Air China's - Orient Aviation

May 2006CONTENTSO R I E N T A V I AT I O N V O L U M E 1 3 , I S S U E 0 7COVER STORY34 THE RELUCTANT PRESIDENTSet to become Japan Airlines’ third presidentin 18 months, Haruka Nishimatsu initiallydeclined the job. But he changed his mindand in June he will begin the considerablechallenge of restoring JAL to profitability,eliminating disharmony within its ranks andre-building a dented safety imageMAIN STORY14 ASIA’S TRAINING STAMPEDEAs the region faces growing pilot shortages,training organisations are rushing to fill thegap. But will it be too little, too late?NEWS BACKGROUNDER28 Struggling MalaysiaAirlines has struck asurvival deal withAirAsia. But will itwork? Views differ.LOW- COST CARRIERS46 Indonesia proving a tough nutto crack47 India’s Air Deccan increasesdomestic market shareAlso:Philippines president becomes involved in pilotpoaching debate; training money pouring intoIndia; new training centres ‘will not scratchthe surface’; GA landmark to help China’spilot shortfall.CARGO49 Cargo proving a winner forAir Macau6 ORIENT AVIATION MAY 2006

SPECIAL REPORTSAIRPORTS50 Governments urged to prepare for airportcapacity crunch51 Incheon topples Hong Kong from top spotin world’s best airports pollPUBLISHED BYWILSON PRESS HK LTDGPO Box 11435 Hong KongTel: Editorial (852) 2865 1013Fax: Editorial (852) 2865 3966E-mail: orientav@netvigator.comWebsite: www.orientaviation.comChief ExecutiveBarry GrindrodE-mail: orientav@netvigator.comPublisherChristine McGeeE-mail: cmcgee@netvigator.comChief CorrespondentTom BallantyneTel: (612) 9638 6895Fax: (612) 9684 2776E-mail: tomball@orientaviation.com52 Airport developers should be looking atmore simplified systems to cut costs53 European airports cashing in from Asia’stravel boomNEWS10 New THAI president named10 Air China outlines fleet plans10 Statement leads to more Cathay Pacific, Dragonair speculation11 Australian Airlines to close down11 China opens new ATC corridor12 Business Round Up13 People in the news42 New ‘alliance’ tack for Qantas, Air New Zealand44 Merger deals revived in IndiaREGULAR FEATURES3 Comment: Corners must not be cut56 Business Digest: Positive start to 2006Association of Asia Pacific Airlines SecretariatSuite 9.01, 9/F, Kompleks AntarabangsaJalan Sultan Ismail, 50250 Kuala Lumpur, MalaysiaTel: (603) 2145 5600 Fax: (603) 2145 2500E-mail: ushav@aapa.org.myDirector General: Andrew HerdmanCommercial Director: Beatrice LimTechnical Director: Martin Eran-TaskerSpecial CorrespondentsCharles AndersonTel: (852) 2809 2209E-mail: charlesanderson@orientaviation.comDavid FullbrookTel: (852) 2865 1013E-mail: orientav@netvigator.comChinaSophie YuTel: (852) 2865 1013Japan & KoreaJulian RyallTel/Fax: (81) 45 663 2501Email: jmryall@orientaviation.comPhotographersRob Finlayson, Graham Uden, Andrew HuntDesign & Productionü design + productionColour SeparationsTwinstar Graphic Arts Co.PrintingHop Sze Printing Company Ltd.ADVERTISINGSouth East Asia and PacificShirley HoTel: (852) 2865 1013Fax: (852) 2865 3966E-mail: shirley@orientaviation.comThe Americas / CanadaBarnes Media AssociatesRay BarnesTel: (1 434) 927 5122Fax: (1 434) 927 5101E-mail: barnesrv@charter.netEurope & the Middle EastREM InternationalStephane de RémusatTel: (33 5) 34 27 01 30Fax: (33 5) 34 27 01 31E-mail: sremusat@aol.comNew Media & Circulation ManagerLeona Wong Wing LamTel: (852) 2865 1013Fax: (852) 2865 3966E-mail: leonawong@orientaviation.com© All rights reservedWilson Press HK Ltd., Hong Kong, 2006The views expressed in this magazine are not necessarilythose of the Association of Asia Pacific Airlines.MAY 2006 ORIENT AVIATION 7

REGIONAL ROUND-UPTHAI appointsnew presidentThai Airways International (THAI)has chosen its executive vice presidentof flight operations, ApaninSumanaseni, as the company’s new president,effective from May 1. Apinan, selectedfrom a shortlist of four in-house contenders,will succeed Kanok Abhiradee, whomTHAI asked to step aside last August, followingmassive losses at the carrier in thethird quarter of the year.Apinan, who began his career at THAI asa pilot after learning to fly jets as an officerin the Thai Royal Air Force, said his immediategoals were to maintain THAI’s growthand revitalize and re-structure the carrier’sdecision-making.Air Chinaoutlines fleet plansAir China’s president, Ma Xulun,said his carrier, which reported a netprofit of 2.41 billion yuan (US$298.4million) for the fiscal year to last December31, will spend 11.18 billion yuan on planes italready has on order as well as aircraft it isexpected to be allocated from China’s AprilUS$4.6 billion order for 80 B737s. Unveilingthe airline’s results in April, Ma said the carrieranticipated taking delivery of a mix of35 B737, A330, A320 and A319 airplanes inthe next two years, which would increase itsfleet to 208 airliners.Hainan cleared tobuy into CR AirwaysAfter extended negotiations, the HongKong Economic Developmentand Labour Bureau will allow theHNA Group, operator of Hainan Airlines,to purchase 45% of tiny Hong Kong-basedairline, CR Airways, thereby giving theaggressive Mainland carrier a significantfootprint in the Special AdministrativeRegion of Hong Kong.The approval permits Hainan Airlineschairman, Chen Feng, to purchase 45% ofCR Airways through a holding company,China Sun Wah Holdings. CR Airwaysfounder, Robert Yip and Meng Jianqiangwill hold the remaining 55% of the carrier’sequity between them.Approval for the buy-in also means CRAirways will maintain its status as a HongKong designated airline both for routes itnow has allocated to it and for those it wouldwish to operate in the future.In March, CR Airways put down adeposit for 30 B737-800s and 10 B787Dreamliner aircraft after taking the industryby surprise in December with the announcementit intended to acquire 40 Boeing aircraft.Sir Richard toregain Virgin Blue?At press time, speculation was intensifyingthat Sir Richard Branson’saviation group may increase itsminority stake in Australian low-cost carrier,Virgin Blue, and regain control of theairline founded by Sir Richard in 2000.In April, the majority owner of VirginMore Cathay, Dragonair speculationAfter a public hiatus of 14months, media reports againspeculated in April thatCathay Pacific Airwaysintended to re-organise itsshareholdings and possibly re-structure itsrelationship with Dragonair.The speculation emerged after the currentair service talks between Hong Kong andChina started with an agenda that includedCathay Pacific’s critical need to gain routeapproval for Hong Kong-Shanghai services.On April 10, Cathay Pacific and its shareholdersissued a statement, at the request ofthe Hong Kong Stock Exchange, which discussedthe issue, but did not make the intentionsof the involved parties totally clear.“The discussions between Air Chinaand Cathay Pacific about operational cooperationare designed to strengthen cooperationbetween them in various businessand operational areas. It is intended thatDragonair is to maintain its brand and identityand that it will remain a principal airlinein the Hong Kong and China mainland aviationmarkets.”The joint statement from Air China,10 ORIENT AVIATION MAY 2006Dragonair: will Cathay Pacific becalling the shots in the future?Cathay Pacific, China National AviationCo. Ltd, CITIC Pacific and Swire Pacificalso said: “The parties (as listed above) confirmdiscussions are taking place aboutoperational co-operation between CathayPacific, Air China and Dragonair” but added“there is no agreement or arrangementwhich is discloseable under listing rules”.“In particular, Swire Pacific intends toremain the principal shareholder in CathayPacific for the long-term; Air China understandsthe China National AviationHolding Company (CNAHC) intendsto remain the controlling shareholderfor the long-term. Although CITICPacific may reduce its interest in CathayPacific it intends to remain, in the longterm,a signif icant shareholder inCathay Pacific, and Air China has no currentintention to privatize CNAC.” Certainfacts, however, remain irrefutable under thecurrent air service agreement.Dragonair, also Hong Kong-based, has56 routes a week into China, including multipledaily services to Shanghai and Beijingwhile Cathay Pacific flies 14 times a week toChina, and has only been permitted to offerfreight services to Shanghai.For Cathay Pacific’s international clientelewho are travelling onto the Mainland,this is a poor service.For the carrier, it is a route it must fly foras the hub carrier it is.

Blue, Patrick Corp., was acquired by rivaltransport conglomerate, Toll Holdings.It is widely believed, assisted by SirRichard’s enigmatic comments about VirginBlue, that Toll will offer the British tycoonfirst rights to buy 62.5% of Virgin Blue oncethe takeover bid wins its expected approvalfrom the Australian regulatory authorities.– Tom BallantyneThe bell tolls forAustralian AirlinesQantas Airways is to close itsloss-making leisure subsidiary,Australian Airlines, in midyear,expand its domestic carrier, Jetstarand accelerate the launch of its long-haulinternational low-cost airline, JetstarInternational to this November.The Cairns, northern Queensland-basedairline has a fleet of five B767-300s. It flew toBali, several Japanese cities and Hong Kongand Singapore, but its operating costs arenow 30% higher than Jetstar.Jetstar will absorb some of Australian’sAustralian Airlines: operating costs 30% higher than Jetstarinternational routes and Qantas will takeover the Cairns to Singapore service.Qantas chief executive, Geoff Dixon,said he “was creating two distinct and viablebusinesses” in what remains as a very difficultoperating environment.“Jetstar will grow aggressively over thenext three years while we will continue toexpand Qantas’ international operations.The result will be two, separate competitivebrands with Qantas targeting premium businessand leisure passengers and Jetstar concentratingprimarily on leisure markets”,said Dixon.Jetstar International plans to open newAustralia-Asia services including Phuket,Bangkok, Osaka, Honolulu and Ho ChiMinh City.– Tom BallantyneNew China ATC corridorIn April, China opened an air trafficcorridor through previously restrictedwestern China air space, a decision thatcould reduce a 12 to 13-hour Asia-Europejourney by 30 minutes and save airlines upto US$30 million in fuel per year.The International Air TransportAssociation (IATA), which has been negotiatingwith China for several years to free upmore air space paths for international airlinesoverflying China, said the new route, IATA1, could initially benefit 110 flights a week.IATA added the route would eliminate2,860 hours of flying time, save 27,000 tonnesof fuel, cut out 84,400 tonnes of carbon dioxideemissions and reduce 340,000 kgs ofnitrogen oxide emissions annually.MAY 2006 ORIENT AVIATION 11

BUSINESS ROUND-UPAir China outperformsits major rivalsTwo of the three major state-runChinese carriers reported decliningperformances in the fiscal yearto December 31, 2005, attributing their performancesto rising fuel prices (25%) andincreased competition from new airlines.Air China, the Mainland’s flag carrier,was the only airline to report a profit– 2.41 billion yuan (US$298.4 million), forthe 12-month period, compared to 2.39 billionyuan for the previous year. Air Chinasaid it had benefited from an increase in theyuan during the year under review as well assome fuel hedging (12.3%). The flag carrierintends to hedge 30% of its fuel in 2006.In contrast, Shanghai-based ChinaEastern Airlines (CEA) announced a lossof 467.3 million yuan (US$58.3 million) forthe 2005 year compared with a profit of 320.1million yuan in the same period in 2004.CEA, which has said it would like tofind a strategic investor prepared to take upa 20% equity in the carrier, said fuel priceincreases of 39% were largely to blame forthe losses. China National Aviation Corp.,whose parent company China NationalAviation Holdings owns 66% of AirChina, saw its profit decline by 37.7% for thelatest fiscal year, to US$28.85 million fromUS$46.28 million in 2004, again because ofrising fuel prices.China Southern Air Holdings, China’slargest airline group, continued its 2004losing streak when it reported losses of 726million yuan for the 2005 year comparedwith a loss of only 3.47 million yuan in2004. China Southern Airlines announcedin March it would partially fund its new aircraftpurchases with a syndicated loan ofUS$400 million.ANA ups its2005 profit forecastAl l Nippon A i r ways A i rl i nesGroup has increased its net profitforecast for the fiscal year to March31, 2006 by Y7 billion to Y27 billion, a companystatement said In April (comparedto a profit of Y10 billion the previous 12months).The improved forecast was based onstronger than expected demand for the airline’ssuper seat premium services and anincrease in business class traffic on theJapan to Europe and U.S services.12 ORIENT AVIATION MAY 2006... but CAL, EVAprofits slashedAir China:stayed in theblack in 2005Both Taiwanese international carriers,China Airlines (CAL) andEVA Air have reported the highrisefuel prices of last year had severelyeroded their profits in the 12 months toDecember 31, 2005. CAL said its net profithad declined by almost 85%, to NT$645.2million (US$19.8 million) from NT$4.18million in the previous 12 months.EVA announced its net profit for the yearto last December 31, dropped by 59% toNT$1.33 billion compared to NT3.24 billionin the previous 12 months.An EVA company statement said fuel atthe carrier now consumed 40% of its operatingcosts while CAL said its fuel costs roseto 36% in the 2005 year compared to 29%of total operating costs in the previous 12months.Briefly . . .As part of its drastic re-structuring,Malaysia Airlines (MAS) hassecured US$1 billion in a 10-yearbond issue underwritten by MAS’s majorshareholder [and government holding company],Penerbangan Malaysia Bhd. Theissue was over-subscribed by US$1 million.MAS requires US$4 million to fund its turnaroundplan.In Singapore, Temasek Holdings PteLtd, a government investment arm, hasannounced it has sold its equity in QantasAirways for an estimated A$146.4 million(US$105.3 million), but it has retained itsinvestment in Singapore-based, but QantascontrolledJetstar Asia.COMPANY NEWSExtra HAESL workshopAfter a year of operating at fullcapacity, Hong Kong Aero EngineServices (HAESL) has announceda US$11 million expansion programme thatwill see it acquire 8,000 sq. metres of landon which to build an extra workshop nextto its existing facility in Tseung Kwan O,Hong Kong.“The expansion [to be completed byyear-end 2007] will enable HAESL toincrease its engine throughput by up to 25%,improve our workflow efficiencies and growour capacity to meet increasing demand forcomponent repairs,” said general manager,Richard Kendall.Last year HAESL, which handles thefull range of current Rolls-Royce Trent andRB211 engines, beefed up its componentrepair capabilities and overhauled 202 enginesas opposed to 190 in 2004. The company,jointly-owned by the Swire group’s HongKong Aircraft Engineering Co. (HAECO),Rolls-Royce and SIA Engineering, saw an18% increase in turnover.Its workforce expanded by 80 to 755 in2005 and will grow to 815 by December. Itscurrent 30,000 sq. metre facility includes a130,000 lb test cell. – Charles AndersonThales busy in ChinaThales, the France-headquarteredinternational electronics and systemsgroup, has commenced constructionof air navigation systems at 12Mainland Chinese airports and at HongKong International Airport.It also will install a training systemat the southwest training centre of theCivil Aviation Administration of China.The projects, won by Thales in 2005, arethe installation of 11 Doppler-VOR VHFOmnidirectional Radio Range Systems(DVOR) for en-route navigation, 20 distancemeasuring equipment systems (DME)for en-route and landing procedures andthree Instrument Landing Systems (ILS) atthe Mainland airports.In the last five years Thales has built theAir Traffic Control (ATC) system for China’seastern corridor, installed a Eurocat ATCmanagement system in Chengdu and constructedthe ATC system for the North, East,South Area Control Centres for China.

