owns no flight dispatchers. Pre-agreements that utilising their new portable isolation planes. Its first choice is to put patients meet conditions in a specific location are unit to whisk a suspected SARS patient on commercial flights through its 24- set up with civil and military authorities. from the island of Penghu to hospital in hour online connections to reservations Emergency flight plans are submitted Taipei, Taiwan. systems of major international airlines. and contact activated at both ends to Medical evacuations are not the But when that is not possible, as is often speed up the process. only aspect of operations to which Dr the case, or when a patient might be seen “Depending on the part of the world, Rey-Herme must attend. International as posing a threat to other passengers, we hope to get very, very fast clearance,” SOS came into being after the French- medevac is the answer. said Dr Rey-Herme. men’s original AEA International, then “Our first line is a network of dedi- In frontier areas, decisions have to be made quickly and receiving accurate

28 Orient Aviation, September 2003 information can be a challenge. A heli- In China, Dr Rey-Herme pinpoints the copter could be needed, depending on development of personal and health in- he SARS epidemic saw Interna- the terrain, road transport to an airfield surance as a reason for growth. tional SOS bring a suspected might be the answer. But the quality of “Say a Chinese, working or travelling T sufferer to a designated SARS the operator concerns Dr Rey-Herme for a national company in the western hospital in Taipei from an outlying the most. “You have to get a reliable part of China, may wish to be brought island at the request of Taiwan’s company,” he said. “But you may have back to Beijing, Shanghai or Guangzhou. health department. to use an operator you have not used Until recently, the price of such transport The call to fly to Penghu came previously.” really limited the possibility. The develop- from the National Aero-Medical Con- He must also ensure his own staff are ment of insurance in China has made it sultation Centre at 11am. Within two up to the challenge. affordable to get a premium.” hours the company’s portable isola- “We have to train our team of nurses International SOS’s deal with Deer tion unit and other protective equip- and physicians. They can be competent Jet has resulted in the first jet-oper- ment were loaded on to a Fokker 50. in a hospital, but to work on an aircraft ated medevac service in the country. A The flight was under way by 1pm and where space is limited is different. You Hawker 800XP has been converted to arrived in Penghu 45 minutes later. may have the same equipment, but not a act as an air ambulance exclusively for It landed in Taipei at 4.30pm and the lot of space,” he said. the company. man was transferred to hospital 10 The Frenchman has seen his clientele It will operate within China and also minutes later. change over the years. “Initially, when we cover emergencies in countries such The portable unit, which folds started our operation, the demand was as South Korea, Japan, Mongolia and to fit into a carrying case, has since mainly westerners or Japanese working Singapore. In its new configuration, the been further developed by Dr Roger for large corporations. But more and Hawker can carry two stretchers and two Farrow, the company’s deputy group more demand is coming from national medical staff or one stretcher, two medi- medical doctor. It can fit into all companies. We still serve the foreigner, cal staff and two family members. planes used by International SOS but we are also taking care of Hong Kong The partnership is the result of ear- and allows patients to be maintained and Singaporean people when they travel lier cooperation with Deer Jet. Dr Rey- for longer periods and in greater or Thais when they work in a remote lo- Herme is optimistic about future growth comfort. Two units are in service cation. The client base is changing.” in China, with the possibility of smaller in Taiwan and with The increase in Asia’s economic aircraft being placed in other locations eight more planned for centres clout has caused that shift in emphasis. to serve the domestic market. worldwide.

September 2003, Orient Aviation 29 in the Asia Pacific AIRPORTS DELTA DYNAMICS It’s co-operation and competition for the five airports in China’s booming Pearl River Delta

By Charles Anderson capita income in China. It generates one-third of China’s total exports. Its hen the representatives of future development and the interaction, the Pearl River Delta’s sometimes competitive, between Hong (PRD) five airports met in Kong, Guangzhou and the mega-cities Zhuhai in June, much of that have sprung up there are endless the talk was about SARS, sources of speculation. Wthe killer virus that had emptied their The PRD A5 Group, as the airports’ runways and departure halls two months organisation is called, was formed in earlier. 2001 to bring cohesiveness to their SARS’ effect on the airports’ busi- operations. With five airports within a ness and management, along with the 50-kilometre radius, it made sense to mitigation and precautionary measures seek out common ground and stream- each had implemented, were discussed line whatever joint operations could be and lessons learned. Precautions had implemented. been effective, making it safe for pas- But the members of the A5 Group sengers to travel, their concluding press face other, more fundamental, challenges release stated. over their future roles in China’s aviation A little self-congratulatory perhaps, regime and to what extent they, and the but nevertheless an example of how cities that built them, will cash in on the the airport authorities in Hong Kong, delta’s phenomenal development. Guangzhou, Shenzhen, Macau and For the Special Administrative Re- Zhuhai can work together to meet the gion (SAR) of Hong Kong, already a key challenges they share. international and cargo hub, some of the In this instance, it was a health risk questions are: that hopefully will not recur, but one that • how to maintain and increase its badly affected business in the booming present status in the face of com- manufacturing zone in which they are petition from Chinese cities such as all based. The delta has the highest per Guangzhou, Beijing and Shanghai.

SPECIAL Hong Kong International Airport: needs to consolidate its status as an international and REPORT regional hub in the face of competition from China’s major airports

