CHARM OFFENSIVE - Orient Aviation

VOL. 8 NO. 10 SEPTEMBER 2001MAGAZINE OF THE ASSOCIATION OF ASIA PACIFIC AIRLINESCHARMOFFENSIVEPresident Christine Tsungbreaks the China Airlinesmould ... with styleExclusive:PEOPLESMUGGLING:Share the burden,say airlinesDOWN BUT NOT OUT:SriLankan vowsto recoverfrom fleet lossAIRPORTS: Special report

VOL. 8 NO. 10 SEPTEMBER 2001C O V E R S T O R YCHARMOFFENSIVE Page 28China Airlines’lady presidentbreaks the mouldMAGAZINE OF THE ASSOCIATION OF ASIA PACIFIC AIRLINESExclusive:PEOPLESMUGGLING:Share the burden,say airlinesAIRPORTS: Special reportVOL. 8 NO. 10 SEPTEMBER 2001CHARMOFFENSIVEPresident Christine Tsungbreaks the China Airlinesmould ... with styleDOWN BUT NOT OUT:SriLankan vowsto recoverfrom fleet lossN E W SSafety rating blow for South Korean carriers 12Cathay Pacific dispute could lead to more competition 12Garuda may expand new no-frills airline 13Financial gloom for Asian carriers 14China round-up; new planes for China Southern 15SriLankan Airlines chief vows to overcome fleet loss 26Cathay clicks into gear with onboard e-mail 32M A I N S T O R YPeople traffickers costing airlines millions in fines and costs;governments told to ‘share the burden’ 18H E L I C O P T E R SBuying power helps Hong Kong Government Flying Services save lives 34S P E C I A L R E P O R T : A i r p o r t s i n t h e A s i a - P a c i f i cLet’s pull together, airports chief tells airlines 37Prime minister demands action in Bangkok 40First profit and more awards for Hong Kong International Airport 42South Korea’s Incheon Airport proves doubters wrong 44Testing issues await Sydney International Airport’s new owner 45Philippine Airlines threatens to boycott new terminal over charges 47C O M M E N TTurbulence by Tom Ballantyne 54R E G U L A R F E A T U R E SPublisher’s Letter 7Perspective 10Business Digest 48PublisherWilson Press LtdGPO Box 11435 Hong KongTel: Editorial (852) 2893 3676Fax: Editorial (852) 2892 2846E-mail: orienta@asiaonline.netWeb Site: www.orientaviation.comPublisher and Managing EditorBarry GrindrodE-mail: orienta@asiaonline.netJoint PublisherChristine McGeeE-mail: cmcgee@netvigator.comChief CorrespondentTom BallantyneTel: (612) 9638 6895Fax: (612) 9684 2776E-mail: tomball@ozemail.com.auHong Kong & China:Jonathan Sharp, Wellington NgTel: (852) 2504 3995E-mail: fusharp@aol.comPhotographersAndrew Hunt (chief photographer),Rob Finlayson, Hiro MuraiDesign & ProductionÜ Design + ProductionColour SeparationsTwinstar Graphic Arts Co.PrintingLammar OffsetPrinting Company LtdDistributed byWilson Press LtdAdvertisingHead Office:Wilson Press LtdChristine McGeeTel: (852) 2893 3676Fax: (852) 2892 2846E-mail: cmcgee@netvigator.comSouth East AsiaTankayhui MediaTan Kay HuiTel: (65) 9790 6090Fax: (65) 299 2262E-mail: tkhmedia@singnet.com.sgThe Americas / Canada :Barnes Media AssociatesRay BarnesTel: (1) 434 927 5122Fax: (1) 434 927 5101E-mail: rvbarnes@cablenet-va.comEurope :REM InternationalStephane de RemusatTel: (33 5) 34 27 01 30Fax: (33 5) 34 27 01 31E-mail: sremusat@aol.comNew Media & Circulation ManagerLeona Wong Wing LamTel: (852) 2865 3966E-mail: leonawong@orientaviation.comAssociation of Asia Pacific AirlinesSecretariatSuite 9.01, 9/F,Kompleks Antarabangsa,Jalan Sultan Ismail,50250 Kuala Lumpur, Malaysia.Director General: Richard StirlandCommercial Director: Carlos ChuaTechnical Director: Leroy KeithTel: (603) 2145 5600Fax: (603) 2145 7500E-mail: ushav@aapa.org.myPublished 10 times a yearFebruary, March, April, May, June,July/August, September, October,November and December/January.© All rights reservedWilson Press Ltd, Hong Kong, 2001.The views expressed in thismagazine are not necessarilythose of the Association ofAsia Pacific Airlines.September 2001 | Orient Aviation |

P U B L I S H E R ’ S L E T T E RHELP DON’T HINDERIt was the The Economist that recently estimated sophisticated crimesyndicates were making more money out of smuggling people toother parts of the world than they earn from trafficking drugs.That’s a mind-boggling thought and so are the figures quotedin our main story “Share the Burden”. Headlines tend to be about illegalimmigrants being found concealed, often dead, in lorries and ships’cargo holds or rescued close to drowning in leaky boats on the highseas. Yet people trafficking by air is at an all-time high and becomingworse daily, says the International Air Transport Association (IATA).Asia’s airways and airports are among the most popular routeswith the gangs organising the illegal human traffic trade and theytend to keep one step ahead of the authorites in this intense battleof wits. Cities like Bangkok and Manila are centres for the forging ofpassports and visas.Our top international airlines are doing their best to curtail theincrease of people smuggling, investing millions of dollars a year totrain their staff to spot bogus documents. They take the problemseriously, not least because they are fined if a passenger arrives at hisor her destination without proper documentation.IATA says the world’s airlines have paid an estimated US$250 millionin fines alone for unwittingly transporting illegal immigrants in the last10 years. Total costs in dealing with the problem top $1 billion!IATA’s assistant director facilitation services, Bob Davidson,has accused many governments of giving up on the problem anddumping too much responsibility for detecting lawless travellers onthe airlines.Cathay Pacific Airways head of security, Peter Kedward, toldOrient Aviation: “We are supposed to be customer orientated, but theauthorities are turning us into a policing agency.”The airlines need support to at least contain this criminal phenomenon.They cannot do it alone. What chance, for example, do pressuredcheck-in staff have of spotting forgeries that, in some cases, wouldbaffle the best professional crime busters in the world?In October, IATA is inviting airlines, government officials and lawenforcement agencies to the first conference convened to discuss theimpact of people smuggling on the airlines in an attempt to find somecommon ground in dealing with this global problem.This is too big an issue for airlines to tackle alone. Orient Aviationsupports the IATA initiative 100 percent.BARRY GRINDRODPublisher/Managing EditorThe Association of Asia Pacific Airlines members and contact list:Air New ZealandManaging Director, Mr Gary ToomeyGeneral Manager GroupCommunications, Mr David BeatsonTel: (64 9) 336 2770 Fax: (64 9) 336 2759All Nippon AirwaysPresident and CEO, Mr Yoji OhashiSenior VP, Public Relations, Mr Koji OhnoTel: (81 3) 5756 5675 Fax: (81 3) 5756 5679Ansett AustraliaGeneral Manager International,Mr Andrew MillerManager Group Public Affairs,Ms Heather JeffereyTel: (61 3) 9623 3540 Fax: (61 3) 9623 2887Asiana AirlinesPresident & Chief Executive, Mr Park Chan-bupManaging Director, PR, Mr Hong Lae KimTel: (822) 758 8161 Fax: (822) 758 8008Cathay Pacific AirwaysChief Executive Officer, Mr David TurnbullCorporate Communications General Manager,Mr Alan WongTel: (852) 2747 8868 Fax: (852) 2810 6563China AirlinesPresident, Ms Christine Tsung Tsai-yiActing VP, Corp Comms, Mr Paul WangTel: (8862) 2514 5750 Fax: (8862) 2514 5754DragonairChief Executive Officer, Mr Stanley HuiCorporate Communication Manager,Ms Laura CramptonTel: (852) 3193 3193 Fax: (852) 3193 3194EVA AirPresident, Mr Frank HsuDeputy Senior Vice President, Mr K. W. NiehTel: (8862) 8500 2585 Fax: (8862) 2501 7599Garuda IndonesiaPresident, Mr AbdulganiVP Corporate Affairs, Mr PujobrotoTel: (6221) 380 0592 Fax: (6221) 368 031Japan AirlinesPresident, Mr Isao KanekoDirector, Public Relations, Mr Geoffrey TudorTel: (813) 5460 3109 Fax: (813) 5460 5910Korean AirPresident and CEO, Mr Shim Yi TaekVP Public Relations, Mr Seung Jae NohTel: (822) 656 7092 Fax: (822) 656 7288/89Malaysia AirlinesChairman, Tan Sri Azizan Zainul AbidinHead of Industry Affairs,Ms R. Nordiana Zainal ShahTel: (603) 2165 5154 Fax: (603) 2163 3178Philippine AirlinesChairman, Mr Lucio TanVP Corporate Communications,Mr Rolando EstabilioTel: (632) 817 1234 Fax: (632) 817 8689Qantas AirwaysManaging Director and CEO, Mr Geoff DixonGroup General Manager Public Affairs,Mr Michael SharpTel: (612) 9691 3760 Fax: (612) 9691 4187Royal Brunei AirlinesChairman, Dato Paduka Awang Haji AliminBin Haji Abdul WahabTel: (673 2) 343 368 Fax: (673 2) 343 335Singapore AirlinesDeputy Chairman and CEO,Dr Cheong Choong KongVP Public Affairs, Mr Rick ClementsTel: (65) 541 4030 Fax: (65) 545 6083Thai Airways InternationalPresident, Mr Bhisit KuslasayanonDirector, PR, Mrs Sunathee IsvarphornchaiTel: (662) 513 3364 Fax: (662) 545 3891Vietnam AirlinesPresident and CEO, Mr Nguyen Xuan HienDep Director, Corp Affairs, Mr Nguyen HuyHieuSeptember 2001 | Orient Aviation |