That, many industry observers believe, is anunderestimation of the demand.Airlines are being confronted by acomplex series of challenges that areworsening their flight deck plight. China ispurchasing aircraft at such a rapid pace itslimited flight training capabilities have nochance of meeting the demand. Carriers areincreasingly, and for the first time openly,turning to international markets to hireexpatriate crew.India, where planes have been groundedbecause there was no one to fly them, isfacing a pilot shortfall crunch. With newairlines emerging virtually every month, andthose already flying placing huge orders fornew planes, it too has turned to foreign pilotsin an attempt to bridge the gap.The ambitious, fast-expanding operatorsof the Middle East are making matters worse,raiding airlines in Asia and elsewhere,offering lucrative, tax-free packages to luretheir cockpit crew away. And in the Asia-Pacific itself, the rapid rise of low-costcarriers (LCCs) has added to the cocktailas they too fill their flight decks with crewpoached from mainline airlines.For some mainstream carriers thepressure has reached critical levels.When Philippine Airlines (PAL) presidentJaime Bautista sat down to talk with OrientAviation recently there was one specifictopic he wanted to raise: the ongoing loss ofhis highly trained cockpit crew to overseascarriers, mostly in India and the Middle East,but also to low-cost carriers (LCCs) closer tohome. They were given lucrative salary andcondition packages to jump ship.China Southern Airlines, the only Mainland carrier to have a flight trainingcentre outside China, is doubling its cadet intake to 250 a year at the ChinaSouthern West Australian Flying College, near Perth“In the past two years nearly 80 pilotshave left out of our cockpit crew of nearly500,” said Bautista.The situation is so worrying he has hadto slow down a US$1 billion expansion planthat involved taking on nine new AirbusA320s between 2006 and 2008. Already,one delivery scheduled this year has beendeferred to next year.“It is not critical, but we are planning toplay it safe at least for the time being untilwe can stabilise the exodus. There is nopoint having the aircraft if you don’t havethe pilots,” he said.Bautista has given his pilots three wagerises in the past 18 months, increasing theirsalaries by 40%, in an effort to stem the tideof pilot departures.He is not alone. In Jakarta, GarudaIndonesia has lost at least 120 pilots to otherairlines since 2003. It still has a surplusand crew have been seconded to MalaysiaAirlines, Biman Bangladesh Airlines, AsianaAirlines in South Korea and low-cost carrier(LCC) AirAsia. But operations director, AriSapari, believes that by next year Garuda willhave a pilot shortfall of up to 83 pilots. Worse,by 2008 the shortage will have increased to169 and to 242 by 2010.There are other signs the dearth ofaviation professionals is worsening. InChina, airlines have, for the first time,begun to publicly declare their intention tohire expatriate crew in an attempt to fill amounting shortfall.There are already foreign pilots flyingfor Chinese airlines – some 70 expatriatesnow have valid licences to work there, 30 ofRecent training developments• A British-Singaporean-Hong Kong joint venture, AlphaAviation Group, plans to spend at least US$32 million openingnine training schools across Asia and the Middle East. Thefirst, in the Philippines, will be operating from July, followed inthe next two to three years by three centres in India, three inChina and two in the Middle East.• Brazilian planemaker, Embraer, is evaluating a potentiallocation for the Asia-Pacific’s first Embraer 170/190 simulator,expected to be in operation during the second half of next year.India is a strong contender.• Europe’s Avions de Transport Regional (ATR) is to establish twotraining centres in Mumbai and Bangalore. They will be jointventures with Air Deccan and Kingfisher Airlines. More than 100ATR turboprops will be flying in India in the next few years.• Boeing subsidiary, Alteon Training, broke ground on its newregional training centre in Singapore in February. To becompleted by October, it will have the capacity to train morethan 6,000 pilots and flight attendants annually. Alteon alsohas training centres in Brisbane, Australia, Seoul/Incheon,South Korea and Kunming and Tianjin, in China.• Boeing has committed to new pilot training facilities in Indiathrough Alteon after Air India’s US$11 billion order for 68aircraft.These will include Boeing B777, B787 and B737 simulators.Also, it is giving a grant of US$10 million and working with thegovernment to expand ab initio pilot training schools in thecountry.Continued on next pageMAY 2006 ORIENT AVIATION 15

MAIN STORYthem with Shenzhen Airlines– but until now it has not beenofficially acknowledged.In February, Beijing-basedAir China publicly announcedp l a n s f o r a n o v e r s e a srecruitment campaign.Q uot e d i n t he ChinaDaily, a senior Air Chinaexecutive, Li Huxiao, saidthe carrier was introducingup to 30 aircraft in the next12 months, but “the exactnumber will depend on thesupply of aircrew members,par ticularly the pilots.Currently, we are short of atleast 40 captains, so we willtry to recruit foreign pilots”.Also, Shanghai Airlinesis reported to have startedh i r i ng foreig n pi lot s.‘ In the past twoyears nearly80 pilots haveleft out of ourcockpit crew ofnearly 500’Jaime BautistaPresidentPhilippine AirlinesGrowing at 30% a year, the carrier has signedup eight pilots from nations such as the U.S.and Sweden to fly its MD-11 cargo planes,according to the Xinhua news agency.Big Chinese airlines are facing anotherproblem for the first time. As more privatecarriers emerge, they are attempting to hirecrew from the major airlines. It was reportedin December that a number of captains fromthe Jiangsu Branch of China Eastern Airlines(CEA) asked to resign to work elsewhere, asituation unheard of previously.However, CEA and other airlines aretrying to nip this trend in the bud by suingdefecting pilots for training costs.I n I n d i a , s h o r t a g e s a r e j u s t a scritical. Unparalleled growth,with orders placed for close to 400new jets and turboprops in the past18 months, means airlines need atleast 4,000 pilots in the next fourto five years.Industry insiders say at leasta dozen aircraft are sitting on theground because there is no one tofly them. Dinesh Keskar, Boeingsenior vice-president sales, saidpilot salaries have risen 40%.The problem is not confinedto the booming markets of Chinaand India, nor the Philippines andIndonesia. All majorAsian airlines havesophisticated pilottraining programmeswith strong forwardp l a n n i n g i n p l a c ea n d m o s t p l a n t oincrease their cadet intakes incoming years.Some, like Korean Air (KAL),have their own flight schools. Ninehundred cadets have graduatedand joined KAL flight crews sincethe facility opened in 1989. But thepressure is still on to produce morecrew and not always because ofpilot poaching.Japan Airlines (JAL) expects tolose more than 100 pilots annuallyin the next six years as a result ofretirements. With 2,600 pilotsoperating internationally and790 domestically (low-operatingcost international subsidiary, JALways,has another 244), it aims to hire more non-Japanese cockpit crew to deal with thelosses.And in a move rapidly becoming morecommon in global aviation, JAL plans tomake more use of retired pilots – up tothe age of 65 and in excellent health – in aspecial flight crew programme approved bythe Japan Civil Aviation Bureau (JCAB). Theofficial retirement age for pilots is 60.India has twice raised the pilot retirementage, from 60 to 61, then up to 65, as wellas reducing the total flying time needed toqualify for a commercial pilot’s licence from250 hours to 200 hours.Malaysia also has set pilotretirement at 65, a move thatfollowed an exodus of pilotsfrom Malaysia Airlines. Itlost more than 80 in 2004and 2005.Taken together, thesetrends illustrate a criticalissue for the region’s airlineindustry: how to acquire‘ We don’t wantto move tooquickly becausethat in and ofitself causesproblems’Capt. Kevin ParkerDirector of trainingZhuhai FlightTraining Centresufficient cockpit crew tomeet forward fleet expansionplans and, more importantly,how to acquire them oncethey are hired.Flying schools acrossthe region are increasingtheir cadet throughput asthe gravity of the skillsshortage – it involves flightattendants, maintenanceengineers, ground crewRecent training developments (Continued)• Qantas Airways is teaming up with Alteon to expand trainingcentres in Australia and push for third party work.• The Zhuhai Flight Training Centre, a joint venture betweenChina Southern Airlines and Canadian simulator manufacturerCAE, currently training 400 pilots a year, will increase thenumber to 500 next year and 600 in 2008. It has ordered threemore full-flight simulators and three CAE Simfinity(TM) threedimensionaltrainers worth about $45 million.• The Civil Aviation Administration of China (CAAC) Civil AviationFlight University of China in Sichuan is raising its intake of pilotstudents this year from 600-700 to 1,200.• Air India is considering opening its own aviation academy totrain pilots, cabin crew and maintenance personnel. It currentlyhas no ab initio flying training centres and uses the IndiraGhandi Rashtriya Uran Academy in Rae Bareli. That school isincreasing its student numbers from 30 to 50 a year.• Low-cost Indian carrier, Kingfisher Airlines, is establishingKingfisher Aviation University to train pilots, maintenanceengineers and flight attendants. Likely to be near Mumbai, itshould be in operation by mid-2007. Initially, it will have oneATR and two A320 flight simulators.• Another Indian low-cost carrier, Air Deccan, has plans toopen its own training centre, either at the Jakkur Aerodromeoutside Bangalore or on government-owned land near thenew Bangalore airport.• India’s Frankfinn Institute of Air Hostess Training is expanding,increasing its training centres in the country from 49 to 60.Total intake will rise to 12,000 students.16 ORIENT AVIATION MAY 2006

MAIN STORYand air traffic controllers as well as pilots –becomes increasingly apparent.Yet despite the increased trainingactivity, there are ser iou s concer nsa b o u t w h e t h e r e v e n t h i s m a j o rexpansion will be sufficient t o m e e td e m a nd. M a r k Pearson, the chairmanof International Aviation Group (AIG),which is part of the Alpha project, said eventhough it is building nine training centres itwill “only scratch the surface”.Like most major pilot training operations,Alpha will use the International CivilAviation Organisation’s (ICAO) newMulti-Crew Pilot’s Licence (MCPL) asthe central element of its syllabus. Thissees cadets emerge after 12 months ratedto fly as co-pilots on modern jets. Thenormal Air Transport Pilots Licence(ATPL) trains them to fly turboprops, butfurther training is required for graduationinto jet pilots.Hong Kong’s director of civil aviation,Norman Lo, is a strong advocate of theMPLC. Speaking at an Asia - Pacif icairline training symposium in Singapore inFebruary, he said to accommodate a projected6% annual growth rate in air traffic throughto 2020, there would have to be, at the veryleast, a doubling of the region’s pilot force.He arg ued the conventional pilotselection systems and criteria may nolonger be suitable. “It has become moreand more apparent that the development ofnew technologies and a rapidly evolvingairspace system have outpaced the currentairline flight training methodology. Tofurther enhance aviation safety, we have torevamp the way we train our new generationpilots,” said Lo.He is also concerned that “in responseto this pilot shortage, some airlines havestarted introducing lower-time pilots”. Hesaid particular concerns need to be addressedas to the minimum training and experiencerequired to admit low-time pilots into theairline system.John Bent, director of Hong Kong-basedaviation consultancy, Aviation SolutionsAsia, said it is “common knowledge thatsome aircraft have been delivered in Asiawhich cannot enter service immediately dueto lack of crews”.There are numerous growth projectionsand the average shows very large numbersof pilots, maintenance engineers and airtraffic controllers will be needed in the nexttwo decades in Asia, particularly China andIndia, he added.‘ A captain with PAL [PhilippineAirlines] can gross a salary ofbetween US$4,000 and US$7,000a month. By local standards thisis a very good salary, but howcan you match competitors,especially those in the MiddleEast and India, paying doublethat salary and tax-free. Here,our pilots are taxed at 32%’Jaime BautistaPresidentPhilippine Airlines“Training (production rates) run from twoto seven years depending on skill-sets andalthough numerous new facilities are beingbuilt, I believe that the numbers projectedto be trained are optimistic targets only,”said Bent.He said “motivation levels” for aviationcareers do not seem to be as high as theywere and even if sufficient candidates canbe found the challenge remained that peopletrained are not just numbers which fit; theywill mostly enter the industry from the startpoint with no experience.“The overall experience levels willtherefore drop, raising the spectre ofincreased risk in the system. So we facemany and various challenges, includinglarge infrastructure issues in India, but thelargest of all is to find and train the humanwareneeded by the system,” said Bent.“Multiple action is needed and someissues are being addressed, but mostly it istoo little, too late.”Pearson agrees, saying it will take newlytrained MCPL pilots three to five years toreach the experience level where they canmove into the (captain’s) left hand seat.“It’s a huge problem and it is going to get alot worse before it gets better,” he said.Captain Kevin Parker, director of trainingKorean Air has its own flight training school in Jejuat the Zhuhai Flight Training Centre in China– 51% owned by China Southern Airlines(CSA) and the remainder held by Canadiansimulator manufacturer CAE – said it isdifficult to say whether training expansionmeasures are sufficient.“The problem we face is we know wehave to move quickly, but we don’t wantto move too quickly because that in andof itself causes problems. I think we aremoving as fast as we possibly can to adaptto the ever-changing environment we havehere,” he said.Parker said the pressures are tremendous.At the moment the Zhuhai centre has ninesimulators covering the ERJ145, the BoeingB737-300, -500 and NG (Next Generation),the B757, B777 and the Airbus A320. It hasordered four more, to add NG and A320capacity and extend training to the AirbusA330. “We are training about 400 [pilots]a year at the moment and it is going toincrease to 500 next year and 600 in 2008.But I suspect we will get up closer to 700annually,” he said.While 80% of training is for CSA, thecentre also does third party training forcarriers in countries such as Vietnam,Korea and Taiwan, as well as other Chineseoperators.“The concern I have more than anythingis for those [Chinese] airlines that don’t havethe kind of support that China Southern has.They are going to have a tough time and Iwould hate to see anybody cutting corners tomake ends meet,” said Capt. Parker.Like many airline chiefs, PAL’s Bautistaalso fears the situation will drive pilotsalaries through the roof. “The easiest andcheapest way to get your pilots is to go tothe established carriers and offer packagesthat make it hard for many pilots to refuse.It is cheap because you don’t have to pay fortheir training. Someone else has done that foryou,” said the PAL chief.18 ORIENT AVIATION MAY 2006