30 Orient Aviation, September 2003 special report

• whether to build a stronger flight cities around the delta to Hong Kong air- in emergency situations, better training network to secondary mainland cit- port, which handled 2.48 million tonnes of staff and so on. Traffic throughput may ies. of freight last year, the most in the world. also be increased through improvement • how to back the SAR’s push for a top Of that, 70% is China related, with the of inter-modal connections,” he told Ori- strategic role in the delta region as bulk coming from the delta. ent Aviation. Hong Kong repositions itself since Passenger numbers – 34.32 million Hong Kong’s master development its return to Chinese sovereignty. – give it fifth ranking among airports plan sees phased growth of its infra- For Guangzhou, with a fine new globally. Those passengers, too, could structure until 2020, when 87 million airport due to open in July 2004, there be increasingly transferred from neigh- passengers a year can be handled. At is a desire to: bouring airports, especially Shenzhen, present that maximum figure is 45 mil- • secure a role as an international hub, for international connections, with more lion. Forecasts of 5% annual passenger to add to its strong domestic pas- border checkpoints opening between growth mean its final capacity may well senger and cargo networks while the Hong Kong and Shenzhen and an ambi- be utilised within a few years of 2020 Chinese central authorities are trying tious 29-kilometre bridge linking Hong instead of a couple of decades later, as to build up critical mass for Beijing Kong with Zhuhai and Macau likely to was originally envisioned. and Shanghai. get the green light. The Airport Authority Hong Kong • ensure the new airport is able to uti- Fung spelt out his vision at an air has recently awarded a design services lise its increased capacity, both from next year and during further stages of planned development. At Shenzhen, which has no interna- tional routes as yet, co-operation and co-ordination with Hong Kong are criti- cal. Its domestic network is strong and, with the city’s port areas booming, it is unlikely to be short of cargo. Macau must prepare for life after tour groups – stopping off between Taipei and China to satisfy Taiwanese travel requirements – when direct flights between Taiwan and China are allowed. And Zhuhai Airport, struggling eco- nomically, must seek a viable future. The A5 Group, which has so far held five forums, last year signed a Letter of Intent to co-operate in areas such as flight diversions during emergencies and typhoons, communications proce- dures, provision of essential services to diverted flights and passengers and use Shenzhen Airport: co-ordination with Hong Kong is critical of resources and technical assistance. Five task forces are working on cargo forum in Hong Kong. “The PRD contract for its SkyPlaza transportation emergency support, joint promotion, air network significantly enhances our and business centre, an extension of the passenger and cargo processing, train- region’s connectivity and accessibility. existing passenger terminal and a central ing and development and security. A Together we cover 45 countries with part of the SkyCity development. A cov- website is being developed, IATA’s 179 destinations worldwide, includ- ered coach station for cross-border and Simplified Passenger Travel (SPT) pro- ing 80 cities in the mainland,” he said. tourist traffic, waiting lounges, check-in gramme (see separate story) is being “Strengthened co-operation between facilities, retail and entertainment areas studied and moves are under way to PRD airports in the further development are all due to be completed by the end establish co-operation programmes of multi-modal links will significantly of 2005 to link with the opening of the on human resources management and enhance the region’s connectivity with nearby Disneyland project and a new development. Air traffic management more international destinations and in- International Exhibition Centre on the alone gives ample scope for worthwhile land cities in the Chinese mainland. airport site. A nine hole golf course developments. “Secondly, and more importantly, a might also be built at the airport. Although keen to be seen as one of strong partnership between Hong Kong An on-site logistics centre, Trade- five members, Hong Kong International and the PRD will vastly expand the entire port, has been completed, an express Airport, with Shenzhen, Macau and region’s customer base.” cargo terminal is under construction and Zhuhai on its doorstep and taking into Li Qing, general manager, China the authority is looking into the feasibil- account the SAR’s own ambitions within business, for Airport Authority Hong ity of a cargo consolidation centre in the the delta, is an obvious force within the Kong, talks on a more practical level. delta itself. group. As one analyst said, A5’s signifi- “For example, through co-operation, Away from these impressive devel- cance is in Hong Kong’s hands. the five can enjoy a more efficient use of opments, Hong Kong’s airport faces a Hong Kong’s airport authority chair- airspace, better deployment of resources challenge over increasing its mainland man is Victor Fung, whose family compa- ny Li and Fung is one of the city’s trading giants. As chairman of the Hong Kong STOP PRESS... Trade Development Council for nine years to 2000 he was a keen proponent Hong Kong International Airport is planning to privatise. It is also dis- of cross-border trade. Now he is carrying cussing buying into Shenzhen Airport, it was announced at press time, in a that vision into the aviation sphere. proposed project dubbed one airport two countries (see page 6). Cargo is already being ferried from