d i a r ySHIFTS at S.A.L.E: Singapore Airlines (SIA) senior executive, Matthew Samuel (pictured right),has resigned as founding chairman of SingaporeAircraft Leasing Enterprise (S.A.L.E.), the Singaporebasedaircraft lessor started in 1993. His successor asnon-executive chairman and a non-executive directoris SIA’s senior vice-president (administration), ChewChoon Seng. At the same time, S.A.L.E. announced theexpanded role in the company of chief financial officer,Phang Thim Fatt. He is now deputy managing directorto S.A.L.E.’s managing director, Robert Martin. S.A.L.E.has set up a European office in London.PERSPECTIVEBOEING MOVES: Boeing’s China public relationsboss, Tom McLean, who has spent thelast 13 years in the country, will soon moveonto bigger things for the global aerospacegroup. Mandarin-speaking McLean, whose localknowledge, graciousness and professionalismearned him universal respect among theindustry’s China operators and media, willbe stepping out as Boeing’s new director ofinternational communications in WashingtonDC from October. He will work with Boeing’snew senior vice-president for internationalrelations, Thomas Pickering, company vicepresidentof international communications,Matthew de la Haye and Hong Kong-basedmanaging director of public relations andcommunications in the Asia Pacific and theMiddle East, Mark Hooper. McLean has beenworking for Boeing China Inc. in Beijing forthe last three years.UNFAIR: South Korea’s two internationalairlines, Korean Air and Asiana Airlines, haveclaimed that an August decision by the U.S.Federal Aviation Administration (FAA) todowngrade the country’s air safety ratingunfairly penalises them for oversights that arethe fault of government regulatory agencies.In May, a regular FAA inspection concludedthat South Korean air safety investigatorslacked complete objectivity, investigationstaff were not technically competent andthat problems existed in enforcing flight operationrules and pilot screening. Activatingthe downgrade will prevent Korean Air andAsiana from adding new services into theU.S. and forbid code-shares on future serviceswith U.S. airlines, a decision the two Koreancarriers said could cost them up to US$500million in revenue in the next 18 months. (SeeRegional Round-Up page 12)EVERYWHERE MAN: Allan Pellegrini,Matsushita Avionics Systems Corporation’s(MASC) new senior vice-president marketingand operations, has parted company withSAD LOSS: Airbus Industrie’s China boss,Pierre de Montgolfier, died in August inFrance. The erudite Frenchman, who tookcharge of the demanding China portfoliolast year, collapsed suddenly in June. Salesdirector for China, Guy McLeod, is actingpresident of Airbus China.airline e-mail, intranet and selected Internetprovider, Tenzing Communications, to join theCalifornia-based, Japanese-owned inflighthardware manufacturer. Before he joinedTenzing as president and chief operatingofficer last year, Pellegrini was first the salesand marketing boss for Hughes Avicom,which became Rockwell Collins PassengerSystems after a buy-out by the Cedar Rapidsconglomerate three years ago. Pellegrinimoved up to vice-president marketing andsales for Rockwell’s Air Transport Group andthen left for Tenzing in March 2000. MASC’spresident is Takashi Mazumi.Twenty five-year Swire veteran, EdwardNicol, until August the overall chief executiveof Cathay Pacific Catering Services’ eleven U.S.and Asia-Pacific airline kitchens, took overfrom Pellegrini. Nicol ran the very successfulelite frequent flyer (FFP) business class programmePassages until its member airlines,Cathay Pacific Airways, Singapore Airlinesand Malaysia Airlines, decided to launch individualFFPs late in the last decade. Nicol will beable to particularly understand the interestsof one Tenzing minority shareholder, whobought 10% of the company early this year– his former employer Cathay Pacific. In June,Airbus Industrie announced it had acquired30% of Seattle-based Tenzing CommunicationsInc. (See Inflight Asia page 32).SPARE SIMULATOR ANYONE? Simulatorsfor a Comanche Attack helicopter and anAirbus A340 were among the 10,000 goods,gadgets and big boys toys which failed to attractbids at the six-day auction of Prince JefriBolkiah of Brunei’s construction and supplycompany, Amedeo Development, conductedin the oil-funded sultanate in mid-August.Other items up for sale at the auction, instructedto proceed following the bankruptcyof Amedeo in 1998, were a Formula Oneracing car simulator, two Mercedes Benz fireengines, a 12-foot high rocking horse andtwo antique cannons. Nobody wanted themeither in a sale that netted US$7.8 million,an amount that barely registered a blip ina bankruptcy that has lost the Sultanate ofBrunei US$15 billion.Polo playing Prince Jefri, widely believedto be the Sultan of Brunei’s favourite sibling,has not been totally accepting of the limitsnow imposed on his Royal purse strings.Recently, an investigator despatched toBrunei to look into the prince’s affairs toldPerspective that when a young son of PrinceJefri expressed an interest in soccer, his fatherimported top British players to coachand field teams against his son in a Bruneistadium equipped with a Tannoy systemand 2,000 life-sized cardboard spectators.When the young Prince scored the speakersystem would emit booming cheers and the2,000 cardboard fans would pop up fromtheir seats to encourage the young prince inhis game.10 | Orient Aviation | September 2001