MAIN STORYThere is another issue for training centres:hiring enough qualified instructors. Alpha’sPearson said each of its new centres willrequire 36 instructors and the group plansto train its own. “There are problemseverywhere. Look at India. You have anumber of existing flying schools there,some of which have actually had to stopoperations, because they don’t have theinstructors. The instructors have all gone tothe airlines,” he said.India’s civil aviation authorities list 39flight training institutions, 11 privatelyownedand the remainder subsidised bygovernment.Not everyone is pessimistic. Air Indiachairman, Vasudevan Thusalidas, toldOrient Aviation he believed that while thesituation looked confused, in the next threeyears “there should be a reasonable solution”.In the meantime, recruitment of foreignpilots would fill the gap, he added.Like China, regulations in India do notallow for two foreign pilots to work in thecockpit at the same time and there is pressurefrom airlines to have this rule relaxed.Air Deccan chairman, Capt. G. R.Gopinath, has approached the civil aviationministry and asked it to relax rules relatingto the recruitment of foreign pilots.Industry observers warn if Chineseairlines enter the market for foreign pilots ina big way it will make matters even worse.Boeing estimates China will needmore than 2,600 new planes in the next 20years, costing more than US$213 billion.Gao Hongfeng, deputy director general ofthe CAAC, said at a Beijing press conferencein the February the country will buy morethan 100 aircraft a year from 2006 to 2010.That may be an underestimation.Last year, according to CAAC statistics,Zhuhai Flight Training Centre: using nine simulators, the centre trains 400pilots a year, but expects this figure to rise to nearer 700China contracted to purchase 442 aircraftfrom Boeing and Airbus. Although deliveriesare spread out over many years, acquiringenough pilots to fly them will be a realchallenge.China now has a fleet of 863 commercialjets and 11,000 pilots, giving the industrya ratio of pilots-per-aircraft much lowerthan the norm. Based on aircraft deliveries,industry experts have estimated the countrywill need at least 1,600 new pilots every yearto keep up.Yet the CAAC’s Civil Aviation FlightUniversity of China, the nation’s majortraining school for commercial airlinepilots, has been graduating a maximum of‘ Multiple action is neededand some issues are beingaddressed, but mostly it istoo little, too late.’John Bent650 pilots a year.The China Southern West AustralianFlying College in Jandakot, near Perth,Western Australia, (the only Mainlandtraining centre outside China) has increasedits throughput, but still only graduates 200pilots a year.The CAAC university is almost doublingits intake this year to 1,200 pilots. Earlierthis year, the facility graduated its first batchof 12 female pilots, trained for commercialoperations. Nearly all female pilot trainingin the country has been for the military,although a handful have ended up flying fordomestic airlines after leaving the air force.The CAAC has moved to bring privateenterprise into the picture, allowingprivately owned pilot training schoolsto open. One of these is Beijing PanAmInternational Aviation Academy, whichbecame last December the first privatelyownedcommercial pilot training schoolin China given China Civil Aviation20 ORIENT AVIATION MAY 2006

MAIN STORYRegulation (CCAR) 141 approval; meaningit meets ICAO’s international standards. Ithas already begun ab initio training withHainan Airlines sending trainee pilots tothe academy.Several other schools have applied forCCAR 141, including Flying Dragon School’sHarbin International Flight Training Centrein Harbin and the Qingdao Jiutian SpartanFlight Academy in Shandong, a joint venturebetween the U.S.-based Spartan School ofAeronautics and local partners, includingShandong Airlines.PanAm, first launched in the region in2003, was the first Chinese-based flyingschool with foreign professionals leading themanagement team. It has built its trainingbase at Zhengding Airport in Shijiazhuangand is now handling some 300 students. Witha current fleet of 31 training aircraft, it plansto have 60 by next year.It is known that several foreign trainingorganizations are also taking a close look atthe possibility of setting up Chinese or Indianoperations.Keith Morgan, head of flight trainingadelaide (fta) in Australia, said the collegehas seen consistent growth in recent years.While no firm plans have been announced forgrowth he indicated a serious look was beingtaken at operations outside Australia.“At present, the demand for pilots inIndia and China offers huge potential for ftaalthough in considering a capture plan forthese markets I would be keen to establishpartnerships that allow for the transfer ofintellectual property and skill. This wouldallow us to take advantage of the benefitswhere they naturally occur,” said Morgan.“Australia clearly has airspace, goodweather and visibility and access toairports. However, India and China mayoffer solutions in other areas of the training,the delivery of theory, simulation and IFRtraining for example.”Fta, owned by Hong Kong’s YoungBrothers Aviation, currently trains pilots forQantas Airways, Cathay Pacific Airways,Dragonair, Taiwan’s China Airlines, China’sZhejiang Airlines, Emirates Airline andothers. In March, it signed a contract withJapan Airlines subsidiary, JAL Express, totrain 40 cadets a year for five years.Few industry executives believe therush of training expansion will result inan eventual glut. As Alpha’s Pearson putit: “The aviation business has always beenvery cyclical, but I think, particularly in Asia,there is going to be a long upward trend.Qantas Airways flight trainingcentre in MelbourneQantas getsin on the actThe increasing demand forcockpit and cabin crew trainingin the Asia-Pacific haspresented an opportunity formajor airlines to compete forthe business. Australia’s Qantas Airways hasmoved to take advantage of the situation.Steve Graham, manager businessdevelopment for flight operations trainingat Qantas Airways has hardly had timeto unpack his bags since joining QantasAirways a little over four months ago.The former army pilot hasbeen roaming around Asiaon a mission to drum up thirdparty business for the airline’sextensive simulator facilitiesin Sydney and Melbourne.After several trips to India, Singaporeand around North Asia, including Japan,he was about to head off again, this timeto China. Qantas, he said, is hoping to winbusiness from airlines around the region forhigh quality pilot and cabin crew trainingas the demand for cockpit crew and flightattendants goes through the roof.Graham’s position is a new one, specificallycreated to take advantage of a businessopportunity. But Qantas is not standingalone. It has signed an agreement of intentwith major training organization Alteon, aBoeing subsidiary, under which the two willbe marketing each other’s training wares.‘ Qantas is steppingup its third partytraining business’Alteon has a simulator centre in Brisbane,which has Boeing B737-700 and -800, AirbusA320 and Boeing B717 simulators. Qantashas Boeing B747, B767, B737-300, -400 and-800, Airbus A330 and A320 simulators. InJune, Alteon will commission another A320full flight simulator at Qantas’ Melbournefacility.“We are working to create an A to Zof flight training at the right price, to puttogether a programme that will cater foreverything from ab initio through transitionto the jet cockpit on oursimulators,” said Graham.While Qantas does nothave its own ab initio flyingacademy – it sends cadets tocentres such as flight trainingadelaide for training – the carrier wants towork with flying schools so that when youngpilots win their air transport pilots licence(ATPL) they can then go directly to Qantasor Alteon simulator centres to be readied forcommercial jet operations.Qantas is focusing on the region’s boomareas – China, India and North Asia – but itisn’t forgetting there is business to be had inSoutheast Asia.And it is targeting the fast expanding lowcostcarrier (LCC) sector.The priority for third party business willbe on B737 and A320 simulators, the aircraftoperated by virtually all LCCs.22 ORIENT AVIATION MAY 2006

Presidential concernThe shortage of pilots in the Philippines has become such acrucial issue that the country’s president, Gloria MacapagalArroyo, has become involved in looking at ways of stoppingthe cockpit ‘brain drain’.In March, in a televised discussion programme on the subject,she gave her answer to the problem: enlist the helpof the country’s air force.“The airlines have airplanes, but no pilots. Theair force has pilots, but no airplanes,” she said. “Iwould say if possible in co-ordination with theaviation schools and private airlines we could lookfor a way for our air force pilots to be trained [to flywith] commercial airlines.”The idea is hardly new. But air force pilots in the Philippinesare banned from opting out to join the commercial ranks. Newgovernment legislation would be required to allow an exodus.Nevertheless, the pilot shortfall has become so serious Manilawould probably move quickly to fast-track changes.Philippine Airlines is not the only local carrier suffering (seemain story). The televised discussion was told that some 140 seniorpilots, dozens more first and second officers and more than 1,900‘[Philippine] pilotshave to give minimumof six month’s noticeof leaving his or herairline.’aircraft mechanics have left for higher paying jobs overseas in thepast five years.Airlines are so concerned that in March they joined forces andsubmitted a paper to the country’s Parliament. They pointed out oneforeign airline has been recruiting in the Philippines and said it needsto hire 600 pilots.A local employment agency has requests onits books from foreign carriers for more than2,000 mechanics, said the submission. None ofthe foreign airlines were named.The paper did say that Singapore has “apending job order for 50 pilots” at the Philippineemployment authority. It stated the Lion City is hometo three budget carriers, including Tiger Airways, part-owned bySingapore Airlines.The Philippine airlines jointly asked government to place a five-yearban on any local pilot leaving the country to join a carrier overseas.The request was turned down, but Manila has introduced a newrule under which pilots have to give a minimum of six month’s noticeof leaving his or her airline. If they fail to do so, authorities will refuseto renew the pilot’s licence.MAY 2006 ORIENT AVIATION 23

MAIN STORYFilippo Bagnato, chief executiveof European planemakerAvions de Transport Regional(ATR) was jumping for joy onMarch 30 at the firm’s Toulousemanufacturing plant. Little wonder. He hadjust handed over the first of 35 ATR 72-500s– a US$620 million order – to Indian liquorbaron Vijay Mallya, owner of fast expanding,Bangalore-based Kingfisher Airlines.But it wasn’t simply the order book thatcheered Bagnato.There was the bonus of two state-of-thearttraining centres, one in Mumbai and onein Bangalore, to dramatically increase pilottraining facilities for Kingfisher and otherIndian carriers. The centres are to be set upas joint ventures: one with Kingfisher andone with Air Deccan.The ATR venture is just one of an arrayof training projects planned for the next fewyears to help ease India’s critical shortage ofaviation professionals.After clinching a 68-aircraft orderfrom Air India worth $1.8 billion, Boeingannounced it would invest another $185million in facilities, including a $75 millionTraining moneypouring into Indiapilot training centre. This will involve itssimulator training subsidiary Alteon.Boeing also has committed to investingmoney into ab initio flying training schoolsand to setting up a $100 million maintenance,repair and overhaul (MRO) centre.Airbus, which recently sold $2.5 billionworth of planes to Indian (formerly IndianAirlines), will also facilitate the establishingof a $100 million MRO unit in the country.Of the 35 simulators sold last year byfirms such as Canada’s CAE and Thales,Asian customers accounted for 16 of them.Senior CAE executives confirmed thecompany is looking at the possibility ofopening a training centre in India.British-Singaporean-Hong Kong jointventure, Alpha Aviation Group, will besetting up three of its nine planned trainingcentres across Asia in India.Both government-owned Air Indiaand Indian have simulator centres, but JetAirways is the only private carrier with afull-flight simulator – for the B737-800.This will soon change. Kingfisher’sMallya, who has ordered $3 billion of jetsfrom Airbus, including five A380s, has saidhe is planning to open Kingfisher AviationUniversity by the middle of next year – eitherin Mumbai or Bangalore – to train pilots, flightattendants and maintenance engineers.Air Deccan said it is planning to order twoA320 simulators from CAE and open its owncentre early in 2007 near Bangalore.Air India also is planning expansion. Thecarrier is considering establishing its ownaviation academy near Mumbai in a jointventure partnership with Boeing. 24 ORIENT AVIATION MAY 2006

MAIN STORYA British-Singaporean-Hong Kongjoint venture plans to becomethe Asia-Pacific’s largest trainingorganization in the next few years,graduating hundreds of pilots readyto step straight into the cockpitsof modern commercial jets. TOMBALLANTYNE spoke to one ofthe group’s principals, U.K.-basedMark Pearson.Nine new trainingcentres ‘will notscratch the surface’Mark Pearson, chairmanand chief executiveof UK-based International Av iat ionGroup (IAG), partof a new joint venture that plans at leastnine aviation training centres across Asiain the next two to three years, says thisinvestment will not get close to solving theacute shortage of professionals, particularlypilots, the region faces. At least, that is, notin the short to medium-term.“We are not even going to be scratchingthe surface,” Pearson told Orient Aviation.The reason is simple. Pearson did astudy some time ago that showed, out of atotal global requirement of 36,000 new pilotsevery year for the next 20 years, Asia alonerequired a minimum of 6,000 annually.IAG is providing the training know-howfor the new Alpha Aviation Group (AAG).It is backed by Hong Kong’s InternationalAviation Group and Singapore’s PrescientSystems & Technologies, an associatedcompany of Singapore TechnologiesEngineering Limited, with British venturecapitalists providing financial backing.Their first Asian training centre, detailsof which have been kept under wraps untilnow, is in the Philippines, at the former U.S.Clark air base, now an international airportand special economic zone (SEZ).The Clark Institute of Aviation willopen in July with a throughput of 218 pilotsannually. That will double in the second year.While it expands, work will be racing aheadto open three centres in India, three in Chinaand two in the Middle East.According to Pearson, new trainingcentres will be opening at an average rateof one every six months. Combined projectcosts are estimated to be in excess of US$320million and the funding will be secured by acombination of equity and debt financing.Even before it has opened its doors, Indianairlines have snapped up 60% of Clark’sinitial training capacity.“There is interest in countries such asIndonesia, Vietnam and other key areas. Theproblem is widespread, but our initial focusneeds to be India and China because they aresuffering most of all,” said Pearson.“Even if we open 10 training centres andwe have the capacity to do that tomorrow,our maximum capacity is still only going tobe 2,000 pilots. The Chinese Government‘ This is a dummy breakout.This is a dummy breakout.’Someone SomeoneSome Title Some Titlehave stressed they alone need another 12,000pilots in the next four years. At the momenttheir capacity is only 850 pilots a year in theirexisting training resources,” said Pearson.“India requires 4,000 pilots just to meetthe aircraft orders over the next four years.And it is not only pilots. While our primaryfocus is on pilot training, the intention is totrain aviation personnel across the board,including engineers, cabin crew, flightdispatchers and air traffic controllers. TakeIndia for example, 4,000 pilots means theyneed 11,000 cabin crew.”The problem has become so acute becauseany previous pool of licensed pilots with typeratings has already disappeared. “The onlysolution you have got is to take people fromthe street and train them up as commercialpilots,” said Pearson.Like many other training firms, Alphais focusing its training around the newMulti-Crew Pilot Licence (MCPL). Unlikethe normal ATPL, or Air Transport PilotLicence, which takes students through toturboprop operations, the MCPL producesgraduates already rated for commercial jetairline cockpits.“It’s the shortest possible time in whichto bring pilots into the market with therelevant training and at the right standard,”said Pearson.Even then, the course takes a year. “It’snot a total solution,” he said. “The problemis going to be in the dilution of experience.The airlines require pilots immediately.Unfortunately, we don’t have that solution.The best solution we can offer is going totake 12 months to start happening,” saidPearson.“A lot of airlines tell me they want pilotstomorrow. I can’t give them pilots tomorrow,but unless they make the decision todaythey are going to be facing exactly the sameproblem 12 months from today, and it is goingto be even more critical.”Clark was selected as the first trainingcentre because it offered many advantages.“It gave us the best opportunity to build thelowest cost base training in the region. It isstrategically located, easily reached from allparts of Asia,” said Pearson.“The Philippines has an abundance ofhighly literate English-speaking peoplethat we can train. There is a very low-costbase and tax concession at the Clark SpecialEconomic Zone. That means we can providevery high quality training at incredibly lowcost.”AAG already has people on the groundin India and China, conducting feasibilitystudies and narrowing down potentialtraining locations.26 ORIENT AVIATION MAY 2006

GA landmarkwill help Chinapilot shortageAccording to statistics from the CivilAviation Administration of China(CAAC), at the end of last year therewere little more than 600 general aviationaircraft in China, flying some 80,000 hoursa year between them.In stark contrast, the U.S. FederalAviation Administration (FAA) reportedthe country has more than 220,000 smallaircraft, carrying 133 million passengersannually and serving some 19,000 airports.There is another glaring difference. Inthe U.S. around 70% of all GA flights arebusiness related. In China, 70% of flights arerelated to agriculture or the offshore drillingand mineral exploration industries. It meansthat however many pilots there are flyinglight aircraft in China, few have experiencein passenger operations.Beijing, realising the development ofGA is a critical part of the ultimate solutionto commercial airline pilot shortages. It ismaking the general aviation sector a priorityin its 11th Five-Year Plan, running from thisyear to 2010. It wants the sector to grow byat least 10% annually and expand its reachinto passenger operations.Howeve r, GA operator s a re alsosuffering pilot shortages. One member ofthe country’s Society of Aeronautics andAstronautics, Yang Jie, was quoted in thelocal media recently as saying there is ashortfall of about 1,000 pilots for smallaircraft operations.Another difficulty is in China there areofficially only 57 airports available forGA operations, compared to 126 used forscheduled flights.Until recently in China, GA operationsalso had to receive flight approval fromthe authorities, a process that could takeup to two weeks. The government has nowstreamlined the procedure and clearance canbe received within a day.With government backing for rapid GAgrowth, the CAAC believes there could be10,000 general aviation aircraft in Chinaby 2020, not only fuelling economicdevelopment, but finally helping to providea big flow of cockpit crew to commercialairline operators.MAY 2006 ORIENT AVIATION 27