32 Orient Aviation, September 2003 special report

routes. Mainland and Taiwan related. Figures quoted by aviation expert The Pearl River “We have been focusing on im- David Dodwell, of Golin/Harris Forrest proving the inter-modal connection in his August 2002 report, Building the Delta airports between these airports. These include, Hong Kong Aviation Hub: the Mainland for example, a marine cargo terminal Dimension, funded by Cathay Pacific Hong Kong and a passenger terminal connect- Airways, highlight the dilemma. International Airport ing the PRD ports with Hong Kong’s When it comes to connectivity to Opened: 1998 airport and simplification of CIQ mainland cities, Guangzhou at that Passenger capacity: 45 million (customs, immigration and quarantine time served 70 cities, Shenzhen 51 and Future capacity: 87 million by 2020 procedures).” Hong Kong 48. But when it came to in- Guangzhou, meanwhile, is giving ternational traffic, Hong Kong had con- Figures (2002) China Southern Airlines, the mainland’s nections to 48 countries and 131 cities, Passengers: 34.22 million largest airline, a spanking new home at Guangzhou, 18 and 19 respectively, and Cargo: 2.48 million tonnes its new Baiyun complex. Final capacity Shenzhen nil. Flight movements: 206,630 will be 70 million passengers by 2030 “Hong Kong may be well ahead of and, although domestic growth could mainland competitor hubs in terms of Guangzhou Baiyun take up much of that, authorities there international connectivity,” Dodwell International Airport will be pushing to make its “interna- wrote, “but if this is not matched by Opened: 1950s, new airport opens tional” airport truly international to seamless and comprehensive mainland 2004 underline Guangzhou’s position as pro- connectivity, the international connec- New airport capacity: 25 million vincial capital and to ensure that capacity tivity will be a diminishing competitive Future capacity: 70 million by 2030 is fully utilised. advantage. Derong Lui, project director for the “As leading mainland carriers begin Figures (2002) aviation division of Parsons, who is over- to offer through-tickets from domestic Passengers: 16 million seeing aspects of design, planning and Chinese cities to destinations in third Cargo: 592,000 tonnes construction, sees Guangzhou as the first countries, with fast turn-around times Flight movements: 147,000 airport in China designed specifically in Shanghai or Beijing, so Hong Kong’s on the hub concept. “That is going to be fragmented ‘offering’ – of a Dragonair Shenzhen important, with more and more people flight from a modest number of main- International Airport transferring from Guangzhou,” he said land cities, transferring in Hong Kong Opened: 1991 (see separate story). onto a Cathay Pacific flight to a foreign Capacity: 17 million Li Qing believes there is plenty of destination – will become progressively room for both Hong Kong and Baiyun less attractive.” Figures (2001) airports to thrive. “Both have their own Recently, Cathay Pacific was given Passengers: 9 million captive market,” he said. “For example, permission by the Hong Kong Govern- Cargo: 211,000 tonnes Hong Kong residents will be unlikely ment for three passenger and three cargo Flight movements: 87,873 to travel to Guangzhou to fly and vice flights a week to China. The airline is now versa. awaiting clearance from Beijing. Macau International Airport “There are areas in the delta where If granted they will be the first China Opened: 1995 some overlapping may occur. In such flights for Cathay Pacific since 1990 when Capacity: 6 million cases, the choice of which airport to use it handed the routes to Dragonair after will be a function of many factors, includ- it, and parent company Swire, had taken Figures (2002) ing convenience in terms of frequency a majority stake. This has now changed Passengers: 4.17 million and destinations. with the Mainland’s China National Cargo: 111,000 tonnes “Hong Kong’s strength is its inter- Aviation Corp (CNAC) the majority Flight movements: 37,500 national connectivity. It is also very well shareholder at Dragonair. connected to the major cities like Shang- Comparatively high charges and Zhuhai Airport hai and Beijing. Guangzhou’s strength is fees at Hong Kong airport, an especially Opened: 1995 that it is better connected to secondary important issue for small aircraft and Capacity: 12 million cities in China. However, it has much short-haul intra-regional or domestic Passengers: 750,000 (approximate) less developed international connections China flights, could mean Shenzhen and compared to Hong Kong. Guangzhou will become preferred hubs “One point that is commonly over- for travel by mainland Chinese into and numbers, which affects the cost-ef- looked is that as China becomes more out of the delta, he said. fectiveness of passenger throughput, affluent, the pie, especially that in the Dodwell concluded that Hong Kong versus encouraging Shenzhen, Macau PRD, is also becoming bigger,” said Li. needed to restrain airport landing and Zhuhai to act as shuttle airports, “These are issues that are in the common charges and fees to remain competitive with Hong Kong sending travellers on to interest of the PRD airports, including within the region. The SAR also should international destinations. Or, implement Guangzhou, to work out together. Hong modify constraints on Cathay’s routes a combination of the two. Kong International Airport fully sup- into China and Dragonair’s international Said the Airport Authority’s Li Qing: ports such cooperation.” routes and cargo, moves which have “Hong Kong is a preferred airport for Li believes the A5 Group forums play since come to pass. international travel. Airports like Zhu- an important role. “It is a forum in which The use of smaller aircraft to second- hai and Shenzhen have virtually limited to exchange ideas, deal with issues of ary cities, either through the two main international destinations. common interest and also get to know carriers or others seeking to find a place “Mainland passengers travelling the people of the other airports much in the market, also means Hong Kong’s overseas and international travellers better,” he said. “Closer integration with airport authority must weigh up the eco- travelling to the mainland can use these the PRD is an irreversible trend for Hong nomic implications of accommodating airports as one airport system. Macau Kong and the forum is a venue for the short-haul flights with lower passenger is a different story, as its main traffic is airports to play their part.”

34 Orient Aviation, September 2003 special report COUNTDOWN

By Charles Anderson River Delta’s expansion. Southern Airlines, the largest of the Already listed on the Shanghai stock country’s new aviation groups, has big t the airport complex taking exchange, the airport’s first phase alone ambitions, so the hub concept is an es- shape, 20 minutes by a new is costing US$2.4 billion. By 2030, when sential element in the airport’s design. express freeway from the authorities hope the region’s expansion “The hub concept is going to be centre of Guangzhou, in will have matched their vision, they want important with more and more people southern China, heavy con- to see 70 million travellers a year using transferring from Guangzhou. That’s Astruction work is largely completed and its facilities. why we built it as a hub,” said Liu. “For workmen are now busily engaged inside Derong Liu, project director for the an airport, efficiency is number one. The the shell of the buildings where the city’s aviation division of Parsons, the giant traffic flow, baggage flow and passenger aviation expansion will be based for at U.S. company tasked with passenger flow are very clear. least the next 30 years. terminal and terminal area concept “Our design also uses state-of-the-art Baggage handling systems and return design, design coordination of con- equipment to ensure safety and security. escalators are being assembled and elec- struction documents and aspects of Baggage handling has five levels of secu- tricity and plumbing systems installed as operational management, says the new rity checks and we have top-level pas- the onerous task of interior finishing is airport stands out from others for a senger security checking equipment. On tackled. Completion is now expected by number of reasons. safety, our design provides the best for the end of the year aircraft movement in with an official open- the airport area.” ing in July 2004 still Inside the termi- on track. nal, the centralised Initially, Guang- ticketing area covers zhou Baiyun Inter- 45,000 square metres, national Airport will with 144 counters, be able to carry 25 36 of which will be million passengers international. The a year and one mil- airport, rather than lion tonnes of cargo, individual airlines, almost double the ca- will be responsible pacity of the airport for passengers. They it is replacing. Thirty will cross over an percent more aircraft elevated road bridge, movements can be after paying depar- handled. ture taxes, for secu- The expansion is rity checks and then sorely needed. Guang- go straight into the zhou’s present air- departure holding port, 30 kilometres area. to the south, in the A plane unloads China Southern Airlines’ equipment at Guangzhou’s present Baiyun C o m m e r c i a l suburbs of the city International Airport for use at the new airport to be opened in July 2004 space is included and first used some on the ground floor, 50 years ago, hit capacity in 2001. “From the design concept, we used while a shell area has been built below, With terminal expansion included in American management methods, but we ready for the metro to arrive, which is a the second and third phases of growth combined these with Chinese practice,” job for the municipal government. An to 2030, provision for a third runway he said. “We have separated departure international business centre, conven- to be added to the two already built and arrival traffic. That means much less tion centre and airport hotel are taking and, more immediately, a metro railway of a jam in the airport terminal area. And shape on two hectares of land put aside planned to ease the way into the busy we have kept the Chinese way of cen- for the purpose. capital of Guangdong province, there tralised ticketing and separate boarding. The latter is still under construction, is no doubt that Guangzhou authorities That was key to our design. with completion expected around the mean business. “Of course, we used state-of-the-art same time as the airport’s official unveil- “The reason why we’re building a equipment, but we kept a low construc- ing. New Baiyun’s opening can only come new international airport is simply be- tion cost. When it comes to building a after up to six months of verification and cause the old airport is too small and can- new terminal, this is the most economical checking of equipment systems as well not meet the city’s needs,” executive vice airport in the world.” as the wholesale transfer of material and mayor Zhang Guangning was quoted by Comparing the first phase of new people from the old airport. CNN as saying. Baiyun to similar airports in the U.S., The final switch will be made over- While that is undoubtedly true, and notably Hong Kong, Liu says its 46- night, with one airport closing with the Guangzhou also sees its new airport as gate, 20-host stand terminal in a 350,000 last flights of the day and the other opening serving China as a whole, as a primary square metre construction area cost a first thing next morning. And while new hub of national and, hopefully, interna- third of what would be spent in those Baiyun gets moving, old Baiyun will close tional importance. And it wants new places. its runways and wait to be knocked down, Baiyun to play a leading role in the Pearl Baiyun’s biggest customer, China to make way for a shopping centre.