N E W SRegional round-upSafety ratingdowngrade a majorblow for Korean carriersAt press time the U.S. Federal AviationAdministration (FAA) haddecided to downgrade South Korea’ssafety rating. The FAA’s action is a move againstthe South Korean Government for the lackof oversight of its two international carriers,Korean Air (KAL) and Asiana Airlines, but thedecision will have considerable impact on theairlines.The downgrade, from Category 1 to Category2, will prevent the carriers from expandingtheir services in the U.S. and could resultin the termination of alliance and code-shareagreements. A Reuters report said it could costthe two carriers, which have recently reportedheavy losses for the first six months of theyear (see page 14), 230 billion won (US$184million).The decision follows a regular FAA inspectionin May that found a lack of objectivity inthe country’s air crash investigations, unskilledtechnical staff and problems with flight operationrules and screening of pilots. The SouthKorean Government has said it has startedtraining extra aviation safety staff and wouldpropose revised aviation safety laws.Asiana Airlines, which flies to four U.S.cities, is particularly peeved at the downgradebecause, unlike accident-prone Korean Air, ithas been accident free. The carrier believes thedamage to its image and bans on additionalservices could cost it 80 billion won annually.Its code-share with American Airlines has beenterminated.KAL flies to nine U.S. cities and said thedowngrade will cost it 150 billion won a year.KAL hopes to renew code-share flights withits SkyTeam alliance partner, Delta Air Lines.They were cancelled after a KAL cargo planecrashed in Shanghai in 1999. This will not happennow nor will services to Guam and Saipanresume. Those services were suspended after aKAL B747 crashed in Guam in 1997 killing 228passengers and crew.In the last couple of years KAL has spent200 billion won on improving safety initiativesand recruited outside experts to assist in upgradingits programmes. A Delta spokesmantold the Asian Wall Street Journal they were“very pleased with the progress Korean [Air]has made”.Some have said there could be politicalAsiana Airlines: Accident free record but will suffer heavy financial losses following the U.S.Federal Aviation Administration’s decision to downgrade South Korea’s safety ratingimplications involved in the decision. Relationsbetween Seoul and Washington have deterioratedsince George W. Bush took office.Cathay could face morecompetition in Hong KongOne outcome of the Cathay Pacific Airwayspilots’ industrial dispute is that Hong Kong’sone-airline, one-route policy could be dismantledearlier than planned, increasing competitionfor the carrier out of its home base.Although rules already have been relaxed,Financial Secretary, Antony Leung Kam-chung,said the Hong Kong Government would considerupping the pace of change in view ofthe pilots’ dispute with Cathay over pay andconditions.Cathay and its regional rival, Dragonair,have been competing on cargo routes since lastyear. Further changes to policy in March meantthat the two airlines could compete on someroutes in Taiwan and mainland China.At press time the Hong Kong AircrewOfficers Association (HKAOA) was askingCathay pilots to vote to step up industrial actionagainst the airline. Union president, NigelDemery, said legal action against pilots sackedduring the dispute was “imminent”.In mid-August, Cathay’s director of corporatedevelopment, Tony Tyler, describedthe pilots’ action as “no more than a minornuisance”. He said contingency plans were inplace to keep passengers and freight movingand to deal with any future eventualities.Thailand now agrees tooverseas investment in THAIThailand’s prime minister, Thaksin Shinawatra,has been scathing about his nationalairline, Thai Airways International (THAI). Andrecently the carrier, once an inflight servicepioneer, was docked a star by global airline ratingagency Skytrax Research. It was relegatedto three stars alongside the likes of EthiopianAirlines and Air Zimbabwe. Only 18 monthsago it shared five stars with its rivals CathayPacific Airways and Singapore Airlines.THAI has said it will push ahead with its oftdelayedpartial privatisation in November, butanalysts warned the airline will have to improveits management and its image. The governmentis looking to reduce its stake in THAI from 93%to around 70% and finance minister SomkidJatusripitak, says there may be more than 10%available for a strategic overseas investor. Theprime minister had previously ruled out foreigninvestment in the airline.While there is no dispute that standardshave slipped in recent times at THAI, it stillhas a great deal of consumer support. For thisreason, analysts believe there will be a numberof airlines interested in bidding for a stake inthe carrier. Indeed, before the Asian financialcrisis struck three years ago Lufthansa, QantasAirways, Singapore Airlines and Air France hadbeen among THAI’s declared suitors.Much has happened since then althoughAir France has said it would like THAI to join12 | Orient Aviation | September 2001

its SkyTeam alliance while Lufthansa has saidit wants to keep the airline in Star.Recently, the Thai Government approveda new business plan for the airline. It set atarget to cut its debt-to-equity ratio to fivetimes, from the current 11 times, by the endof 2001.... Thai rivals busyexpanding networksPB Air, Thailand’s newest scheduled carrier,will launch long-haul international operationsto Sweden in October. Formerly a charterairline and owned by beer magnate, Piya Bhirombhakdi,PB Air is headed by two of THAI’shighly respected former executives, ChatrachaiBunya-ananta, who was president in the mid-1990s and Capt. Jothin Pamon-montri.The carrier has dry-leased an Airbus A340-200 from Austrian Airlines for 18 months.Looking to the future, PB Air has hopes ofexpanding its destinations in Europe and alsoof flying to the U.S.It’s a sign of the times in Thailand whereboth Bangkok Airways and Angel Air areexpanding their regional and domestic networks.Garuda launches no-frillscarrier to counter rivalsGaruda Indonesia has moved to counterthe threat of dozens of new low-cost domesticstart-ups by launching its own no-frills domesticoperation.Called Citilink, the carrier has a fleet offour Fokker F28 jets that Garuda owns and hadphased out of its fleet in May.Garuda’s executive vice-president commercial,Bachrul Hakim, told Orient Aviationthat Citilink is aimed at widening the airline’smarket presence.“The focus of our primary domestic operationis the top-end traveller, the high yieldbusiness flyers. We want to cater to the middle-to-lowmarket segment on specific routes.Our fares are around 30% lower than mainlineprices,” he said.Indonesia’s domestic market is still recoveringfrom the Asian financial crisis. Passengernumbers are growing, although they are not yetback to pre-crisis levels, said Hakim. “The newentrants are driving that growth. We saw this asan opportunity to increase our revenue.”Citilink is based on simplicity: no cateringon board, shorter ground-time, simple reservationprocesses, check-in and boarding. It is aticketless service, with reservations made on itswebsite on a round-the-clock basis.Hakim said the response to Citilink, launchedin July, had been so positive the airline was lookingat expanding the fleet and adding routes.Best foot forwardStep forward Zuji, the new online travelproject formerly known as Travel ExchangeAsia. Zuji, which comes from a Chinese wordmeaning footprint, is a joint venture of 11Asia-Pacific airlines. They are Singapore Airlines,Qantas Airways, Cathay Pacific Airways, AirNew Zealand, Ansett Australia, EVA Air, ChinaAirlines, Malaysia Airlines, Garuda Indonesia,Royal Brunei Airlines and SilkAir.When operational, Zuji will be the Asia-Pacific’s answer to Orbitz, an online travel sitestarted by five U.S. carriers in June, and Europe’sOpodo, which involves nine airlines, and will belaunched by the end of the year.The projects are seen as attempts by themajor carriers to boost online sales, meetthe budget carriers head-to-head on theweb and save on commissions paid to travelagents.In brief:THE INDIAN Government has denied reports that SingaporeAirlines (SIA) wanted a 49% share in Air India. Forty percent is onoffer and SIA, in partnership with Indian industrial group, Tata, arethe only bidders left. Foreign airlines can bid for a maximum of 26%.SIA has said it has not made a final offer for Air India.AS PART OF its route restructuring, Philippine Airlines (PAL) will flyto three additional cities in the Asia-Pacific. In October, it will restorea direct link between Manila and Melbourne that will be an extensionof its three-times-a week Sydney service. Also in the last quarter, PALwill resume flights to Bangkok and Shanghai. PAL has cut frequenciesbetween Manila and Saudi Arabia from six to three times a week. Theservices will be restored when economic conditions improve.HONG KONG-BASED regional carrier, Dragonair, is to boost itsall-cargo services to Europe, the Middle East and China in Septemberfollowing the delivery of a B747-300 freighter. The new Dragonairownedplane will join a wet-leased B747-200 freighter from Atlas Air.Flights from Hong Kong to Dubai, Manchester and Amsterdam willincrease from three to five times a week. The Shanghai operationwill add a second weekly service.Garuda Indonesia: launched a no-frills domestic carrier, CitilinkSeptember 2001 | Orient Aviation | 13