NEWS BACKGROUNDERSHAKE ON ITThey were once fierce rivals, but Malaysia’snational carrier, Malaysia Airlines, andAsia’s first budget carrier, AirAsia, are nowworking together. TOM BALLANTYNEreports on this ironic twist in Malaysia’sairline history.The day after Idris Jala, managingdirector of governmentownednational flag carrierMalaysia Airlines (MAS)and Tony Fernandes, chiefexecutive of Asia’s first low-cost carrier(LCC), AirAsia, held a joint press conferencein late March in Kuala Lumpur the localnewspaper, The Star, carried a banner frontpageheadline that said simply: “FlyingTogether”.The words said it all. By governmentdecree, fast expanding and profitable AirAsiaand troubled, loss-making MAS were haltingany prospect of ongoing and damagingcompetition in Malaysia’s domestic skiesand on routes overseas. From now on theywould work together for the good of thecountry’s aviation industry, domesticallyand internationally.Not only will AirAsia end up interliningwith MAS’s international services, the twocarriers are also in the process of establishingjoint engineering and training programmes.And, in effect, they won’t compete on ticketprices.As Fernandes put it: “Watch out, Singapore.A strong MAS and AirAsia will pooltheir strengths and pose a threat to SIA[Singapore Airlines]. We will give Singaporea run for its money.”Added Jala: “This collaboration is thebeginning of a new era for the airline industryin Malaysia. Malaysia Airlines and AirAsiawill use the current framework to build astrong platform for launching an airlinepowerhouse in the Asia-Pacific.”The two airline chiefs were so upbeatbecause of a watershed government decisiontaken a few days earlier to radicallyrestructure domestic airline operations,carve up the market between the twocarriers and curtail the potential for futurehead-butting on ticket prices.In essence, MAS, which has consistentlylost money on its domestic opera-AT A GLANCEMALAYSIA AIRLINES• Lost US$351.7 million in the ninemonths to December, 2005• Will hand 96 of its 115 domesticroutes to AirAsia• 6,500 jobs to go• Fleet to be reduced from 40 to21 aircraftAIRASIA• Profit up 20% to $17.6 million in thesix months to December 31• Its fleet of 26 aircraft will be joinedby 55 A320s at the rate of one ortwo a month. It has options onanother 40 A320stions, will be able to focus solely on 19 majortrunk routes. Currently, it flies on 115 routesacross Malaysia, including dozens of smallrural services served by 25-seat de HavilandTwin Otter turboprops.It will cut its domestic fleet from 40 to21 aircraft and trim its staff numbers from23,000 to 16,500, slashing millions of dollarsfrom bottom line costs.AirAsia will gradually take over 96routes from MAS. Both carriers will receivesubsidies from the government. For MAS themoney will compensate it for the cost of its‘Malaysia Airlinesand AirAsia will...build a strongplatform forlaunching anairline powerhousein theAsia-Pacific’Idris JalaManaging directorMalaysia Airlinesdomestic restructure, for AirAsia it will be asubsidy for flying “essential” rural services,which it is likely to contract out to a thirdparty. This is because it lacks experience inturboprop operations.AirAsia will still fly on trunk routesoperated by MAS, but the two will sharecapacity. At home and abroad, there willbe no real pricing competition between thetwo. The government has basically assignedAirAsia the budget end of the market andMAS the full-service end, with MAS notbeing allowed to sell tickets “below theirfull economic fares”.This means it will offer premiumservices based on its price structure andrelated services costs, while AirAsia willoffer non-premium, low-priced fares.Within this framework, both will have theflexibility to fix their flight fares, capacityand frequencies and the type of aircraft usedfor domestic flights.Not everyone is happy. MAS employ-ees,concerned about the job losses, quickly urgedPrime Minister Datuk Seri Abdullah AhmadBadawi to intervene. Said MAS Employees’Union president Alias Aziz: “The sharingof domestic routes is not win-win for bothairlines. It is sad that the Government wantsto help a private airline at the expense ofMAS employees. It’s not fair.”The opportunity to revamp domesticoperations comes as a big boost for MASmanagement as it strives to regain profitability.In February, it reported a loss ofUS$166.8 million for the last three monthsof 2005 and net losses of $351.7 million forthe nine months to December.Conversely, AirAsia saw its net profitleap 20% to $17.6 million in the six monthsto December 31, on a 36% rise in revenueto $111.5 million.The 47-year- old Jala took overas managing director of MAS lastDecember. He was brought in bygovernment to stem the haemorrhaging.28 ORIENT AVIATION MAY 2006

NEWS BACKGROUNDERBy the end of February he had announced asweeping turnaround plan, including a majorrestructure of the international network.The airline will stop flying to six internationaldestinations over the next threemonths – Ahmedabad and Kolkata in India,Xi’an in China, Padang in Indonesia andManchester and Vienna in Europe – and trimservices on several other routes. Jala said themove would improve loads, increase yieldsand reduce losses by up to $82 million in thecurrent financial year (ending December31, 2006).One concern of MAS, the maintenance ofits connectivity from around the country to itsinternational flights, has been clearly cateredfor in the new domestic airline structure. Theairline carries about 10 million internationalpassengers a year and up to 15% are domestictravellers joining overseas flights.“We have always emphasised that bothairlines can co-exist as they each serve verydifferent market segments,” Fernandes toldOrient Aviation. “MAS’s goal is to connect‘ We will give Singapore a runfor its money’Tony FernandesChief executive, AirAsiaMalaysia with the rest of the world whileAirAsia has taken on the challenge of makingair travel a mass commodity accessible to asThe analysts’ view....many people as possible.“With shared operation of domestic trunkroutes, MAS will be assured of connectivitybetween its international and domesticnetworks while AirAsia focuses on servingpoint-to-point markets. Both airlines willcollaborate cohesively to ensure connectivitybetween our networks, particularly on routeswhich will be operated only by AirAsia.”Amidst all of this there was an undertoneof one-upmanship directed at neighbouringSingapore.As the market rationalization plansemerged, Kuala Lumpur InternationalAirport (KLIA) pulled out all stops to openits new low-cost carrier terminal beforeSingapore Changi could open the doors to itsbudget facility. KLIA succeeded, putting theterminal into operation on March 23, threedays before Singapore. AirAsia has nowmoved its operations to the new terminal.Whether the love affair between MASand AirAsia becomes a permanent feature ofAsia’s aviation scene only time will tell.JPMorgan regional transport analyst, Peter Negline, said it wastoo early to come to any conclusions about who will benefitmost from the new arrangements, particularly when there isa lack of detail available about AirAsia plans to operate thecountry’s rural services.“A large proportion of the routes will not be operated by AirAsia,but will be outsourced to a third party airline. Yet no other airlinein Malaysia, apart from Malaysia Airlines has the capacity orthe capability of operating them,” saidNegline.He said he could not understand whymany analysts have been upgrading theirprojections for AirAsia stock.“I’d say there are many more questionsthan answers at this juncture. I have seensuggestions that this is fantastic becauseAirAsia is going to get 80% of the domesticmarket. It’s a complete and utter fallacybecause in most domestic markets you get80% of the traffic on 20% of the routes andMalaysia Airlines is still going to operate 20%of the routes, the crucial trunk routes.“Everyone is assuming that AirAsia is the‘ Morequestionsthan answers’Peter Neglineone that is going to come out of this smelling sweet. But the domesticbusiness has been a poisoned chalice for a very long time and MASare about to unload that poison chalice.“The share market’s response in favour of AirAsia, given the lackof detail, has clearly been premature.”Shukor Yusof, analyst at Standard and Poors in Singapore, saidMAS appeared to have emerged with more to gain from the changesthan AirAsia because it still has access to the 19 primary trunk routes.“It is possible domestic yields will improve as supersaver fares arenot allowed. We think the government will continue to support MASin whatever fashion it could, without appearing to be bailing outthe carrier,” said Shukor. “At the same time, the government alsosees the need to incentivise AirAsia, hence subsidising the rural airservices that AirAsia will take on”.Shukor believed AirAsia will remain profitable in the near-termdue to its rigid cost structure and savvy management.“It is doubtful if MAS is able to be competitive in the face ofconsistently high jet fuel prices as well as its ability to deal with anyspread of [the likes of] avian flu.”However, Vince Ng, transport analyst inthe research department at KAF-Seagroatt& Campbell Securities in Kuala Lumpur,believes the collaboration is “definitely awin-win proposition” for both airlines.“Firstly, MAS will be able to do away witha huge chunk of their loss-making domesticroutes and AirAsia will be able to expand itsreach into the domestic market.Ng pointed out MAS would still handlethe key trunk routes, which would allowconnectivity to its international flights. Onthe other hand, AirAsia “will benefit from‘ A win-winproposition’Vince Ngsecuring more domestic routes from MAS, considering its primeobjective is to fill the capacity that is coming on stream with thepurchase of 100 Airbus A320s [60 firm orders and 40 options].”32 ORIENT AVIATION MAY 2006

COVER STORYJapan Airlines president and CEO-designateHaruka Nishimatsu: a mountain to climbTheWords: TOM BALLANTYNEPhotos: KAKU KURITARELUCTANTPRESIDENTBattered by internal feuding and still reeling from theimpact of a series of safety incidents last year, whichsaw thousands of passengers desert its flights,Japan Airlines is about to get its third president inless than eighteen months. The baton has beenhanded to 58-year-old Haruka Nishimatsu who toldOrient Aviation in Tokyo about his plans to revitalizethe airline’s fortunes.When departing JapanAirlines (JAL) presidentand chief executiveofficer, ToshiyukiShinmachi, approachedthe group’s senior vice-president of finance,Haruka Nishimatsu, at the end of Februaryand asked him to take over the top job, theresponse was immediate and brief.“That is out of the question,” said the longtimeJAL executive. He felt the responsibilitywas too onerous and there were other, moreappropriate candidates.Certainly, the new head of JAL knew hewould be stepping into a maelstrom. Theaffable Shinmachi, in charge for less than12 months, was leaving in the wake of aninternal coup, his resignation demanded byfour directors backed by a petition signed bysome 400 middle level managers. As is theJapanese way, he accepted full blame for theairline’s poor performance.The departing president – who willcontinue as chairman – asked Nishimatsuto think the proposition over. “I thought [inthe end] that if I didn’t assume the positionand chaos continued, it would affect my34 ORIENT AVIATION MAY 2006

work in the finance division and variousother corporate activities,” he said.“I thought that if the troubles could beresolved by [me] assuming the position andthe company was united, I should try.”Set to assume his new role in June whenhis position is expected to be approved at thecarrier’s annual general meeting, he has atough assignment ahead.While restoring its dented safety image isthe number one priority (see separate story)for JAL, it has other fundamental problems.It must restructure the way it does business,massively trim costs and improve its bottomline.It also has to transform its corporateculture, eliminate disharmony within itsranks, not to mention win back defectingJAL air travellers.Financially, there is a mountain to climb.JAL reported a group net loss of US$195.6million for the first three quarters of its 2005-06 year and it is expected to suffer a net lossof $399.7 million for the full year, to March31. The carrier had earlier forecast a profit of$144.6 million for the 12-month period.While rival All Nippon Airways (ANA)is churning out impressive results, recentlyraising its full year profit forecast to around$145 million, JAL has been slipping back.Tough competition and high fuel costsaside, the major reason for its dismalperformance was a series of safety incidentsthat led to an unprecedented public dressingdown for JAL in March last year fromJapan’s Civil Aviation Bureau (CAB). Thegovernment authority essentially told thecarrier to lift its safety game.Japan’s voracious media have had a fieldday and JAL alleges minor mishaps havebeen given sensational coverage. The endresult was that domestic passengers left JALin droves, mostly opting to fly with ANA,which plunged the domestic operation intoa projected loss of $272 million in the latestfiscal year.The linchpin in the planned recoverywill be an ambitious medium-term businessplan, released last March, which focused onregaining customer trust, improving servicelevels, restructuring international operationsand implementing widespread measures togenerate cost savings.Under the plan, JAL will recoverprofitability in 2006-07, finish rebuildingits business processes by 2008 and roll outoperating profit margins in excess of 5% by2010.To achieve these targets JAL has toOutgoing JAL president, ToshiyukiShinmachi: the victim of an internalcouprestructure itself into an airline that canconsistently make an operating profit of at least$850 million a year so it can survive in volatilebusiness conditions, said Nishimatsu.“By securing an operating profit of thatamount, we’ll be able to absorb any impact– whatever happens,” he said. “But wemust have a long-term vision to sustain ourdevelopment.”One major task in the re-structuring willbe to reduce JAL’s interest-bearing liabilities,which are nearly the same as its gross salesof $17 billion. Under the business plan, thecarrier will try to reduce those liabilitiesby around $5 billion by the end of the 2010financial year.A critical element in turning the red inkinto black is winning agreement from theairline’s nine unions for temporary 10%pay cuts that will last for two years. This is abig move because JAL has never previouslysought wage cuts.“We have been able to shake hands orreach an agreement with the majority of theunions. We are beginning to implement thewage cuts,” Nishimatsu told Orient Aviationin Tokyo.Seven unions, including the largest, the10,000-member Japan Airlines Workers’Union (JALFIO), have agreed to the plan.JAL has around 18,300 employees.Negotiations are continuing with theremaining two unions, one representingpilots and another involving a minorityof flight attendants. The majority of cabincrew, those who were with the former JALbefore it merged with Japan Air System in2002 to form the current company, are withJALFIO.Nishimatsu sees personnel costs as a keyfactor in rebuilding JAL, although reducingbottom line costs will be an across-the-boardexercise. “ In the year just ended (March 31),we were able to achieve $59.5 million ofsavings in staff costs. In 2010 (year endingMarch 31, 2011) we are going for $280.6million,” said the CEO-designate.“In rationalizing international routes wesaved $25.5 million last year. That’s going toincrease to $178.6 million in 2010. Savingsin the purchasing area will go from $136million to $391.2 million. These are themajor components [of the restructuring],but overall, by 2010, in comparison to 2005,annual cost reduction will go from $484.7million to $1 billion.”None of this will work unless factionalismwithin the company is stamped out. Internaldisputes between various groups at JAL haveJapan Airlines: putting greater emphasison its cargo business in ChinaMAY 2006 ORIENT AVIATION 35