36 Orient Aviation, September 2003 special report No-shows at Noto

By Daniel Baron interest in the region, not to mention revenue, the local pre- fectural office struck a deal with ANA under which the carrier he spanking new 2000-metre runway at recently will fly two return services daily instead of one. In exchange, opened Noto Airport in Japan’s the prefecture will pay ANA up to 200 million yen if the aver- should be a welcome addition to airport capacity in age load factor on the extra flight falls below 70%. The carrier a country known for its perennial shortage of land- agreed to go along with the unconventional arrangement for ing slots. one year. TThere is, however, one small problem: the new airport is Load factors between Haneda and Komatsu and Toyama attracting almost no traffic. Critics of the project, which cost airports in 2002 came in at below 70%, suggesting the experi- an estimated 24 billion yen (US$200 million), fear the facility ment may not extend beyond the agreed period. will end up as yet another Japanese airport that defies con- The demand/capacity mismatch is also attributable to the ventional wisdom, i.e., that public works projects should be fact that scheduled services on regional jets are not yet allowed driven by actual potential demand rather than by political or at Haneda Airport, which, with its lack of landing slots, has historical factors. for years given priority to moving large numbers of people In 2002, the prefecture embarked on a sales blitz to pitch the on large aircraft. new airport, hoping to sign up flights from all of Japan’s major Japan’s media had plenty to say about the state of affairs cities by the time the facility opened in July 2003. The reality at Noto, whose construction was given a green light prior to of a low population (200,000) and the proximity of two other the central government’s adoption of a newly “rationalised” airports, in nearby Komatsu and Toyama, however, rendered five-year airport plan. the road show an exercise in futility. The Nihon Keizai Shimbun, Japan’s main business daily, In the end, only one airline, All Nippon Airways (ANA), com- wrote that “unless Noto can attract stable tourist and business mitted to operating at Noto, with a single return daily service traffic from metropolitan Tokyo, Noto Airport may become using a B737-500 of subsidiary Air Nippon (ANK). another third-sector regional transport venture that lives off Fearful only one flight a day would not generate enough public money”.

Patience pays off

t has been a long time coming, but capable of handling 76 flights an hour. It when Bangkok’s Suvarnabhumi In- will have the capability of handling 45 mil- ternational Airport opens on Sep- lion passengers and three million tonnes tember 29, 2005 it will be 45 years of cargo a year. after the need for a new airport The airport will have 51 parking bays Iwas first identified. at the passenger terminal and 69 remote Don Muang Airport, the world’s old- bays. The ultimate plan is for Suvarnab- est international airport, has been heavily humi to have four runways, handling 112 overstretched for years. flights an hour. Its capacity will be 100 In 1960, the Thai Government accept- million passengers and 6.4 million tonnes ed the findings of a study that “Bangkok of cargo annually. should have another new commercial Thai Airways International (THAI) is airport to separate civil planes from mili- investing 13 billion baht in new facilities tary planes and to be in line with urban at Suvarnabhumi. growth.” These include a maintenance centre A year later, Thailand’s Ministry of Don Muang Airport has been over- for light and line maintenance, a cargo Transport and Communications identi- stretched for years complex covering 568,000 square metres, fied a 3,200 hectare site for the airport at an operations centre, inflight catering Nong Ngu Hao, 25 kms outside Bangkok drawing board several times as govern- kitchens capable of producing 65,000- in Samut Prakan province. ments came and went in Thailand. But in 70,000 meals a day, rising to 85,000 meals Between 1963 and 1973 the land was 1998 the Thai Cabinet approved the first in five years, as well as ground support purchased, but by 1974 doubts had been phase of . and customer services. raised about the site. The King of Thailand laid the founda- THAI also will have a 30% share-hold- The new airport was then put on the tion stone of Suvarnabhumi, which means ing in a 600-room hotel at the airport. back burner until 1995 when the govern- the golden land, in January 2002. The two other shareholders, the Airports ment approved its construction – on the When the 200 billion baht (US$4.65 Authority of Thailand and the Krungthai site chosen in 1961! billion) first phase opens it will have two Bank will hold 60% and 10% equity re- Since then it has been on and off the runways (4000 metres and 3,700 metres) spectively in the project.