N E W SBUSINESS round-upQantas results ‘aconsiderable achievement’After six successive years of record profits,Qantas Airways announced inAugust a 19.7% fall in net profit toA$415.4 million (US$220.2 million) for theyear to June 30. As the national airline hashad to contend with a price war in the domesticmarket, high fuel prices, a slowing inthe home and international economies anda weak Australian dollar, chairman MargaretJackson described the result as a “considerableachievement” and “a significant profitat a time when the global aviation industry isexperiencing unprecedented change and manyairlines around the world are reporting lossesor small profits”.Revenue for 2000-2001 was A$10.2 billion,an increase of 11.9% on the previous year.Revenue passenger kilometres rose 10%.Capacity grew 9.3%. The overall passenger seatfactor rose half a percentage point.Fuel prices took a heavy toll on costs. Expenditurerose 14.9%, mainly due to fuel andcapacity increases. Although hedging contractssaved Qantas A$406 million, its fuel costs rose54.1% to A$466.6 million. Cost per availableseat kilometre decreased by 1.3%The airline’s chief executive, Geoff Dixon,said the results for the 2002 financial yearwould remain under pressure.In May, Qantas eliminated one source ofcompetition in the domestic market by acquiringno-frills carrier, Impulse Airlines, and leasingits eight Boeing 717-200s and 13 Beech-craftaircraft.Cathay profits plungeCathay Pacific Airways’ financial accountshave been on a roller coaster ride in the lastcouple of years. In 1998, the airline made itsfirst loss. Last year, it posted record profits ofHK$5 billion (US$641 million). In the first sixmonths of the current financial year the pendulumswung yet again with profits plungingand a forecast of worse to come.Cathay announced it had made a net profitof HK$1.32 billion for the half year to June 30.This was a 39.4% drop on the HK$2.18 billionrecorded in the same period last year. Its turnoverfell 1.9% to HK$15.84 billion.Last year Cathay’s cargo division proveda shining light on the balance sheet, but in2001 slow growth in the U.S., Japan and otherAsian economies impacted both cargo andQantas chairman Margaret Jackson: a significant profit achieved under pressurepassenger traffic.The performance would have beenworse had it not been for an exceptional gainof HK$452 million from the disposal of theairline’s shares in network communicationservices company Equant, which was acquiredby France Telecom.Significantly, the affects of the Cathaypilots’ “limited industrial action”, which startedin early July and at press time was still ongoing,will be reflected in the second half of 2001’sfinancials.During the first six months of the yearpassenger traffic rose 2.3% to 5.9 million, butthis was put in the shade by an increase of8.6% in seat capacity. As a result passengerload factor fell 3.8 percentage points to 71.9%.Cathay took delivery of five new aircraft in theperiod under review.Cargo volume fell by 5.2% to 340,000tonnes. Cargo load factors and yields fellsharply, said the airline.With the exception of fuel prices, whichrepresented 18.8% of operating expenses, up1.1% on a year earlier, Cathay’s unit costs peravailable tonne kilometre fell by 1.6%.KAL to cut staffSouth Korea’s two international carriers,Korean Air (KAL) and Asiana Airlines sufferedheavy losses in the first six months of their financialyears. KAL’s net losses were 345.9 billionwon (US$276.7 million), 74% higher than thesame period last year. The airline’s operatingloss was 149.4 billion won. Passenger sales rose5.4% to 2.73 billion won, but cargo revenue,which accounts for 27% of its business, fell 5%to 744.1 billion won. KAL said a depreciation ofthe won, abnormally bad weather and a pilots’strike had contributed to the result.To cut costs KAL, which shed 1,600 jobs duringthe Asian financial downturn, will lay-off afurther 500 staff in coming months, accordingto the Chosun Ilbo newspaper.To raise cash, KAL also will sell off anumber of its 114 aircraft and put a freeze onnew orders.Asiana posted losses of 156.3 billion won(US$125 million) compared to a net profit of60.95 billion won a year earlier. Operatingprofit fell 75% to 26.42 billion won. Asiana’ssales rose 7.3% to 1.05 trillion won.The airline is to continue a company-wide10% cost reduction campaign, started in February,throughout the year. Asiana sold twoaircraft in May and in July issued asset-backedsecurities worth 350 billion won. The airlinesaid it would not cut its workforce.CAL holds its ownTaiwan’s China Airlines (CAL) made a slightincrease in pre-tax profit in its first six monthscompared to the same period in 2000. Its profitof NT$1.09 billion (US$31.5 million) was upfrom NT$1.07 billion last year. Passenger revenue,however, rose markedly to NT$21.5 billionfrom NT$18.1 billion in the same period in2000. Cargo revenue was down from NT$11.4billion last year to NT$10.7 billion in 2001. Currencyhedging and the sale of two B737-800shelped the bottom line, said CAL. (See CharmOffensive, page 28)14 | Orient Aviation | September 2001

CHINA NEWSPlanes, new dealsfor China SouthernIt appears the log jam in China aircraft orders is about to be released by the BeijingGovernment. In the last two to three yearsOrient Aviation has been told on several occasionsa number of China’s airlines have wantedto order planes, but have been put in a holdingpattern by the authorities.Now, mainland sources have said, Chinais to take 36 new Boeing aircraft. Twenty twowill be leased by China Southern Airlines(CSA). Twenty will be B737-800s, taken on afinance lease to replace 20 B737s on operatingleases. The remaining two jets are B747-400s.Government approval is due to be announcedsoon and delivery of the first planes is expectedto start next year through 2005.Meanwhile CSA also has signed anagreement with China Post Airlines, the firstof its kind between a Chinese airline groupand the national postal service. CSA will carrymail through the China Post network whileChina Post Airlines will carry Southern AirlinesGroup cargo.China Northern and Xinjiang Airlines,which will be part of the CSA-led mergergroup, will form an important spoke in thedistribution network.Also, CSA and KLM Royal Dutch Airlineshave agreed to implement code-share serviceson the Beijing-Amsterdam and Shanghai-Amsterdam routes.GAMECOrevenue upThe Guangzhou Aircraft MaintenanceEngineering Company (GAMECO) increased sales revenue 7.64% in thefirst half of the year to June 30. The majorcontributors to sustained profitability wereline maintenance and component overhauland repair. Their revenue increased 18%and 5.7% respectively. GAMECO is lookingto expand its third party contract businessthroughout the second half of the year toachieve a 10% increase in sales.The maintenance company will breakground on a 900 million (US$102 million)four widebody bay hangar at Guangzhou’sNew Baiyun International Airport later thisyear. The hangar will accommodate sevenaircraft at one time and will be big enoughto house the A380 super jumbo.September 2001 | Orient Aviation | 15