COVER STORYlong been a fact of life at theairline. The difference thistime was the machinationsbecame public, leaked tothe media by a dissatisfiedexecutive.In simple terms, it involveda group of middle managersand a few senior executivesand board members unhappywith the way Shinmachi washandling the airline’s woes,including the way he tackledthe issue of wage cuts.The CEO-designate isconfident the issue will disappear.He believes it is a“demographic problem”arising from the fact that in theyears prior to 1975 JAL took‘ We have been ableto shake hands orreach an agreementwith the majority ofthe unions [on 10%pay cuts for twoyears]’in great numbers of highly qualified collegegraduates. In the years that followed, afterthe company re-evaluated its employmentpractices, JAL cut back significantly on thenumber of people it hired.Nishimatsu believes that when there is alarge number of people who have served thesame length of time in a company, there isbound to be factionalism as they competewith each other for promotion.But after 1975, he said, there were fewerpeople recruited and this reduced the capacityfor factionalism and sectionalism“I am considered one of the fairly younggeneration and the fact I am now cominginto a position of responsibility showswe are entering a new agewhere there isn’t going tobe that kind of sectionalismor factionalism as before. Ithink we are all going to betoo busy working to worryabout politics.”He is determined to improvecom munications withinthe company and empowermiddle level managers tomake decisions on the spot.Many big Japanese firmsare hierarchical, top-downcorporations. JAL is unusualin that it has traditionally been“a rather bottom-up kind ofcompany”, said Nishimatsu.Never theless, he hasfelt in recent years therehas been a dilution of thisculture. “I think because itwas originally there, it is inthe corporate DNA, or in thefoundations of our corporateculture. I believe that as longas top management is verycareful to let it thrive againwe will be able to bring thisbottom-up culture back veryeasily,” he said.Given he can restore unityin the ranks, the new businessplan is a blueprint for a returnto financial stability. Whereit differs from previous‘ I cannot think ofenough words todescribe how importantChina is [to us]’medium-term plans is that it covers a fiveyearperiod to the end of the 2010 financialyear. Normally, these plans cover threeyears.This longer period is to cater for a criticaldevelopment; an expansion of Tokyo’s Hanedaairport. Normally a domestic facility, in 2009it will open a fourth runway, increasingcapacity by about 43% to 407,000 departuresand arrivals. About 25% of the new slots willbe for international flights.While the airport authority has made nodecisions on slot allocation, JAL believesthere will be a change of approach by them.Previously, when new capacity becameavailable, most slots were handed out to newcarriers to encourage their development.Some concentrated solely on profitableroutes “skimming the cream off the top ofthe business”, said the CEO-elect. Networkcarriers such as JAL focusednot only on highly profitableroutes, but flights that wereconvenient to the consumer,he said.With the expansion ofHaneda a different approachis being considered. Therewill be greater considerationgiven to the routes an airlinewill offer if granted extraslots and the benefits thesedecisions will provide forpassengers. The end result,according to Nishimatsu, willbe that JAL will have a hugeCAREER TRACKPerhaps fittingly, Japan Airlines’ president and CEOdesignate,Haruka Nishimatsu, grew up below one of theworld’s busiest flight paths.He was born in 1948 in Hamamatsu, Shizuoka Prefecture,midway between Tokyo and Osaka. His parents ran a clothingfactory making school uniforms. “I adored aircraft. I have watchedplanes fly over Hamamatsu between Tokyo and Osaka since I wasa small boy and was fascinated by them,” he told Orient Aviationin Tokyo.It was that early fascination with airlines which ultimatelymotivated him to join JAL shortly after graduating from TokyoUniversity with a degree in theoretical economics (microeconomics).Nishimatsu was interested in working in the international arenaand JAL seemed a logical place to go. “In those days JAL was thejob seeker’s number one choice.” His first job was in the flight crewtraining department preparing schedules for pilot trainees.In 1974 he had his first taste of the airline’s finance departmentand in 1976 he procured funds from the U.S. Export Import Bankfor the purchase of JAL’s DC-10 fleet. “I felt some nostalgia attheir retirement from service last year,” he said.While finance was to become Nishimatsu’s specialist area,along the way he spent time in the traffic division and in corporateplanning and industrial relations. In 1987, he was transferred toJAL’s Frankfurt office, the only time he has worked outside Tokyo,as administration manager of sales and airport offices.Four years later, he returned to Tokyo and for the next 14 years herapidly rose through the JAL senior financial ranks, becoming seniorvice-president of JAL’s financial department in June last year.Married with one son and one daughter, his favourite pastimeis golf although he only manages about 10 rounds a year. He alsolikes reading, particularly history books.36 ORIENT AVIATION MAY 2006

COVER STORYopportunity to develop its network.While it has been widely reported JAL’snew plans involve what was previouslyunthinkable – cutting back the internationalnetwork – Nishimatsu is quick to correct thisimpression.The airline was wrong to use the term“rationalization”, he said. “Perhaps weshould have used a different word, one with amore subtle nuance, because it is overstatingour case to use the word rationalization.”Less profitable flights, mostly to holidaydestinations such as Saipan, Guam andHonolulu, are being adjusted. But they arenot being abandoned. Services are beingmade more elastic, organized to cope withthe peaks and troughs of the holiday seasons,with a mix of regular services and charters.“We have decided to use anew kind of business model.We think the needs of theage are changing and wewant to be able to respondto that appropriately,” saidNishimatsu.Elsewhere, there will benetwork expansion, thanksto the arrival of new, smallerlong-haul jets like the B787,from 2008, which the CEOdesignatesaid presentsJAL with new businessopportunities.“Before, we were limitedbecause we had to use verylarge aircraft such as theB747 and B777 for longhaul,non-stop flights. Wehad to confine some of our business to themost profitable routes such as London, Paris,Frankfurt, Amsterdam and Rome,” he said.“In the past, we also used to fly non-stopto Zurich, Madrid, Copenhagen, Dusseldorfand Berlin, but because these routes did nothave the traffic to fill these large aircraft wehad to stop some of them.“With smaller aircraft we can perhapsrevive these destinations. It might give usan opportunity to fly to new destinationsthat can provide us with new business.”Similarly, there would be opportunities touse the same planes to open up new routeswithin Asia, to India, China and elsewhere,he said.“Yes, we have till now gone through astage of cutting back and we are reviewingour international flights. But I think we areentering a new age, a new period when weare looking to the future and finding out whatkind of new business opportunities are outthere. This is a very striking, dramatic andimportant period for us,” said Nishimatsu.JAL intends to increase its competitivenessby reducing its aircraft types. It willintroduce more fuel-efficient medium andsmall-sized aircraft while speeding up theretirement of older planes.From a current fleet of 279 aircraft,including nine aircraft types, it will haveeight types and 296 aircraft by 2010. Longerterm it plans to have only five or six typesin its fleet. All the carrier’s veteran AirbusA300B and YS11 planes will be retired bythe end of this financial year. Its 30 BoeingB747 ‘Classic’ jets will be withdrawn fromservice by 2009.Nishimatsu is bullish about the prospectsAll Nippon Airways: benefitedfrom JAL’s safety lapses,particularly in the domestic marketfor growth in China. “I cannot think ofenough words to describe how importantChina is [to us],” he said.Air treaty talks are currently underwaybetween Japan and China. “If the negotiationsturn out in a positive way for uswe would certainly want to establish newroutes [between China and Japan] as soonas possible,” said Nishimatsu.He said China has a “wonderful balance”between the demand for passenger and cargotransportation. “Often you may not haveenough passengers to make it a profitableroute, but if you have enough cargo in thebelly then it is a different story. There is somuch cargo demand in China that overallthese routes could be very profitable. Thisdemand for passengers and cargo is onlygoing to grow in the future,” he said.Another factor in Japan’s favour interms of the China market is that Japan’sbaby boom generation of the 1950s is nowbeginning to retire. “Until now these werea group of people that had great health, a lotof money, but no time. Now they are goingto retire and they are going to have a lot oftime. They will definitely go to China,” saidNishimatsu.“In surveys of this population group theylist travel as the first or second thing theywould most like to do. They are definitelygoing to want to go to China in greatnumbers.”With passengers in mind, JAL willspend a massive $552.8 million in thenext few years to improve the quality ofits customer products and services. Theinvestment includes $212.6 million oninternational first and business class cabins,inflight entertainment, mealsand membership of theoneworld alliance, $136million on strengtheninginformation technology(IT) systems in such areasas sales, aircraft scheduling,cargo revenue and e-businessand $204 million on airportfacilities and equipmentmaintenance.Nishimatsu has t wopriorities for the airline.He wa nt s to restore amanagement philosophy ofplanning and doing. “In thepast people spent so muchtime and energy on theplanning part that they didn’thave any energy left whenthey got to the doing part. What is reallyimportant is the doing; creating solutions,bringing them to a conclusion and seeingthe results,” he said.And he wants JAL to change its focusfrom being inward-looking to having anoutward focus. “We have to look at how otherpeople and other companies are viewing us.We have to constantly be able to createmessages and send these messages to theseoutside stakeholders,” he said.Nishimatsu may be setting out to cutcosts, but said he had no fears of simplybeing seen as a financial man there for thesole purpose of chopping expenses. “Mymain purpose is not to save money, but tocollect money,” he quipped.Doing that, while reshaping thecarrier’s corporate culture and rebuildingits performance levels, will be far fromeasy.38 ORIENT AVIATION MAY 2006

COVER STORYA year after Japan Airlines (JAL)received an embarrassing publicdressing down from authoritiesabout safety lapses, the effectson that criticism of its businesscontinue to linger. Now it hasdecided to invest US$1 billion tore-emerge as an airline companywith high safety standards and aquality product.JAL investingbig in safetyWhen a special ExternalSafety AdvisoryGroup, formed to lookat what was goingwrong with JapanAirlines (JAL) safety systems, presented itsrecommendations to the airline’s managementin late December, the findings madefor alarming reading. JAL, they said,was suffering “big company syndrome”,a rigidly structured business with littleunity between management and front lineworkers who all felt the workplace hadbecome a stagnant environment.It was important for JALto find a way to revitalizeitself as a company that makessafety its overwhelmingpriority, said the experts. Theywent further and proposed theairline set up a centre whereemployees could learn frompast errors and increase theirawareness of accidents anddaily mishaps.The centre, they suggested, should displaysymbolic parts of the JALB747 that crashed at Mount Osutaka onAugust 12, 1985, with the loss of 520 lives,and it should include “victims’ personaleffects collected by bereaved families.Half of JAL’s employees had joinedthe company after the accident and sucha display would keep the accident alive inemployees’ memories, they suggested.JAL has decided to implement nearly allof the advisory group’s recommendations,including a safety promotion centre with adisplay that will feature the rear pressurebulkhead – the rupture caused the accident– and the cockpit voice recorder from the1985 crash. There will also be a series ofillustrated panels describing other previousaccidents and incidents.Making these reminders openly accessibleto all staff – public groups andindividuals will also be able to arrange40 ORIENT AVIATION MAY 2006visits – reflects how serious JAL is taking thetask of winning back its safety reputation. Itwas a task begun last year, immediately afterthe airline was rebuked by the Japan CivilAviation Bureau (JCAB) for safety lapses.“After receiving the advisory group’srecommendations, we found that some ofthem were already being implemented asa result of our own initiatives, which welaunched in April 2005,” said ShinobuKobayashi, director corporate safety for theJAL Group.One example was the need to raiseemployee safety awareness. “We alreadyDC-10 fleet was retired six months ahead of time last Octoberhad such a programme in place. From April2005 we started direct talks between frontline people such as mechanics, cockpit andcabin crew and our chief executive and othertop executives, under the general heading ofemergency safety meetings,” he said.“By the end of the year we had logged357 of these meetings. They were held atworkplaces all over our network, in Japanand overseas.”These meetings are continuing. “This is areally tough job and we received a great dealof comment and criticism. It is certainly noovernight task. But we believe this can lead tothe creation of a better safety culture and thepromotion of employee safety awareness,”said Kobayashi.Among the criticisms was a need for fleetrenewal. There were too many different typesof aircraft and configurations. The decisionwas taken to advance the retirement ofthe DC-10 fleet to October 2005 from lastMarch.It was also decided to bring forward theretirement of the B747 Classic fleet by threeyears, to 2009, instead of 2012.Front-line staff also complained thatramp incidents appeared to be on the rise andground service equipment was getting old.A fact-finding survey of all ground serviceequipment, including a review of renewalplans, is now underway.Another criticism was that safetymanuals are complicated and there is alack of unification betweenthem. Staff want electronicmanuals that are easy to useand print out.Kobayashi said manualreview groups were establishedin each division tolook at all manuals relatingto safety. These reviews werecompleted in December andJAL is now in the process ofanalysing the findings.JAL still has some way togo. As recently as March thetransport ministry ordered the grounding ofan MD-87 jet that had gone unchecked for 10days past an inspection deadline. The airlinewas reprimanded for not checking its maingear according to its inspection schedule.One day later, after a new inspectionhad been carried out, ministry officialsquestioned maintenance crew and discoveredproper procedures had still not beenfollowed.In a statement JAL said the plane hadflown 41 times over the 10 days after themaintenance deadline.In April, Japan’s House of Representativestransport committee summoned the presidentand CEO-designate of JAL and of smalloperator, Skymark Airlines, to testify onmaintenance errors found recently at bothairlines. Like JAL, Skymark recently operatedan aircraft past a repair deadline.

NEWSNew tack for Qantas, Air NZBy Tom BallantyneThe stalled trans -Tasmanairline alliance betweenQantas Airways and Air NewZealand (Air NZ) has been relaunchedin a different guise –as a code-share agreement limited strictly toflights between the two countries.Qantas chief executive, Geoff Dixon,and his Air NZ counterpart, Rob Fyfe,announced the deal in April and said thecarriers will work together on network,schedule, pricing and marketing initiativesfor trans-Tasman operations.The agreement is subject to aviationregulatory approval from the Australianand New Zealand governments. Because itinvolves limited co-operation rather than anoverall alliance covering the carriers’ entirenetworks, it is believed it has a good chanceof winning approval from the monopolywatchdogs, which rejected the originalalliance application in 2003.The new ar rangement, called theTasman Networks Agreement (TNA) doesnot involve any shareholding. Under thealliance deal, Qantas would have taken amajor shareholding in Air NZ.Fyfe and Dixon both said a code-shareagreement – it is expected to take up to sixmonths to win clearance – would allowthe airlines to reduce costs by removingsurplus capacity and utilising aircraftmore efficiently, as well as increasing thenumber of flights available to each airline’scustomers.“The Tasman is a fiercely contestedmarket,” said Fyfe. “The number of seats onsale is greater than the number of passengerscarried. In fact, the equivalent of 11 emptyA320 aircraft make two return trips perday on the route. To continue such overcapacityin the present environment of highfuel prices would not only be uneconomic,it would be financially and environmentallyirresponsible.”“Air New Zealand currently uses 1.78million barrels of fuel a year on the Tasmanroute. This will be reduced by around100,000 barrels annually under the proposedcode-share.”Said Dixon: “This commercial agreementenables us to maintain network presence,while realigning some of the current surpluscapacity on the Tasman.“We plan to develop a combined schedulethat allows us both to better utilize aircraftand save costs.”Concerns such a move will lessencompetition have abated. There are now 11airlines battling to win passengers on trans-Tasman routes.42 ORIENT AVIATION MAY 2006

NEWSMergers boost in IndiaAir India and Indian, Jet Airways and Sahara deals now on trackThe potential for a mergerbetween state-owned carriersAir India (AI) and Indian(formerly Indian Airlines)now looks certain to becomereality. In April the country’s Ministerfor Civil Aviation, Praful Patel gave thestrongest indication yet the government hasdecided to go ahead with the union.“We are proceeding in the direction of amerger. It may take a few weeks or a coupleof months to decide on a detailed strategy,”he said at a news conference in Dehli.It would create Asia’s eighth largestairline with a fleet of 112 aircraft operatingto 144 destinations.The move strengthens the widelyheld view that India is entering a periodof industry consolidation as the marketnegotiates a period of rapid expansion.Most analysts believe some of thenewcomers will not survive, or will beswallowed up by stronger rivals.When Jet Airways, India’s first successfulprivately owned airline - it began flying in1993 - agreed in January to purchase rival,Air Sahara, for US$500 million it was seen asthe beginning of a possible string of mergers.Together, the two would control around halfof India’s domestic market.The problem, now resolved, occurredwhen the government delayed clearancefor the transfer of Air Sahara’s rights toparking bays and landing slots at variousairports across India. At the same time, thecountry’s Monopolies and Restrictive TradePractices Commission (MRTPC) said it waslooking into the deal to see if it violated thelaw, including regulations on monopolypractices.In March, the two airlines had to winapproval for an extension of the legallyallowed transaction period by 90 days.The problem for the country’s aviationbureaucrats is they are waiting for thegovernment to release a wide-ranging andlong-awaited new civil aviation policy. It willinclude new guidelines to be followed for thetransfer of infrastructure rights, includingregulations for the transfer of parking bays,slots and other infrastructure facilities, incases of industry mergers and acquisitions.However, last month Minister Patelsmoothed the way for the Jet-Sahara merger,saying a draft of the country’s long awaitednew aviation policy has now gone to Cabinetfor approval. 44 ORIENT AVIATION MAY 2006