38 Orient Aviation, September 2003 special report

By Charles Anderson

viation heavyweights who Bangkok, want to see a super-secure, one-stop check-in and immi- gration and boarding proc- could be first with ess adopted globally are hop- Aing Bangkok’s new airport, scheduled to open in September 2005, will be the first built specifically to utilise their Simplified one-stop check-in Passenger Travel (SPT) model. Singapore Changi International Airport’s third pas- senger terminal, to be completed in 2006, also is a target. SPT is an industry initiative count- ing the International Air Transport As- results of this scan and you have a single sociation (IATA), the International Civil document that is much harder to forge Aviation Organisation (ICAO) and the and also cuts manpower needs at a time International Biometric Industry Asso- when a lower cost base is essential for ciation (IBIA) among its prime movers. the industry’s revival. The Association of Asia Pacific Airlines “If we can have automatic passport (AAPA), Airports Council International readers that have passport recognition (ACI) and Société Internationale de Télé- as we do now, why can’t they do a little communications Aéronautiques (SITA) bit more and integrate the boarding pass also are members. with that?” asked Concil. “Maybe if you It aims to harness the advances throw in some kind of radio frequency biometrics offer to produce a system chip, then as you are approaching immi- that whisks the passenger from airport gration, officers there already will know hall to airplane seat using a single docu- who you are.” ment containing information required SPT was in the works before 9/11. It by present day check-in, immigration, aims to convert governments, regula- security and boarding gate personnel. tors and other aviation authorities to the Security would be enhanced, as would cause and to encourage the adoption of efficiency and cost-effectiveness. global standards. Cathay Pacific Airways, “Bangkok offers the first opportunity Japan Airlines, All Nippon Airways and to build an airport on the SPT model,” airport authorities in Australia, Japan’s said IATA spokesman Tony Concil. “IA- Singapore Changi International Airport is Narita Airport and Changi are among TA’s director general, Giovanni Bisig- tipped to be among the first to introduce working group members. nani, was in Bangkok in February where the high security one-stop check-in Pilot schemes have included the au- we met with the transport minister, intiative SPT tomated passport check scheme using Suriya Jungrungreangkit, high officials facial recognition technology for Qantas from the New Bangkok Airport Co. and problem. So if we can reduce the amount staff at Sydney airport and Japan Air- Thai Airways International. The minister of false documentation in the system, lines’ automatic check-in using iris and was very keen. that will go a long way to ensuring the facial scanning for its frequent flyers at “Whether that works into the airport right people are sitting next to you on Narita. being built on an SPT model is another the aircraft.” “They are programmes that run step. At least the idea is being seriously Biometric scanning using the iris, within the system,” said Concil. “Once considered. The other airport we will be face geometry or hand features is the people see the benefits and understand talking to is obviously Changi.” answer, said Concil. Put tickets in a chip the system it is a lot easier to convince Said Concil: “Documentation is a inside a passport that also includes the the next airport.” No major changes in master plan

new master plan covering the development of Syd- casts annual growth of 4.2% to 68.3 million passengers by ney Airport over the next 20 years foresees no 2021-24. But aircraft movements in the same period will be changes to curfews, flight paths and the 80 move more gradual, rising 2.4% annually to 412,000 a year. ments an hour cap on landing and take-offs. It also There would be no extension or duplication of runway said there would be no new runways built. The draft infrastructure although some new taxiway and apron devel- Aplan, released by the Sydney Airport Corporation Ltd (SACL) opments would be required. in August will be available for comment for three months. Under Australian law the country’s now privatised air- The airport’s chief executive, Max Moore-Wilton, said the ports must review their master plans every five years. facility has the capacity and infrastructure planning in place A similar draft plan released in August for Brisbane to manage all of Sydney’s projected growth in domestic and Airport indicated that facility would require a new runway international traffic for the foreseeable future. The plan fore- by 2012.

40 Orient Aviation, September 2003 helicopters Sikorsky deal Down Under

By Charles Anderson contractors, SAAL provides spare parts craft targeted at civilian and parapublic and support services to the Australian markets. ikorsky Aircraft Corp. has Government’s helicopter fleet. Australian Aerospace, which han- strengthened its presence in “Adding these Helitech opera- dles civilian sales and support for all Australia, already home to one tions to the Sikorsky family provides a Eurocopter models, is tasked with as- of the largest Sikorsky helicop- substantial footprint in Australia,” said sembly and testing of Colibris for the ter fleets in the world, by buy- Sikorsky president Dean Borgman. southern hemisphere. Initially, three Sing Helitech’s aerospace service and Also in Brisbane, Eurocopter has helicopters a quarter will be produced product support business in Brisbane geared up, through its wholly-owned in Brisbane. The facility can manufacture for an undisclosed sum. subsidiary, Australian Aerospace, for as- up to 24 a year, the company target for Helitech has dealt in product sup- sembly of the Australian defence force’s 2006. port, component distribution, main- ARH Tiger and Eurocopter’s EC120B tenance and repair of military and machines, by expanding its airport facil- ong Kong is to have a new, tem- civil helicopters in Australasia. Its par- ity which includes hangar, workshop, porary domestic heliport at ent company, soon to be renamed, will store and office space. H West Kowloon, replacing the continue representing Bell Helicopter The Tiger, an armed reconnaissance existing one in Central that will close in Textron and Bell Agusta while Sikorsky helicopter, has started production there, November to make way for a harbour will fold its support and service capa- which will continue until 2008. Austral- reclamation project. bilities into Sikorsky Aircraft Australia ian Aerospace, which plans to expand The new facility will be in use Ltd (SAAL), first established as a local from 230 personnel to 350 within three for at least two years. A permanent service business in 1996, and now part years at its bases in Sydney, Melbourne, heliport is planned for either a cruise of the company’s Worldwide Customer Brisbane and Auckland, has a wide ship terminal to be built at the old Kai Service organisation. Two hundred range of responsibilities under the Tiger Tak airport site, or at the Macau Ferry Helitech employees are involved. programme. terminal, where Helicopters Hong Sikorsky is hoping the acquisition Skills developed under the pro- Kong operates its scheduled Hong will help it expand SAAL’s offerings to gramme in Brisbane are also being used Kong to Macau service. The tempo- civil customers in the region. Already for assembly of the EC120B Colibri, a rary terminal will cater for charter and one of the country’s 20 largest military four-passenger, new generation air- sight-seeing flights.