m a i n s t o r yPEOPLE TRAFFICKERS COSTING AIRLINES MILLIONS OFDOLLARS A YEAR IN FINES AND COSTSThe airways and airports of the Asia-Pacific are among those most used by thepurveyors of human misery, the peoplesmugglers. It’s also a centre for passport andvisa forgery. The trade in ‘human cargo’ isescalating rapidly.The region’s major carriers are spendingvast amounts of money to train staff tocounter the sophisticated crime syndicatesat the heart of the operations. They are notalone, it’s a worldwide phenomenon and,says IATA, they should be treated as victims,not the problem. The problem should beshared.TOM BALLANTYNE reports.The cost to international airlines ofunknowingly carrying thousands ofillegal immigrants travelling on falsepassports is estimated at more than US$1billion in the last decade, with $250 millionpaid in government fines by the carriers.What’s more, people trafficking is escalatingat such an alarming pace, accordingto IATA’s assistant director facilitation services,Bob Davidson, that some carriers couldsuspend services through problem airportsbecause fines and costs imposed on them aretoo prohibitive.In October, as the airline industry attemptsto keep ahead of the increasingly sophisticatedcrime syndicates which use commercialflights to move their human “cargo” aroundthe world, IATA will hold the first seminaron the problem in Atlanta, Georgia, whereairlines, government officials and law enforcementagencies, including Interpol, willthrash out ways to keep one step ahead ofthe people smugglers.Davidson accused many governmentsof “giving up”, and deciding the only courseof action was to gather funds to pay forthe cost of handling refugees by dumpingresponsibility on airlines. Airlines should betreated as victims, not the problem, he said.He questioned the wisdom of imposing fineson airlines that already spend large amountsof money on training staff to counter peopletrafficking.Estimates given to Orient Aviation byvarious sources indicate the number of illegalson the move at any given time in the worldrange from 1.5 million to four million.The United Nations (UN) believes humantrafficking is a $7 billion a year business. TheSHARETHEBURDEN!IATA accuses governments of ‘giving up’and dumping responsibility on airlinesCrime syndicates keep a close watch on airline operations at airportsInternational Organisation of Migration (IOM)thinks global human smuggling is channellingclose to $10 billion annually into smugglers’deep pockets.Crime syndicates charge each migrant upto US$35,000 or more to be smuggled into anew country, depending on the country oforigin and destination.As a result, carriers are spending millionsof dollars annually either on training staff toidentify forged documents presented by airtravellers or hiring outside experts to do thejob for the airlines.Asian carriers are particularly vulnerablebecause the region’s major hubs are convenientlyplaced on some of the prime routesfavoured by the crime gangs as they moveillegals from India, Pakistan, Sri Lanka, theMiddle East, the former Russian FederationStates, the Balkans and China to Europe, NorthAmerica and Australasia.Law enforcement sources say Hong18 | Orient Aviation | September 2001

Most popular trafficking routesE U R O P ER u s s i a nF o r m e r S t a t e sN O R T HA M E R I C AA S I AA F R I C AM i d d l eE a s tC h i n aI n d i aBangkokManilaS O U T HA M E R I C AA u s t r a l i aBangkok and Manilacentres for productionof false documentsA U S T R A L S I AN e wZ e a l a n dKong, with 30 million plus people a yearpassing through Chek Lap Kok airport, is afavoured hub for illegal immigrants. Majortransit points Singapore Changi InternationalAirport, Tokyo’s Narita Airport and Seoul’sinternational airport at Incheon also areproblem ports.Cambodia has been identified as a majorconduit for illegal Chinese immigrants whobuy forged documents there before travellingto other countries. Bangkok and Manila areknown centres for the production of highquality counterfeit documentation.Most airlines will not comment on theissue and those that will are very circumspect,careful not to reveal information that couldbenefit the traffickers. But carriers such asCathay Pacific Airways and Qantas Airwaysmake it clear this is a growing problem.Cathay Pacific’s head of security, PeterKedward, confirmed the airline has extensivecounter-measures in place throughout its networkto deal with people smuggling. He saidCathay was well aware of the sophistication ofthe criminal syndicates involved and their abilityto rapidly reshuffle routings, so the airlinewas on constant alert to changing threats.“Carriers do co-operate well by lettingeach other know quickly when there arepeaks and ebbs in activity at specific ports,”he said.Kedward questions the amount of responsibilitybeing placed on airline shoulders.“How can an airline be responsible for makingsure these people don’t board the aircraft. WeCathay Pacific head of security,Peter Kedward: airlines beingturned into policing agenciesare supposed to be customer orientated andthey [the authorities] are turning us into apolicing agency,” he said.The manager group facilitation airportservices at Qantas, Trevor Long, agreed withKedward.The airline was not only watching forsuspect travellers heading into Australasia,a prime target area for illegals, he said. Withnumerous daily flights through the big hubs ofBangkok and Singapore, Qantas also could bea target for illegals heading north to Europe.“This is an issue that has been bugging usfor a long time,” said Long. “We are trying toco-operate, but the challenges are considerable.This is complex. You block one hole anda leak springs up elsewhere.”Qantas has check-in staff trained to spotforged passports and visas and contractssecurity firms to assist in false documentdetection at overseas ports.IATA and individual airlines in the Asia-Pacific told Orient Aviation illegal travellersmove from source to final destination alongconvoluted routings, sometimes taking up to12 months and flying as many as 15 differentflight sectors to complete their journey.“They can come at you from any angle,at any airport,” said Long. “The people whoare organising these networks are extremelysophisticated. If they perceive defences havebeen strengthened at a port they will quicklyre-route the traffic somewhere else.”Said IATA’s Davidson: “Early on, thetraffic was fairly direct, point to point. Butas governments and airlines improved theidentification methods of individuals posinga potential risk and started to tighten up ondocument checks and security, we have seenroutings change.“The routes have become serpentine andincredibly complex. The criminal organisationsare moving people to holding areas andthen survey the airports to determine whichparticular airlines might be relaxing theirguard. They instantly move people via thatroute.“But as soon as there is a reaction tothat new flow, the individuals are shifted toanother airport or another airline.”The Association of Asia Pacific Airlines(AAPA), which represents Asia’s major opera-September 2001 | Orient Aviation | 19