LCC FOCUSThe Malaysia and Thai markets have proved fruitful for AirAsia,but tough competition means Indonesia is proving a tougher nut to crackBATTLEGROUNDBy David Fullbrookin Cengkareng, IndonesiaTo dominate Southeast AsiaIndonesia AirAsia needs astrong foothold in the biggestmarket, Indonesia. It is havinga tough time there, facinghardened competitors, jammed airports andpowerful agents.It may get tougher. Deep-pocketed rivalsare sniffing around too. Qantas Airways hasbeen weighing up the options with a viewto investing in an Indonesian carrier, whichwould benefit its low-cost subsidiary, JetstarAsia.It has talked to a number of airlines,including low-cost carrier (LCC) AdamAir.Singapore government investment fundTemasek, which has a stake in Singapore’sLCC, Tiger Airways, is also understood tohave met with AdamAir and Lion Airlines,Indonesia’s largest private carrier.Indonesia’s allure is Southeast Asia’slargest population marooned on thousandsof islands. Carriers that do well in Indonesiawill have the profits to expand elsewhere andbuild a truly Southeast Asian airline as theregion’s red tape slackens.Of Indonesia’s 220 million people it isreckoned between five and seven million onlytravel around the 4,800 km (3,000 mile) widearchipelago by airliner. In 2005, they tookabout 29 million trips. That is likely to growby 20% this year, as it has done every yearsince deregulation became a reality in 2000.At this rate, the market will equal 60 milliontrips by 2010 if the economy holds up.It may grow even faster if more peoplerealise they can afford to f ly. ManyIndonesians simply do not believe the pricesairlines advertise. “Most people earning2,000,000 rupiah (US$215) a month areprobably not flying yet, but they should beable to afford to fly once a year. It is aboutmaking them realise they can afford to fly.Mostly now it is people at manager level andthe middle class,” said Sendjaja Widjaja,Indonesia AirAsia’s president director.Sendjaja claims to have built market shareto 3% since starting operations in December2004 after entering a joint venture totakeover Air Wagon International (Awair), adefunct carrier that still held an air operator’scertificate. A year later, after seeing off legaland regulatory challenges from some otherdomestic carriers, Awair became IndonesiaAirAsia.Competitors, par ticularly Lion,AdamAir, Batavia, Srivijaya and nationalcarrier, Garuda Indonesia, will not surrenderpassengers easily. They have been battlingfiercely and know how to fight and win inthis market.“A big challenge is increasing our marketshare to 5% this year. In order to do that wecannot be passive. We have to build ourreputation by putting a lot of money intoadvertising. We are spending 7% to 10% ofour budget on advertising,” said Sendjaja,who has been friends with AirAsia founder,‘Competition is verykeen [in Indonesia].If you only add onefrequency on a routeyou can be dead meat’Sendjaja WidjajaPresident DirectorIndonesia AirAsiaTony Fernandes, since their days at WarnerMusic.Part of that might come easily from thedozen or so barnstormer airlines that pinchcrumbs from the big boys. But taking marketshare from the likes of Lion and AdamAirwill prove that AirAsia can compete in areally tough market. Malaysia was easy.Thailand was not so difficult. However, inIndonesia it is a no-holds-barred, streetfightingcompetitive environment.“We should not spread our wings toowide, because the competition is verykeen [in Indonesia]. If you only add onefrequency on a route you can be dead meat,other airlines can dump seats and cause a lotof damage,” said Sendjaja.AirAsia has a fighting chance. It entersthe arena with plenty of experience fromMalaysia and Thailand, plus that of investorsand advisers from Europe, including ConorMcCarthy, the brains behind Ryanair.Picking the right routes is another paththat could add passengers and expand46 ORIENT AVIATION MAY 2006

the market. Few airlinescomprehensively cover theentire country, which meanssome routes are the preserveof small carriers AirAsiashould easily beat.“There are so many routes we have notexplored yet. We have not even started theeastern part of Indonesia. There is still a bigopportunity there,” said Sendjaja.To support expansion, AirAsia isconsidering hubs, in addition to Jakarta,in Solo, Surabaya, Bali, Sumatra andKalimantan. “If we have hubs in Kalimantanand Sumatra we can go up to China. There ishuge demand for China, people are not onlygoing to see ancestral lands and history,but also for tourism and medication,” saidSendjaja.Indonesia AirAsia serves Padang, Medan,Kuala Lumpur, Batam, Surabaya, Denpasarand Balikpapan from Jakarta. Medan-Penang and Kuala Lumpur-Surabaya wereadded in March with plans for Penang,Solo and Pekanbaru. It intends to operate64 flights daily by December, from 32 lastJanuary.Singapore services are in limbo afterits permit was suspended by the Singaporeauthorities. AirAsia said it is being used asa pawn in a dispute between Indonesia andSingapore over traffic rights.AirAsia Indonesia operates six B737-300s. Around 15 aircraft should bear AirAsiaIndonesia’s bright red livery by the end of2007 providing 130 flights daily. In 2008,the fleet will switch to Airbus A320s, ofwhich parent, AirAsia, has ordered 60 plus40 options. Garuda holds the maintenancecontract.Crewing those aircraft is not a problemyet, although that may change. Sendjaja saysNAS, a Saudi Arabian outfit, and MalaysiaAirlines are recruiting in Indonesia withattractive packages.As in Malaysia and Thailand, AirAsiaIndonesia is aiming for a 25-minuteturnaround. That is not always possible: oneflight in five departs late. “There are problemsregarding traffic, missing passengers, latefuelling by Pertamina. Problems on theaircraft also cause delays,” said Sendjaja.“Every week we have a meeting of alldepartments related to on-time performanceto discuss what is happening and improveit. The captains play a part, the crew playa part, the ground crew play a part, thehandling agent, a third party, also playspart,” he added.‘People in the country side, believe it or not,still keep their money under the mattress’Sendjaja WidjajaDelays add costs. As do travel agents.Unlike Malaysia and Thailand, they remainkings of the market in Indonesia. “Eightypercent of the market now uses travelagents. By adapting our system to link upwith Galileo, agents will be able to accessour system. The costs will be passed backto the passengers in the ticket price,” saidSendjaja.That is part of an arrangement that seesGalileo distributing AirAsia globally via itsFlight Integrator platform.Sendjaja claimed only one in 10 ticketsIndonesia AirAsia sells now is throughan agent. Online and telesales account for70% of AirAsia ticket sales. Agents survivebecause most people who fly are wealthy.They expect and are used to being served.Some routes are in the grip of grey marketsyndicates that provide door-to-door servicefor passengers.“They will deliver tickets to your house.They will help you check in at the counter.They treat people like valued customers. Witha lot of airlines, they have more flexibility infinding flights to match people’s schedules.If you want to go to Surabaya, there are 52flights,” said Sendjaja.Agents are not the only problem.Payment is a big headache. Most peopledo not have credit or debit cards. However,unlike Malaysia or Thailand paying throughATMs is proving a headache. There are alsono modern widespread convenience storechains like 7-Eleven that can handle bills.“It is different because of theinfrastructure. We are looking intopayment through banks like people do withtelephone bills. People in the countryside,believe it or not, still keep their money underthe mattress,” said Sendjaja.Reaching those people is essential fora bigger market. Without agents and theircommissions that is going to be very hard.In some towns it even makes sense to openoffices, although Sendjaja plays down thecosts. “We are going to open sales offices insmall towns like Padang where the airportis far away. It does increase cost, but ifcomparing to loss of revenue it is not thatmuch,” he said.Despite the delays, additional offices andagents’ bills, Sendjaja reports a 70% loadfactor exceeding breakeven by 5%. “At themoment we expect a yield of between 5% –7%. Average fares have been going up alongwith load factor,” he said.However, balance sheets still match thecolour of AirAsia’s livery. In February,the AirAsia Group revealed IndonesiaAirAsia lost 2.1 million ringgit (US$0.56million) for the last three months of 2005,an improvement though on the three millionringgit it lost in the previous quarter.Success is not coming easily in Indonesiafor AirAsia and becoming a major player,as it has done in Malaysia and Thailand,may prove elusive. But if it can turn a profitholding a reasonable piece of the market itmay have the foundation it needs to securedominance of Southeast Asia.Lion Air: one of AirAsia’s major rivals that will battle hard to retain itsmarket shareMAY 2006 ORIENT AVIATION 47

LCC FOCUSBRIEFLY SPEAKINGSpiceJet: major expansionINDIAN budget operator, Air Deccan, has moved into third spotin the country’s domestic airline market. In the two and a halfyears since it launched operations, the carrier has nearly doubledits market share from 7% to 13.6%, according to managing director,Capt. G. R. Gopinath.He is aiming for the number one spot within two years. Air Deccanflies to 53 domestic destinations with 215 daily flights.INDONESIAN low-cost domestic operator, Sriwijaya Air,has applied to the country’s transport authorities for rightsto fly international services to Singapore, Kuala Lumpur andGuangzhou in China, the Indonesian news agency Antarareported in April.It quoted Sriwijaya president director, Chandra Lie, as sayingthe carrier planned to expand its fleet from 15 to 25 aircraft forthe offshore expansion. The airline currently operates a fleet ofBoeing B737s.INDIAN low-cost carrier (LCC), SpiceJet, has announced itwill add another five jets to its fleet by the end of the year. Currentlyoperating a fleet of five Boeing B737-800s, a sixth is scheduled toarrive in May.The carrier expects to have a fleet of at least 30 planes in the nextthree years, with 10 arriving in 2007 and another 10 in 2008.In a statement, SpiceJet director, Ajay Singh, said the carrier’scurrent market share is 6.5%. This is expected to rise to 10% by year’send. “Our current seat capacity is 210,000 a month with five planesand we are flying at 85% load factor,” he said.Singh said India’s aviation market has grown by more than 33% inthe 12 months ending March 31. “There are now 24 million (one-way)air trips compared to fiscal 2004-05 in which there were 18 millionair trips.” He added that a recent survey of SpiceJet passengers found40% had never flown before.A REQUEST by Malaysia’s AirAsia to launch new services toHo Chi Minh City has been turned down by the Civil AviationAdministration of Vietnam (CAAV) on the grounds the city’s TanSon Nhat International Airport is overloaded.48 ORIENT AVIATION MAY 2006

By Charles AndersonAway from the heavy duty talkson the future structure ofMacau’s passenger carryingoperations, Jacobus Hsieh andhis cargo team at Air Macauhave been quietly expanding their business inthe last couple of years and creating a successstory in their own right.Macau’s flag carrier, the only cargooperator headquartered in the enclave atpresent, increased the uplift of its freightersalone by a hefty 58% in 2005, topping 132,000tonnes for the year, compared to 83,600 in2004. That total neared 150,000 tonnes whenbelly cargo was taken into account.Forget the gambling and the tourismboom in the former Portuguese enclave. Thiswas all about tapping into the neighbouringPearl River Delta manufacturing zones andtaking advantage of Macau’sposition as a transit point tobeat the cross strait flight banbetween Taiwan and China.The way forward wassimple, said Hsieh, vicepresident, cargo. Increase fleetnumbers and play to Macau’sstrengths by boosting flightsfrom Taiwan to Shanghai,Shen zhen and Xiamen,with a touchdown at Macauto satisfy the Mainland andTaiwanese author ities.Much of Taiwan’s electronicmanufacturing has beenrelocated to mainland China,but there is good businessto be done carrying what is still madethere, such as LCD screens and critical partsof personal computers and cell phones.Operations for most of 2004 utilised justtwo wet-leased Airbus A300B4 freightersand an ageing Boeing 727. Another A300B4was added that November and two morearrived in August and October last year,when the B727 was retired.Now two longer-range dry-leased A300-600R conversions are on order, to arrive inFebruary and June next year and expansionoutside the China region, particularly to theIndian sub-continent, will be put on thedrawing board. “When they join our fleet,we will probably consider replacing twoexisting A300B4s, keeping a freighter fleettotal of five,” said Hsieh. Flights from Taipeito Shanghai Pudong via Macau, which onlybegan as a regular service in April 2004,Cargo no gamblefor Air MacauVolume soars 58% in 2005have increased from 11 a week to 16. Thoseto Shenzhen, launched in 2002, now total 10.Xiamen, which was added in June 2004, hasthree weekly flights. Service to Nanjing wasstarted and then stopped because of lack ofdemand.Shanghai is the big earner. Load factorsfrom Taipei to Pudong typically average90%, with those in the opposite directionAir Macau: between 35% and 40% of itscargo originates from the Peal River Deltatotalling 60%.A success story, no doubt. But isn’t therea danger of over-reliance on one sourceof business, which could disappear whencross-strait flights are eventually launchedand Taiwan’s cargo giants gain direct accessto mainland cities? Hsieh admits as much,but believes Macau’s geographical positionmeans business volumes can be kept up,whatever the political situation.As it is, some 35% to 40% of Air Macau’scargo comes from the Pearl River Delta itselfand is at less risk from a change of policy.Macau International Airport, meanwhile, isboosting its cargo warehouse total from itsoriginal design capacity of 160,000 tonnesto 300,000 tonnes as business from the deltacontinues to boom.“That will be a headache, that’s true,”Hsieh said, referring to direct flights. “Ourmajor business is providing a solution prior todirect service being implemented. Even then,I don’t think Air Macau will be out of thepicture. But the pie will be shared by manycompetitors, that is for certain.“Taiwan to Pudong will be easily replacedby the Taiwanese carriers. But if you lookat the location of Macau itself, we aremidway between Guangzhou, Taiwan andShenzhen. I don’t think AirMacau’s existing routes willbe affected much. Anyway,the Pearl Delta will becomemore important for us in thefuture.”T h a t m e a n s t a k i n ggoods manufactured thereon to other markets withint h e r e g ion, a n o bv iou smove for a carrier in AirMacau’s position and onethat is in the planning stage.But expansion into longerhaulservice has been puton hold because of currentfuel costs.“We’ll leave it for a yearor two. But when we replace the A300B4swith our own A300-600Rs, we will be ableto expand our business to places like India,Japan or Korea,” said Hsieh.The sub-continent is of particular interest,with Delhi, Chennai (Madras) and Dhakain Bangladesh the main targets. Potentialmarkets in Vietnam and Cambodia have beenstudied, but for India in particular, a longhaulpartner is needed because of the demandfor service on to Europe and the U.S.Air Macau can offer a feeder service,Hsieh believes, that could tie into someoneelse’s operations while the carrier can standalone for regional operations when the A300-600Rs arrive.Talks have been held with EVA Air,China Airlines, Thai Airways Internationaland MASKargo, but no conclusions havebeen reached as yet.MAY 2006 ORIENT AVIATION 49