REGIONAL aviation Third Hong Kong carrier takes off

ong Kong-based CR Airways, touted locally as the At present the airline’s single plane, a 50-seat Bombar- Special Administrative Region’s new, third airline, dier CRJ-200, will be chartered to Hong Kong, mainland and has launched operations cautiously, with commer- foreign travel agents for tour groups. cial charter flights to Laoag in the Philippines, a Hong Kong lacks a strong network of services to sec- 90-minute hop from Hong Kong International ondary Chinese cities. CR Airways is seen to be testing the HAirport, writes Charles Anderson. waters about both landing rights and profitability of such Under a deal with travel agents and a hotel and casino services. operator there, the company aims to fly to Laoag three times The airline is planning to operate with one aircraft for six a week, depending on demand. months, with one more plane being added to its fleet every Chairman Robert Yip, who also chairs Hong Kong-listed half year if required. China Rich Holdings Ltd, is confident routes to secondary Laoag was chosen as the launch destination for CR Air- Chinese cities can eventually be secured. At present the fo- ways because it was popular with Hong Kong, Taiwanese and cus is on places such as Meixian in Guangdong, Wenzhou in mainland tourists, said Yip, who was on board in late June for Zhejiang, Nanning in Guangxi and Jinan in Shandong, towns the inaugural flight. Air Philippines operates a larger Airbus and cities where scheduled flights are not yet available. A320 three times a week on the same route. Negotiations with authorities in Chinese cities were con- The fledgling carrier, which up to now has operated a tinuing, but services would not start for eight to ten months, single Sikorsky S762+ helicopter, has taken a stake in Shan- Yip said during a launch celebration. Similar services are dong Rainbow Business Aircraft, a subsidiary of Shandong being considered to leisure destinations such as Danang in Airlines, which has a small fleet of the regional jets. The Vietnam and Siem Reap in Cambodia. CRJ-200 is on lease from this operator.

42 Orient Aviation, September 2003 BUSINESS DIGEST

STATISTICS FOR MAY AND APRIL 2003 THE DEVASTATION OF SARS

Compiled and presented by Kris Lim of the Research and Statistics Department of the Association of Asia Pacific Airlines Secretariat

MAY 2003 STATISTICS he Association of Asia Pacific Airlines (AAPA) pas- senger traffic fell sharply in May as the SARS crisis deepened. International passenger traffic, measured in revenue passenger kilometres (RPKs), plummeted 45.5% while the number of passengers carried (PAX) Twas down by 54% year-on-year, to just over four million. AAPA member airlines carried almost one million fewer passengers in May compared to the already depressed month of April. Overall passenger load factor (PLF) was 51.2%, down by 20.2 percentage points, despite a decline of 23.8% year-on- year in available seats kilometres (ASKs). All carriers experienced sharp contractions in RPKs, with Cathay Pacific Airways (CX) suffering the most – a massive fall of 67.5%. Other carriers – China Airlines (CI), EVA Air (BR), Singapore Airlines (SQ) and Vietnam Airlines (VN) – from the SARS-affected areas also reported a more than 50% drop in RPKs. With the exception of Philippine Airlines (PR – 72%) and Korean Air (KE – 60.5%), all carriers registered a PLF of At the height of SARS Cathay Pacific Airways experienced a 50% or less. 67.5% decline in RPKs

RPK Growth by Carrier PAX Growth by Carrier Percentage (May 03 vs May 02) Percentage (May 03 vs May 02)

0 0

-10 -10

-20 -20 -30 -30 -40 -40 -50 -50 -60

-60 -70

-70 -80 CX CI VN BR SQ GA JL TG OZ NH KE MH BI PR CX CI BR VN SQ GA TG JL NH OZ MH KE PR BI

ROLLS-ROYCE NEWS DIGEST

“Rolls-Royce has won a $900 million order from Emirates for Trent 500 engines to power 20 Airbus A340 aircraft.”

September 2003, Orient Aviation 43 BUSINESS DIGEST

Malaysia Airlines recorded a 31.1% rise in FTKs in May

Cargo FTK Growth by Carrier The SARS crisis continued to have slight impact on freight Percentage (May 03 vs May 02) traffic in the region in May. The international freight tonne kilometres (FTKs) showed a negligible increase of 0.04% over May 2002. Capacity declined 2.4%, resulting in an improved 40 freight load factor (FLF) of 68.6%. 30 Six carriers reported growth in FTKs offering a degree of consolation during this difficult time. Malaysia Airlines’ (MH) 20 FTKs rose 31.8%, followed by EVA Air (13.3%) and Royal Brunei 10 Airlines (BI – 11.4%). On the other hand, Garuda Indonesia (GA), Thai Airways 0 International (TG) and Philippine Airlines saw their FTKs de- -10 cline by more than 10%. In terms of FLF, Cathay Pacific Airways, Asiana Airlines (OZ), China Airlines, EVA Air and Korean Air -20 filled 70% or more of the cargo space available. -30

-40

RESULTS OF THE 12 MONTHS TO MAY 31, 2003 -50 Passenger -60 GA TG PR SQ CI JL CX OZ KE NH VN BI BR MH The AAPA consolidated RPKs declined by 0.8% for the 12-

Passenger Load Factor Growth by Carrier Freight Load Factor Growth by Carrier Percentage Points Change (May 03 vs May 02) Percentage Points Change (May 03 vs May 02)

0 8

6

-10 4

2 -20 0

-2 -30 -4

-40 -6 -8

-50 -10 CI BR VN CX JL SQ TG OZ MH NH PR KE BI GA OZ KE PR BR CI SQ GA JL TG CX VN NH MH BI

44 Orient Aviation, September 2003 month period. PAX fell 2.6% year-on-year. Capacity climbed 2.6%, which resulted in a load factor of 70.0%, a decline of 2.4 Passenger Load Factor Growth by Carrier percentage points. Percentage Points Change (Jun 02 - May 03 vs Jun 01 - May 02)