m a i n s t o r ytors, has been aware of the issue for sometime and has taken steps to help its membercarriers. Commerical director, Carlos Chua, saidthe association issued an audio-visual CD-ROMtraining package in 1998. It includes examplesof good and bad documents, how they arecounterfeited and briefings on where documentsare made and trends in illegal immigration.Many airlines have used the package.Singapore Airlines bought 40 copies to usein training programmes at its headquartersand outstations.“Illegals try to penetrate the region’s airlinesevery day and the costs are very steep,”said Chua. “We cannot rest easy after a certaintrend is caught because the criminal forces arealways one step ahead of us. They are veryadept at changing their modus operandi.”The AAPA has fraud prevention andfacilities working groups that address the issueand the association is in ongoing negotiationswith government and immigration authoritiesfrom target countries to resolve issues arisingfrom human trafficking, particularly levels ofairline responsibility.While airlines are held responsible forillegal passengers they are faced with animpossible situation, said Davidson. “Todaywe are seeing fraudulent documents of suchhigh quality that forensic laboratories oftenhave to spend hours to determine whether adocument is genuine or counterfeit.”“There has been a significant changefrom what we saw 10 years ago when mostaltered documents were rather amateurish.Now we are seeing documents that are beingproduced in garages and back room printingshops that equal the quality of those issuedby the various states,” he said.Not only do most countries imposefines on airlines for arriving in a port with apassenger not carrying proper documentation,carriers also are made to pay the detentioncosts and return transport of the individualto their point of origin.These costs can be high, said Qantas’sLong. When someone seeking asylum iscaught coming off a flight he or she is placedin detention until government authoritiesmake a decision on their bona fides. In theU.S., Australia and elsewhere, they can beheld for weeks, months or even a year andthe airline has to cover the cost.Conservatively, estimates IATA, airlineshave paid $250 million in fines since 1991, butwhen the cost of detention, return transportViability’s fine lineHow can a few illegal travellersthreaten the viability of an airline’sroutes? IATA’s assistant director facilitation,Bob Davidson, explained:“Many aviation routes are thin andsometimes used simply to justify otherroutes in the area or maybe to justify theuse of an aircraft. But the profit marginswithin the airline business are generallymuch lower than other recognised commercialenterprises.“If you are in a market where yourload factor or the number of seats you areselling is not significantly high, or if thereis downward pricing pressure so yourfares are lower and therefore your yieldper seat is lower, it does not take toomany fines to impact the bottom line.“If the airline is fined US$2,000 perindividual for incorrect documentationThe airport viewAlthough illegals embark and disembark aircraft at airports and their documentationis checked by airline staff, security officials and immigration authorities at theairports, the airport authorities themselves are seldom involved, said Airports CouncilInternational (ACI) director general, Jonathan Howe.“In physical terms airports are only involved as the facility through which these illegalimmigrants are moved,” said the ACI chief. “If someone is taken into custody by lawenforcement or immigration officials, they are held temporarily before being moved todetention centres or holding facilities outside the airport.“In practical terms it is almost entirely an issue between the airlines and the variousgovernment and immigration authorities.”People trafficking for the airports “was not an issue brought to the attention of theACI by its members requiring any form of action”, said Howe.and you have just one a day over a 30-day month that is $60,000. That amountof money could erase the profit entirelyfrom that market.“If you wish to continue in that marketand try to enhance your ability to keepthe individuals off the aircraft, you maybe forced to hire a specialised securityfirm to conduct document verification atcheck-in and boarding. But that equatesto a significant additional expense thatmay make that route unprofitable. It maytip the balance.“In some markets, where yields arehistorically low, if you are suddenly facedwith the problem of illegal migrantsand political asylum seekers coming offa flight airlines have to decide if thatroute is still viable for them on a commercialbasis.”and counter-measures is added to the bill thefigures rises to more than $1 billion.That sum may be significantly higher becausethere is no collated official airline dataon fines and costs for illegal immigrants asmany airlines will not talk about the issue.However, airlines were shocked at a Junedecision by the European Commission thatapproved a directive to all member statesmandating the imposition of fines againstairlines for persons arriving without properdocumentation in the European Union (EU).Aimed at harmonising action againstthe flood of illegal aliens, the directive givescountries the option of imposing fines onairlines of between 3,000 Euros (US$2,610)and 5,000 Euros ($4,350) for each arrivingillegal or, alternatively, a fine of up to 500,000Euros ($435,000) per incident, regardless ofthe number of illegal travellers on board anaircraft.IATA is lobbying the EU to have the directivedropped or at least adjusted to include arider that airlines can avoid the penalty if theydemonstrate they took all reasonable steps tocheck passenger documentation. Davidsonsaid the European move shows countries arebeginning to believe there is nothing they cando about the problem.“Instead, they are looking to place more ofthe cost burden on airlines,” he said.Of course, not all illegal immigrants moveby air. Many are transported by sea or overland.In Europe, large numbers of them fromsuch places as China and the Balkans, arrive byroad or sea. The U.S. faces a constant overlandinvasion from Mexico. However, in the Asia-Pacific air travel is traditionally the main routefor the smugglers of human cargo.In Australia in 1998-99 there were 926unauthorised arrivals by sea and 2,106 by air.In 1999-2000 there was an explosion in boatarrivals, to 4,174, with 1,694 arriving by air. In2000-01 it is understood around 1,500 illegals20 | Orient Aviation | September 2001

m a i n s t o r yAssociation of Asia Pacific Airlines commercial director,Carlos Chua: criminal forces always one step aheadarrived by air.While airline officials have previously metamong themselves to discuss management ofthe issue, IATA’s October conference is the firstto be organised by the association to explorethe people smuggling problem.Airlines are not trying to pass the buckon the issue. “We believe the industryhas a certain level of responsibility, boththrough national legislation and broaderinternational conventions and agreements,”said Davidson.“But we find ourselves facing an organisedattack by illegal migrants. Governmentsknow individual airlines are spending millionsof dollars every year trying to do the best jobpossible, but at the end of the day there aregoing to be people coming through.“We are being held liable to the samelevel of documentation expertise by moststates as the states provide through their ownimmigration inspectors.“There is an expectation that we havecomplete expertise on the documents issuedby all countries and the entry requirementsimposed by all countries. The industry feels itis being held to an almost impossible level ofperformance.”IATA and other airline bodies such asthe AAPA are attacking the problem on anumber of fronts. They continue to workwith individual governments and bodies suchas the International Civil Aviation Organisation(ICAO) to seek enhanced co-operationbetween governments and airlines.“Airlines want to do what is right. Airlinesdo not want to carry this traffic because itis not in their interests to do so,” insistedDavidson.But IATA wants recognition from countriesthat airlines are the victims, not the problem.Sometimes the false passports are onlyintended to allow the illegal to gain access tothe airport. The document is then dumped inflight or passed to a gang courier who takes itback to be used again. The traveller arrives atthe destination with no documentation.“The airline is then left without a case. Wecannot show we have looked at this particulardocument nor prove it was of sufficient qualitywe could not have determined throughour level of expertise that this was a falsifieddocument,” said Davidson.“Without that document, states frequentlysay you failed in your check, thereforeyou are liable.”What is clear is that airlines have becomecentral pawns in the human trafficking industryand as the numbers of illegals rise, it isbecoming a costly business for the airlines andone the industry can ill afford.Report outlines threat to airlinesrecent top level U.S. Government report, details of whichA have been obtained by Orient Aviation, highlights whyairlines should be concerned about the booming business inhuman trafficking.A global assessment of international crime prepared by aworking group which included the Central Intelligence Agency,the Federal Bureau of Investigation and the U.S. Secret Service forthe U.S. President’s International Crime Control Strategy, paints afrightening picture of what carriers in Asia and elsewhere face.International criminal networks have taken advantage ofdramatic changes in technology, world politics and the globaleconomy to become more sophisticated and flexible in their operations,the report concluded. “They have extensive worldwidenetworks and infrastructure to support their criminal operations.They are inherently flexible ... adapting quickly to challenges fromrivals and from law enforcement; they have tremendous financialresources to draw upon and are completely ruthless.Among its findings:• Major alien and drug smuggling cartels use transportationspecialists to research commercial flows and to learn abouttariff laws and administrative procedures in the world’smajor commercial ports. With this information, they canexploit international air, sea and land shipping to move illegalaliens, drugs, arms and other contraband past customsand law enforcers.• Globalisation has enabled organised crime groups to diversify.Nigerian and Asian crime groups engage in people smuggling.Russian and Asian crime groups traffic women for worldwidesex industries. Colombian drug traffickers are also involvedin counterfeiting.Illegal migration facilitated by organised alien smugglingnetworks is on the rise, said the report. “The easing of nationalborder controls worldwide, growth of commercial travel options,availability of technology that can be readily adapted to forgeidentification and travel documents and the rising sophisticationof global criminal networks are key factors contributing to thisdevelopment.”The U.S. report backs up what airlines have discovered.Criminal networks are highly efficient movers of people acrossnational frontiers. They have complex webs of operation coveringthe globe. They recruit people locally to handle their human“cargo”. These teams arrange their departure on flights, co-ordinatetravel processors who provide identification and necessarytravel documents and line up brokers along the way to facilitateintermediate passages and make arrangements for arrival at thefinal destination.22 | Orient Aviation | September 2001