SPECIAL REPORTAirportsGRASP THE NETTLEGovernments urged to prepare for airport capacity crunchBy Charles AndersonFo r g e t t h e i n c r e a s i n g l ycontentious issue of airportu s e r c h a r g e s . W h e n i tcomes to ensuring the rightinfrastructure is put in placeto handle the break-neck boom in aviationin some areas of the Asia-Pacific, experts at AirportsCouncil International (ACI)and the International AirTransport Association (IATA)have much in common.The figures explain why.ACI’s predictions of 6.4%average regional growthin domestic passengernumbers and 5.7% forinternational travellersevery year from now until2020 are way above globalfigures of 3.7% and 4.7%respectively.I ATA , m e a nwh i l e ,expects a 60% to 70%traffic increase over thenext two years in Chinaalone. India notched up a24% rise in 2005.Freight predictions forthe region run at 6.9% to2020, compared to a global 5.4%.All those aircraft need somewhere totake off and land in a safe and commerciallyviable environment. Continuing pressureis needed from the outside to ensure thatis the case.Paul Behnke, ACI’s director of economicsand security, pleads for authorities inindividual countries the grasp the nettle.“The short answer is that governments needto be hit over the head on a daily basis withthese problems if they are going to cope withthe capacity crunch that we see coming. It hasalready arrived in certain cases,” he said.50 ORIENT AVIATION MAY 2006‘Governments needto be hit over thehead on a dailybasis ... if theyare going to copewith the capacitycrunch that we seecoming’Paul BehnkeDirector of economicsand securityACIGuenther Matschnigg, IATA’s seniorvice-president, safety, operations andinfrastructure, calls for consultation beforeprojects start. “It’s imperative that wedevelop a dialogue before an airport is evendeveloped,” he said. “It’s a basic businessprinciple. Look to your users. Ask themwhat they want.”For Behnke, however, theproblem has already arrived. Arecent ACI survey of its globalair port members includedpredictions about “constrained”and “unconstrained” demand;increases based on projectedgrowth patterns, continuingliberalisation of air services andgross domestic product, versusthose mainly hampered byregulatory, politicaland environmentalconstraints.Globally, ACIfears a one billionshortfall in passengercapacity by 2020,by which time itpredicts a 7.4 billionthroughput at theworld’s airports. Itbelieves constraintscould cut averageannual increases from 2005until then from 4% to 3.2%. Theimmediate worry, however, isthat the shortfall is just aroundthe corner.“We thought the constraintswould be delayed, because mostairports would be able to absorb5% to 10% growth in the next fiveyears without any problems,” said Behnke.“When we collected the data, we were shockedthat a lot of airports said the constraints wouldstart almost immediately. In 2007 and 2008,they will already be in trouble.“We are talking time horizons here.That’s why I was so shocked when I saw ourown numbers; that our airports are worriedabout the near term.”One answer is to talk continually toofficialdom. “We have a lot of help here.This is where IATA agrees with us,” saidBehnke.The ACI man has specific pointers forhow the Asia-Pacific should act. “We wouldlike to see more liberalisation there rightnow,” he said. “There are two reasons forthat. One is there is a lot of pent-up traffic,particularly in the low-cost sector. Theother reason, which is near and dear to us,is that using secondary airports as relieversfor international traffic and point-to-point[services] makes a lot of sense.”This particularly applies to China, wherepoint-to-point traffic wouldcut out the need to rely onmain hubs such as Beijingand Shanghai. “That is howEurope and the U.S. havegrown, through bypassinghubs. Eventually you haveto do that, but you can onlydo it with a liberalisedregime,” said Behnke.He estimates that up toa dozen of China’s airportsare doing well; but thatsome 80 others are underutilised,many of whichare in big cities. And this isnot just a Chinese problem.“The same can be said ofJapan. We see this all overthe region,” he added.India, the Asia-Pacific’sother great growth market,is a little different. A liberalised regime wasnot as yet accompanied by the capacity todeal with growth, although expansions atDelhi, Mumbai and Bangalore, with thehelp of outside airport companies, showed‘It’s imperativethat we develop adialogue beforean airport is evendeveloped’Guenther MatschniggSenior vice-president,safety, operations andinfrastructureIATA

the country was finally getting it right, saidBehnke.“India seems to have the right philosophy,it is just a little behind on implementation. ButChina seems slow to embrace liberalisation,”he said.IATA’s Matschnigg also homes in onChina and India as causes for concern.With China’s annual traffic growthin double digits, there is a need forinfrastructure that can cope with demand,alongside route improvements and new airtraffic control technology. Or the systemwill clog up.“Those things need to come urgently,” hesaid. “We are already seeing rising numbersof delays in Shanghai and Beijing. In twoyears we have the Olympics.“If we do not get our act together withthe government, we foresee some difficultiesthere.”Matschnigg also pointed to areas awayfrom the Beijing and Shanghai hubs whereimprovements were needed, such as easingthe complexities of air traffic control in thePearl River Delta region which mean trafficinto Hong Kong can pass through a numberof different regimes in southern China beforean aircraft can land.It comes down to economics, as well asconvenience.“Today, the fuel price is US$67 a barrel.We need to look at each and every way we canreduce flight times; better procedures, betterarrivals, better departures,” he said.There are air space issues in India as well,according to Matschnigg, but the country ison the right track, he said. “It’s more theairports and ground infrastructure that is anarea of concern. The airlines are explodingwith new aircraft. There is an urgent need torebuild, extend.”Elsewhere, the IATA official highlightedAustralia, New Zealand and Singapore ascountries where relationships are strongand progress good. Even Indonesia, with its24 airports classified as “international” anda doubling of passengers in the two years to2004, does not appear to give him sleeplessnights.Like Southeast Asia, where low-costcarriers and new airlines in general arearriving at a fast clip, this is not an area ofconcern, rather one to watch out for, he said.Indo-China is also seeing huge growth, butMatschnigg believes it is well-managed,especially in Vietnam’s case.Matschnigg used the case of Bangkok’snew Suvarnabhumi International Airport asan example of input from the industry havingan effect on authorities. The facility’s officialopening scheduled for last September waspostponed until mid-2006, but another delaynow looks likely.“We told the government two years agothat if they opened as planned, they wouldend up in a mess,” he said.“The good thing is they listened. We gotour point across.”Incheon topplesHong Kongin world’s bestairports pollIncheon Airport: clinched top airport andmost improved airport awardsThe names may be in a differentorder, but Asia’s sparkling newfacilities have again swept theboard in the AETRA annualsurvey of customer satisfactionat the world’s airports.In 2004, Hong Kong, Seoul Incheonand Singapore Changi took the first threeslots for “best airport worldwide” based onsome 65,000 interviews at 40 participatingfacilities in an exercise run by individualairports themselves under the auspices ofAirports Council International (ACI) andthe International Air Transport Association(IATA). AETRA then processed the results.For 2005, Incheon leapfrogged HongKong into first place, leaving Singaporeand Hong Kong as joint runners-up. KualaLumpur took third place.Incheon, Vancouver and Singapore filledthe first three slots in the “most improvedcategory”.When it came to traffic volume, Nagoyaand Christchurch were named first andsecond in the five million to 15 millionpassenger category and Kuala Lumpurpushed Dubai into second place by winningthe 15 million to 25 million sector.This time 100,000 questionnaires werecompleted at 66 airports worldwide duringall four quarters of the year. Feedback wasgauged at each step of the airport processfrom arrival to final boarding. Airportfacilities were also graded. The idea is to giveairports a benchmark for improvements aswell as to name the high flyers. Awards wereannounced at ACI’s airport service qualityconference in Abu Dhabi.The survey will be the last under theAETRA name – it comes from the Greek for“upper air, clear sky”. Seventy-three airportsare now taking part in its successor, theAirport Service Quality (ASQ) programme,run as an ACI initiative alone. ACI expectsthat number to increase to 100 by the end ofthe year.MAY 2006 ORIENT AVIATION 51

SPECIAL REPORTAirportsTime to simplifyBy Charles AndersonWith the first wave ofnew c on s t r u c t ionin the region eitherout of the way or inthe pipeline, airportdevelopers should now be looking at moresimplified systems that can cut down oncosts, according to airport planner anddesigner Oren Tatcher.Tatcher is an associate partner withSOM, the U.S.- based i nter nat ionalarchitectural and planning company, whichhas extensive experience in airport mattersworldwide including theAsia-Pacific. He is currentlywork i ng on p roje c t s atHong Kong InternationalAirport. Singapore ChangiInternational Airport andNinoy Aquino InternationalAirport, in Manila, are alsoon SOM’s reference list.The Asia-Pacific has itsown way of doing things, itseems.“What’s happening hereis very different from what’shappening elsewhere in theworld,” he said.Firstly, in the past, theregion was playing catch-upafter lagging behind in termsof airport infrastructure, heargued.“The most impor tantthing you see is just the construction ofsignificant new facilities to accommodateincreasing volume, as well as to upgradefacilities that existed before,” he said.“That wave has been sweeping throughthe region for the last 10 years and is ongoing.Now it is moving to China, from first-tiercities to second and third-tier cities.”Secondly, just about every main airportis international, meaning both domesticand international passengers must beprocessed.In North America, most passengerflows co-mingle in the same concourse,g r e atly si mpl i f y i ng t e r m i n a larrangements. Some of the more forwardthinkingregional facilities have taken thepoint. In Singapore, for instance, where thereis no domestic traffic, there is still a mix ofarrivals and departures until those flying outget to their gates.But elsewhere, and in China in particular,strict separation can add to the complicationsand the cost.“Airports are about circulation, waitingand processing. The processing factor inAsian airports is higher certainly than inNorth America and to an extent than inEurope. There is room for simplificationthat hasn’t taken place yet, although it wouldHong Kong International Airport: unveiled in 1998, it was oneof the first of the new wave of airports to open in Asiasignificantly reduce the capital investment insome airports,” said Tatcher.Asia’s thinking, it appears, is still linkedin some instances to a time when travel wasan exotic experience involving far awayplaces.“The premium you paid wasn’t sosignificant and the hassle wasn’t such abig deal. But when you have volumes, youwant things to start functioning more likebus terminals,” he said. “Certainly low-costcarriers should be interested in that model.”‘Consultant doubts low-cost terminalswill become widespread in the region’“There’s room for simplification andstreamlining of the processing, but that’s avery slow business and it can have more todo with governments than the way airportsthemselves are run.”Such efficiencies will become moreimportant if growth is constrained byenvironmental concerns and a basic lackof land.“Airports have such an enormous footprintand it’s a hostile footprint. Greenfields don’treally exist any more. People are probablygoing to be dislocated to make room forthem,” said Tatcher.“There will be a limit to that. Thenyou will start looking tosqueeze the most out of yourfacilities.” And that is wherestreamlining the processescomes in.Tatcher has doubts aboutwhether low-cost terminals,a s s u c h , w i l l b e c o m ewidespread in the region,despite the opening of suchfacilities in Singapore andKuala Lumpur.Many new airports, thatare the source of much civicpride, have spare capacityas it is.But the same does not goPhoto: Graham Udenfor multiple airports servingthe same conurbation. “Incities where new airportsare being built, you maystar t seeing some sor tof differentiation; first- class airport,second-class airport,” said Tatcher.Asia’s love affair with widebodies alsomakes it stand apart from the rest of theworld.“The fact that many carriers in this regionare only widebody airlines is a bizarrething,” said Tatcher. “It may well graduallydisappear, then we will start seeing moreof the specialisation that happens in NorthAmerica.”Diverse gate mixes are already beginningto be implemented with concoursesdedicated to both small and wideraircraft.52 ORIENT AVIATION MAY 2006

Overall, Tatcher sees growth driven bythe obvious increases in affluence, but morethrough tourist traffic than anything else.Except in China.“That market is very much driven byeconomic reasons, as opposed to tourism,”he said, listing developments in Shenzhen,Chengdu and Kunming as examples ofairport expansion in major secondarycities.Then comes the next wave at the majorhubs through increases in capacity atShanghai Pudong and Beijing Capitalairports and a possible doubling of capacityat Guangzhou’s New Baiyun airport throughthe building of its next module.Tatcher, however, adds a word of cautionto temper the excitement about more growth.“There are a lot of substandard facilities, eventhe new ones that are being built,” he said.“Unfortunately, especially in China, there’sstill a lot of corner cutting by the authoritiesor the developers.“These things will further compromisethe efficiency and the capacity of thoseairports.”By Charles AndersonMajor hub airports inEurope are vying fora slice of the pie asAsia-Pacific trafficcontinues to grow,with three of the continent’s top hubsreporting significant increases in businessattached to the region.The figures show the importance ofAsia-Pacific custom. The region accountedfor 12% of Frankfurt International Airport’s52.2 million passengers in 2005 and awhopping 45% of its 1.9 million tonnes offreight. Currently, 24 scheduled passengerairlines fly 257 departures from there to31 destinations in 18 countries within theregion.At the other German giant, Munich,flights to and from Asia posted the largestincreases in the long-haul segment in 2005.They grew by more than 20%, compared to13% for all long-haul flights.More detailed figures on the Asia-Pacific’s contribution are not available, butthe Star Alliance-Lufthansa hub reported a35% growth in connecting passengers, manyof whom came from the region.Amsterdam Schiphol, meanwhile, sawAsia-Pacific passenger traffic rise by 12%Major new and recent airport projectsin the Asia-Pacific (over US$500 million)Airport/Terminal Investment(US$) Project/Opening DateTokyo, third airport $35 billion Planned land reclamation, Tokyo BayOsaka, Kansai $14.6 billion Second runway, terminal, by 2007Tokyo, Haneda $8.1 billion Fourth runway, terminal extensions, by 2009Long Thanh, Vietnam $8 billion International airport to open by 2011Suvarnabhumi, Bangkok $5.6 billion To open this yearShanghai, Pudong $4.8 billion Phase two of airport workIncheon, Seoul $4.56 billion Phase two, new runway, concourse,cargo terminal, by 2008Shenzhen $3.62 billion Second runway, third terminalMumbai (Bombay) $3.6 billion New airport, after 2010Clark, Philippines $3 billion Air base conversion project, to 2010Kobe $2.9 billion Offshore airport, opened in FebruaryManila $2.5 billion Terminal, airfield work, much delayedBeijing Capital $2.01 billion New pass. terminal, third runway, by 2008Kunming $1.9 billion New airportSydney $1.67 billion Ongoing investments to 2024Brisbane $1.1 billion Doubling terminal capacity, new runwayVientiane, Laos $1 billion New airport plannedSingapore, Changi $1 billion New terminal three(Compiled by Momberger Airport Information, reprinted from ACI Economics Survey)European airportscashing in fromAsia’s travel boomlast year to 3.1 million, making up 7% of thetotal. Freight, at 574,000 tonnes, contributed40% of its 1.4 million tonnes. Nine passengerairlines serve 14 Asia-Pacific destinations.Roland Weil, assistant vice-president,sales, at Frankfurt spelt out why the airportis continuing to focus on business from theregion. “European and Asia-Pacific carriersserving the Asia-Pacific are extremelyimportant for our Frankfurt global hub.First and foremost it is a hub for continentaland inter-continental traffic, with the Asia-Pacific being one of our largest markets forpassenger and cargo growth,” he said.The arrival of the A380, an aircraft aimedat the region, is also of importance. “We havestrategically positioned Frankfurt to be a keysuperjumbo hub. Many Asian carriers haveordered the A380 and we hope to have themall serving Frankfurt on the Asia-Europeroute,” said Weil. Lufthansa Technik isbuilding its A380 maintenance base there,primarily to maintain its own fleet, but alsoto serve third-party customers.With a 3.4 billion euro (US$2.81 billion)expansion plan in the works which willincrease runway capacity by 50% andpassenger capacity to 82 million, Weilsees the central German hub as a better betfor carriers than the fast-growing MiddleEastern airports.“Although the Gulf states want to serveas the middle man between Asia and Europe,the 21st century is the ‘fast century’ andtravel distances and times give Frankfurt thedefinite advantage. High kerosene prices alsomean airlines are attracted by the shortestpath to Europe,” he said.MAY 2006 ORIENT AVIATION 53