4 Cargo The AAPA consolidated FTKs increased by 13.8% for the year under review. Capacity grew 10.0%, which resulted in 2 a load factor of 68.1%, an improvement of 2.3 percentage points. 0

Summary -2 By the end of May, cumulative RPKs were 15.3% below the level recorded in the first five months of 2002. Capacity -4 reductions in April and May had brought the year-to-date capacity level to that of last year’s corresponding period. The overall load factor slipped 11.5 percentage points to 63.6%. -6 Year-to-date FTK growth, at 6.6%, slowed considerably follow- -8 CI VN BR OZ JL SQ TG BI CX MH KE PR GA NH

FTK Growth by Carrier Percentage (Jun 02 - May 03 vs Jun 01 - May 02)

30

20

10

0

-10

-20 Philippine Airlines recorded a healthy 72% passenger load factor GA PR CI JL TG SQ VN KE NH BI OZ CX BR MH in May

RPK Growth by Carrier Freight Load Factor Growth by Carrier Percentage (Jun 02 - May 03 vs Jun 01 - May 02) Percentage Points Change (Jun 02 - May 03 vs Jun 01 - May 02)

10 12

10 5 8 0 6

-5 4

2 -10 0 -15 -2

-20 -4 GA CI SQ BI PR CX JL BR NH TG OZ KE MH VN GA VN OZ KE PR CX SQ BR TG JL CI NH BI MH

September 2003, Orient Aviation 45 BUSINESS DIGEST

ing a decline in growth for the past two months. The reduced belly hold space due to capacity cutbacks may have been the Passenger Load Factor Growth by Carrier contributing factor. Percentage Points Change (Apr 03 vs Apr 02) SARS has now been brought under control and all affected countries have been declared SARS-free. Early signs indicate a 0 rebound in passenger traffic towards the latter part of June. Moves to restoring capacity have begun, but at a controlled pace. Capacity is not expected to return to pre-SARS levels for the next two to -10 three months unless demand picks up dramatically.

-20 APRIL 2003 STATISTICS APA international RPKs in April declined by a mas- sive 37.4% while the number of passengers carried -30 was down 44.2% in the midst of the SARS crisis and the Iraq war – although the war was virtually over by the end of the month. The dramatic fall in de- -40 Amand prompted AAPA carriers to remove a substantial amount of capacity from the market (overall ASKs were down 8.4% year-on-year), but not enough to prevent the passenger load -50 factor from plummeting 23.6 percentage points to 51.3%. VN CX CI SQ BR OZ TG JL NH KE MH BI PR GA Not a single AAPA carrier was immune from the havoc

RPK Growth by Carrier FTK Growth by Carrier Percentage (Apr 03 vs Apr 02) Percentage (Apr 03 vs Apr 02)

0 40

-10 30

20 -20 10 -30 0 -40 -10

-50 -20

-60 -30 CX VN CI GA SQ JL BR OZ TG NH KE BI PR MH GA PR CI SQ JL VN TG KE BI CX OZ NH BR MH

PAX Growth by Carrier Freight Load Factor Growth by Carrier Percentage (Apr 03 vs Apr 02) Percentage Points Change (Apr 03 vs Apr 02)

0 10

8 -10 6 -20 4

-30 2

-40 0 -2 -50 -4 -60 -6

-70 -8 CX VN CI SQ GA TG BR JL BI OZ KE PR NH MH OZ KE VN SQ PR BR JL CI NH CX BI MH TG GA

46 Orient Aviation, September 2003 wrought by the SARS. All suffered a double-digit drop in RPKs, with Cathay Pacific and Vietnam Airlines experiencing Passenger Load Factor Growth by Carrier the worst (more than 50%) declines. China Airlines (-47.9%), Percentage Points Change (May 02 - Apr 03 vs May 01 - Apr 02) Garuda Indonesia (-43.9%) and Singapore Airlines (-43.6%) also were among the hardest hit. Malaysia Airlines (-13.7%) 4 suffered the least. Individual load factors also fell sharply, despite quick 3 responses by the AAPA carriers to cut back capacity. Cathay Pacific and Vietnam Airlines saw their load factors plunging 2 to below 40% in April. 1 Cargo 0 FTKs showed an increase of 3.7% over April 2002. Capacity -1 was up 4.7%, which resulted in a freight load factor of 67%, down only slightly from April last year. -2 Malaysia Airlines (32.3%) and EVA Air (14%) reported double-digit growth in FTKs amid the gloom. On the other -3 hand, Garuda Indonesia experienced a 28.9% drop in FTKs. FLF held up reasonably well for five carriers – China Airlines -4 (75.5%), Asiana Airlines (74.8%), Korean Air (72.4%), Cathay CI OZ VN BI BR SQ JL TG KE CX MH GA PR NH Pacific Airways (72.3%) and EVA Air (72.2%).

RESULTS OF THE 12 MONTHS TO APRIL 30, 2003 FTK Growth by Carrier Passenger Percentage (May 02 - Apr 03 vs May 01 - Apr 02) AAPA consolidated RPKs slowed to a 3.3% increase for the 12-month period. PAX rose 2.1% year-on-year. Seat capacity 30 expanded 4.4%, which resulted in a PLF of 71.3%, a decline of 0.7 percentage point. 25

20 Cargo AAPA consolidated FTKs increased 15.5% for the 12-month 15 period under review. Capacity was up 11%, which resulted in a FLF of 67.9%, an improvement of 2.7 percentage points. 10

5

Summary 0 Passenger traffic for 2003 to date saw RPKs down 7.6%. Capacity was 6.5% above last year’s corresponding period, -5 dragging PLF down to 66.0%, a loss of 10.1 percentage points. Year-to-date FTKs showed an 8.9% increase. -10 E-mail: [email protected] GA PR JL CI VN TG SQ KE NH BI OZ CX BR MH

RPK Growth by Carrier Freight Load Factor Growth by Carrier Percentage (May 02 - Apr 03 vs May 01 - Apr 02) Percentage Points Change (May 02 - Apr 03 vs May 01 - Apr 02)