n e w sBy Tom BallantyneThe convoluted corporate battlebetween Qantas Airways, Air NewZealand (Air NZ) and Singapore Airlines(SIA) to decide who will end up controllingwho in Australasia’s skies, appeared tobe approaching its pivotal point in earlySeptember. But no one is betting the farm ona speedy conclusion.The New Zealand Government wasexpected to decide whether to raise foreignownership limits in Air NZ following a September4 cabinet meeting in Auckland. Dependingon the outcome of that decision either SIA orQantas could take virtual control of the Kiwicarrier.At stake is market position for the bigplayers and the future of wholly-owned AirNZ subsidiary, Ansett Australia. Both Qantasand SIA (it already owns 25% of Air NZ, theexisting investment cap for a single foreignairline) want the limitation eased to allow oneof them to take up to 49% of Air NZ.If Qantas succeeds it wants to buy SIA’s25% stake and sell all of Ansett to the Singaporeflag carrier. But Air NZ’s board has alreadyendorsed the SIA proposal, which would injectfurther capital into the airline in return for a49% holding.The New Zealand Government has had aspecial negotiating group, led by an independentmerchant banker, working to assess bothairline bids and make a recommendation to thenational government. The problem is that evenif New Zealand clears the way for increasedforeign ownership in Air NZ, the interestedparties are locked in a psychological battle thatcould see a final decision delayed.SIA deputy chairman and chief executive,Dr Cheong Choong Kong, stated categoricallyin August that his airline would not sell its25% stake in Air NZ, no matter what the NewZealand Government decided.New Zealand prime minister, Helen Clark,has had to quash media reports she favouredSIA, but she and finance minister, MichaelCullen, have consistently said it would be“very difficult” for them to raise the 25% cap.Air NZ chief executive, Gary Toomey, has toldthem in no uncertain terms that if the limit isnot raised, the national flag carrier could be inserious financial trouble.During an August speech in Brisbane,Toomey said: “We just need someone to say‘yes’ so we can go to the bank and put theATM card in and call up a billion bucks andoff we go. We announce our results in earlySeptember and obviously the market alreadyanticipates it won’t be a good result becauseMuch at stakein battle fortroubled Air NZAir New Zealand: The “meat in the sandwich” as Qantas and Singapore Airlines battle formajor stakewe’re in a re-building phase. But we really needto be able to have our strategy enunciated tothe market at that time.“It’s fairly unusual in an industry to gooff and find someone who’s prepared to putin over a billion dollars and re-capitalise thebusiness and then you have to get two governmentsin two different countries to decidewhether they like that person or someoneelse.” The delay was “annoying”, he said,“whether it be the Qantas proposal or the SIAproposal, what we need is a decision”.Toomey desperately needs a cash injectionto begin a major re-fleeting exercise, particularlyat Ansett. The continuing uncertainty ofthe situation has forced analysts to increasetheir projections for Air NZ Ansett group lossesduring the past year, with some pushing thefigure close to US$200 million.It is Ansett which has become the primaryvictim of the acquisition battle as the players attemptto negotiate its fate. Having experiencedseveral years of ownership and leadershipdoubt, staff morale has hit rock bottom as theyagain ponder their future.If it wins, SIA has said its immediate prioritywill be “‘to nurse Ansett back to health”.Dr Cheong said SIA will need “‘the people ofAnsett behind us” after an immediate injectionof cash in order to turn the Australian carrieraround from its “precarious condition”.He added the “people in Ansett are totallydemoralised” and it would be a “huge undertaking”to close the gap now existing betweenAnsett and Qantas.Meanwhile, Qantas’s chief executive, GeoffDixon, has been intensifying his campaignto convince the New Zealand Government aQantas-Air NZ tie-up is the best solution to thedilemma. But he also has been launching verbalbroadsides, clearly aimed at the AustralianGovernment, about foreign ownership rulesapplying to Qantas.Like Air NZ, a foreign carrier can own upto 25% of Qantas, a stake currently held byBritish Airways. Dixon wants that cap lifted tobetter access foreign equity markets. He hasgone as far as warning that if the airline failedto receive the go-ahead for a partnership withAir NZ and remained bound by foreign equityrules in Australia, it would increasingly shift itsoperations offshore.He was speaking after announcing Qantas’sfinancial results for the year to March31– a 19.7% drop in after-tax profit to A$415.4million (US$217.3 million) – after six years ofrecord profits.Dixon said if SIA gets its way it wouldmean all Qantas’s competitors in Australasiawill be controlled by foreign interests and haveaccess to capital and other benefits denied tothe local carrier.24 | Orient Aviation | September 2001

n e w s f e a t u r eThe small but state-of-the-art fleet of risingSouth Asia carrier, SriLankan Airlines, mayhave been decimated when rebels carriedout a bloody raid on Colombo airport inSriLankan in July, but the re-building hasbegun. TOM BALLANTYNE reports.DOWN BUTNOT OUTGut-wrenching. That’s how SriLankanAirlines chief executive, Peter Hill,described his feelings as reality sankin during the pre-dawn hours of July 24. Hillwas asleep at his Colombo home when a rebelTamil Tiger suicide squad launched a daringand devastating 3.30am mortar attack on thecity’s Banda-ranaike International Airport.“I was awakened by a phone call at 3.50amtelling me the news. By 5am we were all atthe airport coming to terms with what hadhappened,” he told Orient Aviation.The scene that welcomed Hill and his staffas they surveyed the aftermath of the bloodyraid that left 21 people dead, resembled a clipfrom a Hollywood war film – but this was forreal. All that remained of one Airbus A340 wasa charred and smoking hulk. Two A330s werealso destroyed and three other jets – anotherA340 and two A320s – were badly damaged.In one fell swoop, two years of sweat andtoil by management and staff in a bid to revivethe fortunes of Sri Lanka’s national flag carrierhad been shattered.Forty percent owned by Middle Eastoperator Emirates Airline, the fleet ofSriLankan’s proud little carrier was cut in half,reduced to four A330s and two A340s. Oneof the A340s narrowly escaped the attack.When the raiders struck, it was approachingSri Lanka on a flight from Australia but wasdiverted to Madras.The event was the most traumatic andchallenging in the airline’s 20-year history. ButHill said he was proud of the way his staffreacted and worked with the military whileunder heavy fire to evacuate the terminalbuilding. “All of our passengers were evacuatedswiftly and, in the circumstances, veryeffectively from the terminal. No-one wasinjured.”None of the dead, which included theSriLankan chief executive Peter Hill:gut-wrenching experienceTamil suicide squad, were airline passengersor SriLankan employees.SriLankan Airlines may be down but itis a long way from out. Little more than amonth later, Hill and his team have alreadysucceeded in building a solid base on which torebuild the carrier’s business. In August, the sixremaining aircraft were operating 60% of theschedule and in September that is expectedto rise to 70%.“We hope to have a third A340 back intoservice by the first week of September. It wasdamaged in the raid, but is being repaired bySriLankan engineers under the supervision ofAirbus,” said Hill.“Two A320s were also damaged and itappears that it may be too uneconomic torepair one of the jets. The other one is repairableand we expect to have it back in serviceby the end of October, which would increaseour fleet to eight.”SriLankan Airlines was an innocent victimof the attack and it brought chaos to itsnetwork. Short-haul flights to India, normallyoperated by A320s, have been stopped temporarily.Services to Dakar and Karachi in Pakistan,Sydney, Australia, and to Paris, Berlin andStockholm in Europe also have been halted.At the same time, Hill has created twooperational hubs at Dubai and Singapore, us-SriLankan Airlines: half its Airbus fleet was wiped out as the aircraft sat on the tarmac26 | Orient Aviation | September 2001