SPECIAL REPORTAirports“We are well prepared to welcome newairlines and additional routes from the Asia-Pacific region.”China and India are prime targets.“The number of destinations and frequenciesis already substantial, but there aremany more cities that should be linked toFrankfurt,” said Weil. Air China and CathayPacific Airways are current customers,China EasternAirlinesstarts servicesto Frankfurt thissummer. Dragonairand Shanghai Airlinesh ave f r eig htservices tothe Germancity. Fraport,the airport operator,is directly involved inairport projects in both Chinaand India, something which indirectlyserves to strengthen traffic links, saidWeil.Star Alliance and its founding memberLufthansa are also of prime importance atMunich where the A380 has been clearedfor landing and planning for a third runwayis in the works.Lufthansa has a 40% share of its newTerminal Two, with the airport holding theremainder. The German flag carrier is addingfour weekly connections to Beijing and two toHong Kong to its summer schedule this year.Air China will also fly from the Chinese capitaldaily from August 1. Lufthansa is stopping itsBangkok service, leaving that route to its alliancepartner, Thai Airways International.“Munich attaches a large amount ofimportance to our traffic to the Asia-Pacific region, as this segment is one of theairport’s fastest growing segments,” saida spokeswoman, who was unworried bycompetition from Middle Eastern facilities.“We are expanding our European anddomestic networks,” she said. “Theseunderscore the difference between a hublike Munich and a hub like Dubai – they areThe A380: European airportsare looking to welcome Asia’s‘superjumbo’ customerstwo different ‘hub’ profiles, if you like. Thismeans that Munich and a Middle Eastern hublike Dubai are going after different trafficand passengers.”Passenger flows from Munich to EasternEurope increased by 15% last year, showingthe importance of its proximity to that fastdevelopingregion for ongoing Asia-Pacificbusiness travellers.Figures from Amsterdam Schiphol,meanwhile, underline the importance ofbusiness traffic to major hub airports. Itaccounted for 43% of Asia-Pacific traffictotals, with vacationing passengers totalling39% and VFR (visiting friends and relatives)taking the remaining 18%.China, India, Japan and Korea are theareas of focus for Schiphol’s marketers forboth passenger and freight. In 2005, passengersto and from China topped its Asia-Pacific list at 782,000. Japan provided600,000 and Thailand 388,000. Singaporeand Malaysia completed the top five for theregion with 343,000 and 342,000 respectively.Figures forIndia were notavailable.A s i a -Pacific flightsare showing asteady increase at an airportthat makes the mostof a one-terminal conceptthat allows for ease oftransfer. Home carrier KLMbegan a three-times-a-week serviceto Hyderabad in India last year and willbegin twice-weekly flights to Chengdu inChina in May. Korean Air began servicesbetween Seoul and Schiphol last year andCathay Pacific Airways recently made itsHong Kong-Schiphol service daily. ChinaSouthern Airlines is also switching itsGuangzhou/Beijing service from four-timesa week to daily this summer.Amsterdam now provides airportguides in Chinese and Japanese – itscustomers include China Airlines, EVAAir, Singapore Airlines and Japan Airlines.It also understands that the way to the Asianheart can often be through the stomach andhas provided Asian food and beverage outletsto keep its Eastern customers satisfied.AIRPORT NEWSLandmark pacts forkey Indian airportsThe control of two of India’s largestairports, in Delhi and Mumbai, ismoving into private hands openingthe way for the rundown facilities to betransformed into world class operations.In early April, the Airports Authority ofIndia signed “operations, maintenance anddevelopment agreements”, which effectivelygave the companies who made winning bidsto modernise the airports in February, a 74%stake in Dehli’s Indira Gandhi Airport andMumbai’s Chatrapati Shivaji Airport.The government will retain the remaining26%.The Delhi airport will be run by a jointventure of Hyderabad construction company,GMR Industries and Germany’s Fraport.India’s GVK group, partnered by the SouthAfrican Airport Authority, will upgrade andoperate the Mumbai facility.The present airports have a reputationfor congestion, poor passenger amenities andlittle duty-free shopping.T he cost of moder n isi ng t he t wocomplexes, which handle twice as manytake-offs and landings they were designedto do, is put at 54 billion rupees (US$1.25billion).The privatisation of the airports wasopposed by airport workers.BAA refreshesinterest in ChinaAfter years pursuing expansion inother parts of the world, the BritishAirports Authority (BAA) hasexpressed interest in investing in China.But, according to BAA’s internationalmanaging director, Andrew Jurenko, “notat any cost”. Jurenko told the South ChinaMorning Post BAA was looking to investin secondary airports. However, it wouldonly proceed with a deal if the airport hadat least five million passengers a year and itcould manage the airport. “For us control isa fundamental issue,” he said.54 ORIENT AVIATION MAY 2006

BUSINESS DIGEST: JANUARY STATISTICSAirline CodesRPK Growth by CarrierPassenger Load FactorGrowth by CarrierBI Royal Brunei AirlinesBR EVA AirlinesCI China AirlinesCX Cathay PacificGA GarudaJL Japan AirlinesKE Korean AirlinesKA DragonairPercentage(Jan 06 vs Jan 05)MH Malaysia AirlinesNHOZPRQFSQTGVNAll Nippon AirwaysAsiana AirlinesPhilippine AirlinesQantas AirwaysSingapore AirlinesThai Airways Int’lVietnam AirlinesPercentage Points Change(Jan 06 vs Jan 05)20%15%10%5%0%-5%-10%-15%86420-2-4-6-8Percentage(Feb 05-Jan 06 vs Feb 04-Jan 05)Percentage Points Change(Feb 05-Jan 06 vs Feb 04-Jan 05)-20%BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VN-10BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VNPositive start to 2006Compiled and presented by KRIS LIM of the Research and StatisticsDepartment of the Association of Asia Pacific Airlines Secretariat.The collective Association ofAsia Pacific Airlines (AAPA)membership reported a 5.6%year- on-year increase inpassenger numbers to 11.1million in January. Growth in revenue passengerkilometres (RPKs) lagged behindat 4.9% albeit an improvement comparedwith the last quarter of 2005, whichaveraged less than 3% growth a month.Capacity rose by a restrained 2.4%, helpingpassenger load factor (PLF) gain 1.8percentage points to 75.2%.A number of AAPA carriers reportedrobust growth in traffic during the LunarNew Year holiday, in particular CathayPacific Airways (12.5% in RPK terms),Dragonair (11.9%), EVA Air (11%) andChina Airlines (10.6%). Thai AirwaysInternational (14.9%) and Royal BruneiAirlines (13.2%) also recorded doubledigitgrowth rates. Four carriers, however,had a poor start to the year with a downturnin traffic: Japan Airlines (8.1%), MalaysiaAirlines (5.8%), Garuda Indonesia (4.9%)and All Nippon Airways (2.8%).T he major it y of A A PA ca r r iersreported high load factors in the monthunder review. Philippine Airlines andCathay Pacific Airways filled more thanRPK and ASK (In Billions)RPK and ASK (In Percentage)40RPK, ASK and PLF Growth Rates(Feb 05 to Jan 06)9080706050403020100-10FMRPK, ASK and PLF(Feb 05 to Jan 06)RPKASKPLFAMJJ2005ARPKASKPLF0J20069080706050403020100PLF (In Percentage)PLF (In Percentage Points)-10F M A M J J A S O N D J2005 vs. 2004 2006 vs. 2005SOND8060402080% of their seats. Ten other carriersposted PLFs above 70%.Thai Airways International’s loadfactor recovered considerably to 76.5%compared with only 69.6% recorded inJanuary 2005, directly after the December26, 2004, tsunami.FREIGHTThe run-up to the Lunar New Year holidayboosted international freight traffic ofAAPA members, with freight tonne kilometres(FTKs) posting a 5.3% increase inJanuary. Capacity expanded 4.3%, whichresulted in a freight load factor (FLF) of62.6%, up 0.5 percentage point.Freight traffic growth rates variedamong individual AAPA carriers. FTKgrowth was higher for AAPA carriersbased in Nor theast Asia: Dragonair(23.1%), Cathay Pacific Airways (16%),All Nippon Airways (8.1%), Korean Air(7.8%), Asiana Airlines (5.8%) and ChinaAirlines (4%).For those based in Southeast Asia,Philippine Airlines (22.3%) was the solecarrier to post a double-digit growth rate.Other carriers registering healthy growthrates were Vietnam Airlines (9.4%) andSingapore Airlines (8.4%).56 ORIENT AVIATION MAY 2006

FTK Growth by CarrierFreight Load FactorGrowth by CarrierPAX Growth by Carrier30%25%20%15%10%5%0%-5%-10%-15%BI BR CI CX GA JL KA KE MH NH OZ SQ TG VN876543210-1-2-3-4-5-6-7-8BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VN20%15%10%5%0%-5%-10%-15%BI BR CI CX GA JL KA KE MH NH OZ PR SQ TG VNLoad factors were generally lower dueto the extra belly-hold capacity, whichresulted from additional flights mountedfor passenger services. Only three carriersposted FLFs above 70%: Korean Air(76.5%), EVA Air (71.9%) and AsianaAirlines (71.4%). Dragonair increasedcapacity by 36.3%, which resulted in aseven percentage point decline in loadfactor to 65.1%, despite registering FTKgrowth of more than 20%.FEBRUARY 2006The preliminary AAPA traffic resultsfor February indicated 4.1% growth ininternational passenger traffic, or justover 10 million passenger boardings.RPKs grew by the same rate and coupledwith a slower capacity expansion of 2.5%,PLF improved by 1.1 percentage points to73.8%.International freight traffic grew ata faster pace, 5.3% in terms of FTKs.Capacity expanded modestly at 2.6%,which resulted in a favourable 1.7 percentagepoint improvement to the FLF, at66.9%.E-mail: krislim@aapa.org.myPhilippine Airlines: More than 80% passenger load factor in JanuaryFTK, FATK and Freight Load Factor(Feb 05 to Jan 06)FTK and FATK (In Billions)4FMFTKFATKFLFAMJJ2005ASOND806040200J2006FLF (In Percentage)FTK and FATK (In Percentage)201612840-4-8FTK, FATK FLF Growth Rates(Feb 05 to Jan 06)FTKFATKFLF-8F M A M J J A S O N D J2005 vs. 2004 2006 vs. 2005201612840-4FLF (In Percentage Points)MAY 2006 ORIENT AVIATION 57

BUSINESS DIGESTAAPA MONTHLY INTERNATIONAL STATISTICSSummary of Consolidated Results (thousands)2005-6 RPK ASK PLF FTK FATK FLF RTK ATK PAXFeb 05 39,805,352 54,743,503 72.7% 3,614,835 5,547,854 65.2% 7,356,347 10,593,440 9,770Mar 05 43,814,147 59,942,965 73.1% 4,508,999 6,698,769 67.3% 8,630,857 12,203,050 10,666Apr 05 41,898,540 58,624,765 71.5% 4,252,016 6,417,134 66.3% 8,182,857 11,834,341 10,251May 05 41,953,067 60,694,012 69.1% 4,136,743 6,364,603 65.0% 8,080,543 11,978,808 10,135Jun 05 44,400,682 59,646,383 74.4% 4,284,520 6,399,583 66.9% 8,450,424 11,916,523 10,559Jul 05 48,553,181 62,954,470 77.1% 4,368,303 6,608,655 66.1% 8,913,969 12,428,898 11,591Aug 05 47,672,482 62,633,118 76.1% 4,182,117 6,560,521 63.7% 8,642,911 12,348,078 11,529Sep 05 44,333,729 60,045,057 73.8% 4,421,176 6,612,908 66.9% 8,580,277 12,111,831 10,594Oct 05 44,691,262 61,496,285 72.7% 4,752,035 6,852,396 69.3% 8,948,078 12,528,547 10,884Nov 05 43,299,147 59,576,651 72.7% 4,608,388 6,721,333 68.6% 8,670,440 12,208,845 10,561Dec 05 45,782,023 61,920,871 73.9% 4,558,022 6,683,006 68.2% 8,843,209 12,397,300 11,001Jan 06 47,052,196 62,591,897 75.2% 4,013,087 6,409,533 62.6% 8,454,204 12,216,249 11,080TOTAL 533,255,808 724,869,977 73.6% 51,700,241 77,876,296 66.4% 101,754,117 144,765,910 128,6212005-6 RPK ASK PLF FTK FATK FLF RTK ATK PAXFeb 05 6.2% 4.0% -2.9 -3.0% 2.4% 4.5 1.5% 3.3% 9.3%Mar 05 11.5% 7.3% 1.8 5.1% 10.4% -1.4 8.1% 8.9% 13.3%Apr 05 5.7% 5.3% 1.1 8.1% 8.3% -4.4 7.0% 7.0% 6.3%May 05 6.3% 5.3% -2.0 0.1% 5.1% -1.4 2.9% 5.4% 7.5%Jun 05 6.2% 5.8% 6.0 4.4% 6.5% -1.3 5.2% 6.3% 5.1%Jul 05 5.5% 4.7% 3.0 1.0% 3.2% -2.2 3.2% 4.1% 5.1%Aug 05 4.5% 3.4% -0.4 2.0% 4.3% -3.8 3.2% 3.4% 3.8%Sep 05 6.1% 4.3% -1.5 2.5% 3.8% 1.7 4.4% 3.9% 5.0%Oct 05 3.5% 3.7% 0.1 1.8% 2.2% 1.7 2.5% 3.1% 3.0%Nov 05 2.5% 2.8% -0.2 2.8% 2.1% -1.0 2.6% 2.6% 0.4%Dec 05 2.1% 1.5% 1.1 5.6% 3.8% 0.1 3.7% 2.8% 1.3%Jan 06 4.9% 2.4% 1.8 5.3% 4.3% 0.5 5.2% 3.3% 5.6%GROWTH 5.3% 4.2% 0.8 3.0% 4.7% -1.1 4.1% 4.5% 5.3%CY RPK ASK PLF FTK FATK FLF RTK ATK PAX2001 449,997,481 632,484,230 71.1% 36,254,186 56,302,344 64.4% 78,370,595 114,075,864 105,8602002 471,599,221 633,726,957 74.4% 41,760,845 60,792,084 68.7% 86,388,889 118,421,507 112,5062003 424,867,398 610,926,830 69.5% 43,587,366 64,971,618 67.1% 83,402,125 121,028,734 98,8752004 505,242,763 692,635,360 72.9% 49,704,793 73,735,163 67.4% 97,093,807 137,542,532 121,9152005 531,052,164 723,386,103 73.4% 51,499,871 77,609,694 66.4% 101,333,490 144,377,541 128,0332006 YTD 47,052,196 62,591,897 75.2% 4,013,087 6,409,533 62.6% 8,454,204 12,216,249 11,080CY RPK ASK PLF FTK FATK FLF RTK ATK PAX2001 4.8% 0.2% 3.3 15.2% 8.0% 4.3 10.2% 3.8% 6.3%2002 -9.9% -3.6% -4.9 4.4% 6.9% -1.6 -3.5% 2.2% -12.1%2003 18.9% 13.4% 3.4 14.0% 13.5% 0.3 16.4% 13.6% 23.3%2004 5.1% 4.4% 0.5 3.6% 5.3% -1.1 4.4% 5.0% 5.0%2006 YTD 4.9% 2.4% 1.8 5.3% 4.3% 0.5 5.2% 3.3% 5.6%Note: 1. 16 member airlines participate in AAPA Monthly International Statistics. NZ does not participate.2. Jul-Dec 2005 figures restated58 ORIENT AVIATION MAY 2006