15 12

10 10 8 5 6

0 4

2 -5 0 -10 -2

-15 -4 GA CI BI PR SQ NH JL CX KE OZ BR TG MH VN GA VN KE CX PR OZ SQ JL TG BR CI NH BI MH

September 2003, Orient Aviation 47 BUSINESS DIGEST

Monthly international PAX statistics of AAPA members

48 Orient Aviation, September 2003 Monthly international cargo statistics of AAPA members

September 2003, Orient Aviation 49 BUSINESS DIGEST

AAPA MONTHLY INTERNATIONAL STATISTICS Summary of Consolidated Results IN THOUSANDS

2002 to 2003 RPK ASK PLF FTK FATK FLF RTK ATK PAX (000) (000) % (000) (000) % (000) (000) (000) Jun-02 38,904,838 52,318,624 74.36 3,461,160 4,861,334 71.20 7,124,174 9,640,755 8,831 Jul-02 42,398,522 55,409,545 76.52 3,500,284 5,148,358 67.99 7,456,166 10,215,620 9,714 Aug-02 43,885,864 56,363,848 77.86 3,483,972 5,263,891 66.19 7,580,274 10,409,895 10,123 Sep-02 39,155,092 52,723,895 74.26 3,547,914 5,160,898 68.75 7,204,078 9,986,464 9,014 Oct-02 39,304,575 54,021,467 72.76 4,025,748 5,476,828 73.51 7,714,662 10,424,647 9,282 Nov-02 37,133,162 52,622,659 70.56 3,896,693 5,411,113 72.01 7,431,531 10,228,207 8,765 Dec-02 40,350,605 55,780,248 72.34 3,412,854 5,224,033 65.33 7,176,043 10,322,547 9,386 Jan-03 42,164,204 56,955,320 74.03 3,175,167 5,208,333 60.96 7,125,834 10,420,186 9,547 Feb-03 36,307,917 51,036,989 71.14 3,068,329 4,733,196 64.83 6,402,145 9,446,000 8,626 Mar-03 35,405,748 54,487,442 64.98 3,855,555 5,529,579 69.73 7,195,795 10,525,858 8,413 Apr-03 23,316,893 45,438,885 51.31 3,322,708 4,961,615 66.97 5,582,093 9,135,756 4,954 May-03 20,547,549 40,172,793 51.15 3,369,718 4,913,660 68.58 5,381,130 8,604,086 4,068 TOTAL 438,874,968 627,331,715 69.96 42,120,101 61,892,838 68.05 83,373,924 119,360,021 100,722

2002 to 2003 RPK ASK PLF FTK FATK FLF RTK ATK PAX % % % % % % % Jun-02 -0.54 -1.06 0.39 15.77 4.41 6.99 6.86 1.66 -0.19 Jul-02 0.67 0.89 -0.17 18.15 7.80 5.95 7.89 4.32 2.47 Aug-02 1.29 1.43 -0.10 16.96 8.76 4.64 7.79 5.05 2.97 Sep-02 9.96 3.28 4.51 15.88 13.25 1.56 12.42 8.39 9.47 Oct-02 26.73 5.95 11.93 22.82 14.21 5.15 25.40 10.42 24.09 Nov-02 25.56 11.82 7.73 20.10 15.45 2.79 24.29 13.93 21.47 Dec-02 14.39 9.29 3.22 10.43 12.18 -1.04 13.04 10.87 11.88 Jan-03 13.54 12.66 0.58 14.54 17.82 -1.74 13.75 15.39 12.50 Feb-03 5.19 12.60 -5.01 11.09 14.16 -1.79 0.16 19.42 3.88 Mar-03 -10.64 9.54 -14.67 7.52 11.21 -2.39 -1.72 10.44 -10.10 Apr-03 -37.43 -8.38 -23.62 3.69 4.70 -0.66 -16.56 -1.45 -44.21 May-03 -45.45 -23.81 -20.17 0.04 -2.36 1.67 -22.13 -12.35 -53.95 GROWTH -0.76 2.60 -2.37 13.78 9.98 2.27 5.53 6.58 -2.62

Calendar Year3 RPK ASK PLF FTK FATK FLF RTK ATK PAX (000) (000) % (000) (000) % (000) (000) (000) 1998 382,106,292 557,130,177 68.58 30,958,021 46,204,321 67.00 66,141,448 97,199,731 86,198 1999 416,820,106 576,253,703 72.33 35,277,459 51,519,550 68.47 74,179,615 104,437,440 94,242 2000 462,592,401 617,966,475 74.86 39,027,134 56,258,060 69.37 82,551,363 112,893,269 103,610 2001 446,371,390 627,039,303 71.19 35,863,984 55,755,572 64.32 77,654,045 112,989,919 102,847 2002 467,340,919 627,191,375 74.51 40,801,462 59,566,958 68.50 85,046,259 116,493,219 108,974 2003 157,742,310 248,091,429 63.58 16,791,476 25,346,383 66.25 31,686,997 48,131,886 35,607

Calendar Year5 RPK ASK PLF FTK FATK FLF RTK ATK PAX % % % % % % % 1999 9.08 3.43 3.75 13.95 11.50 1.47 12.15 7.45 9.33 2000 10.98 7.24 2.52 10.63 9.20 0.90 11.29 8.10 9.94 2001 -3.51 1.47 -3.67 -8.11 -0.89 -5.05 -5.93 0.09 -0.74 2002 4.70 0.02 3.33 13.77 6.84 4.17 9.52 3.10 5.96 20034 -15.29 0.06 -11.52 6.63 8.39 -1.10 -5.79 5.48 -18.81

Note: 1. The consolidation includes 15 participating airlines. Consolidated results for JAN 2003 to MAY 2003 are subject to revision. 2. KA and NZ do not participate in this report. 3. CY denotes Calender Year. 2000, 2001 & 2002 figures have been updated with Air Nippon’s traffic results. Air Nippon is a subsidiary of All Nippon Airways. 4. YTD Comparison: JAN – MAY 2003 vs. JAN – MAY 2002.

September 2003, Orient Aviation 50