ing partner Emirates to pick-up SriLankan passengersand fly them on to other destinationsthrough its network to Europe and Asia.Other airlines, too, had also given “tremendoussupport” in helping the carrier throughits time of need, said Hill.The future, however, remains clouded.As yet, there are no plans to replace the lostaircraft, either through lease arrangements orpurchase. According to Hill, it is also too early togive any indication of when suspended routesmight be reinstated. What is important, heexplained, is the rebuilding programme.Understandably, tourism has been hard hitby the events of July 24. Many nations, mainlyin Europe, but also in Asia and the U.S., havetravel advisories in affect advising againsttravel to Colombo. Fortunately, expatriate SriLankans returning home on visits still providea solid base for the airline.When Orient Aviation visited Hill inColombo late last year he was a man “on amission” to make SriLankan Airlines a major internationalcarrier. His words have returned tohaunt him. “The long-term future of SriLankanremains tied to the country’s security situation.Hill will continue with his crusade to insist thatThe headline from the December/January issue of Orient AviationSri Lanka is safe for tourists,” concluded thefeature article headlined “Hill’s Crusade” Thatis now going to be much harder to do. Much,much harder.But Hill, who was the landlord of a Londonpub before taking up his challenge in Asia,is made of sterner stuff with an iron will tosucceed. The mission goes on.September 2001 | Orient Aviation | 27

c o v e r s t o r yShe’s witty, she’s warm and she’s a woman.But with a hard nose for business Christine Tsung,president of Taiwan’s China Airlines, has won overthe airline’s once uncompromising ‘men’s club’CharmoffensiveBy Jonathan Sharpin Taipei” Am a s t e r p i e c e t a k e smore time,” accordingto a traditionalChinese saying, one of severalthat lace the conversation of Christine TsaiTsung, the thoroughly modern and un-traditionalpresident and chief executive officer ofTaiwan’s biggest carrier, China Airlines (CAL).The masterpiece the stylish and youthfullooking52-year-old Ms Tsung refers to is theballyhooed deal for CAL to buy a 25% stakein the cargo unit of Shanghai-based ChinaEastern Airlines, a move that carries implicationsfor Taiwan-mainland China relations farbeyond the mechanics of a mundane commercialtransaction.In an interview with Orient Aviation atCAL’s Taipei headquarters, Ms Tsung wouldnot lay down more than a vague timeframefor her masterpiece to be completed, althoughshe has previously been quoted as sayingshe hoped to seal the deal by the end ofthis year.But she made it abundantly clear thatthe project was high on her agenda. “We aremoving forward. It is my interest and intentionto conclude this deal.”She said the remaining hurdles to becleared were not so much political as commer-cial. On the latter front she spoke of “a lot ofdetails, a lot of variables. If you want to makethe deal to everybody’s satisfaction ...you needto put in a little more time”.Ms Tsung also played down suggestionsthe deal, which in recent months has variouslyappeared to be imminent and tantalizinglydistant, represented such a mould-breakingstep in tearing down cross-Strait barriers ashas been suggested.She pointed to the recently announcedinvestment by CAL and two other Taiwancarriers, EVA Air and Far Eastern Air TransportCorp (FAT) in a cargo venture in the mainland’ssouthern Xiamen airport.CAL also said in July it would team upwith Taiwan shipping firms to provide transshipmentservices to transfer goods carried by‘Females are moresensitive, morepeople-oriented,and this[aviation] is apeople-orientedworld’China Airlines president, Christine Tsung, at theChinese ships arriving at the southern Taiwanport of Kaohsiung.But the undeniable prospect is for theend of the longstanding ban on direct airlinks between the mainland and the provincethat Beijing officially regards as a renegadeprovince that must be brought to heel, byforce if necessary.Does Ms Tsung expect direct flights, withthe mouth-watering vision of tapping intothe mainland’s enormous market, to startsoon? “Hopefully,” she says. “One thing forsure, it will make my customers much happier,because my primary customers are Taiwanesemerchants and a lot go to mainland China.”Scores of thousands of Taiwan businessmenare on the mainland to support the morethan US$60 billion of investment funnelledacross the Strait into the communist giantsince commercial rapprochement blossomedin the 1980s, and at present they are obliged totravel indirectly, principally via Hong Kong.In the wide-ranging interview the CALboss, who in July marked the first anniversaryof her arrival in a job she says she did not askfor, touched on the measures she has taken tosteer CAL through turbulent economic timesand revitalise an airline with a poor safetyrecord and a hidebound culture stemmingfrom its formation by ex-air force officersin 1959.28 | Orient Aviation | September 2001

carrier’s inflight training centreDespite the economic pall hanging overmuch of Asia as a result of the U.S. slowdown,she said the airline’s passenger revenue in thefirst half of this year increased by 18.5% overlast year. “I doubt if many airlines have that(figure) in today’s market.”However cargo revenue was down 6%.Even so she insisted that CAL would meet itsnet profit target of NT$3.26 billion (US$97.4million), up 11.3% from the NT$2.93 billionachieved in 2000.Ms Tsung was more upbeat than agloomier projection reportedly made by a CALvice-president, John Chang, who was quotedrecently as saying that it would be an uphillstruggle to reach the target.“So far we have not changed our forecast,”she said. “It will not be easy, but we areedging ahead.”On the cost front, CAL has instituted aspending freeze policy Ms Tsung summed upas: “Unless you tell me you have a reason tospend it, you don’t spend it.”She is determined to avoid sappingmorale by drastic reductions in CAL’s 9,400staff, seeing it as her social responsibility tocreate jobs in the airline’s many subsidiariesor freeze the jobs of retirees.“To me money is very cold stuff. Peopleare very warm, very productive.”But with the “cold stuff” much in mind,Ms Tsung has effectively utilised her extensivebackground in financial management,including 13 years as a city finance director insouthern California.She said she had “very aggressively”attacked unit and fuel costs, the latter byhedging, and had done “extremely well” onboth fronts.China Airlines: A positive and modern image under its new presidentShe had also exploited the depreciation ofcurrencies in recession-hit countries by switchingloans to those currencies. In addition,insurance costs decreased last year by NT$800million and a further reduction was expectedthis year, although she gave no details.She pointed to CAL’s improved safetyrecord – and superstitiously tapped the woodon her chair armrest as if to make sure that arecord of four major accidents in seven years,costing more than 460 lives, would not recur.The overall aviation climate may beinclement, but CAL is continuing to build itsfleet and network, Ms Tsung said. “I personallybelieve that when the market slows down,you should gain market share so that when itturns round, your leverage is much better.”Cargo destinations to Seattle and Nashvillehave recently been added, helping to moveCAL up from tenth to ninth place in worldairline rankings in terms of cargo tonnage.On the passenger side, a new route toFrankfurt, crossing Siberia, is due to be inauguratedon September 16, and Ms Tsung’slong-haul ambitions do not stop there. “Weare negotiating new routes in both Englandand France, and we are looking at other partsof Europe and the Middle East.” Ms Tsung isenthusiastic about a new TV advertising campaignshe had just reviewed which she saidwas aimed at being aired in all 22 countriesthat the airline reaches at present.CAL’s fleet size will reach 56 with thearrival of an Airbus A340 later this year, whenaverage fleet age will be six years.Airbus Industrie’s executive vice-presidentcustomer affairs and chief commercial officer,September 2001 | Orient Aviation | 29

c o v e r s t o r yJohn Leahy, has been quoted as saying he will be surprised if CAL orEVA Air does not order the A380 superjumbo by the time the first ofthe jets is delivered in 2006.Asked to comment, Ms Tsung was careful to stress that her remarksdid not represent any commitment but added: “I could have used them(A380s) at times” on high density routes such as to Hong Kong. “Atthis point I have to wait until all the infrastructure is ready, but I willconsider when the time comes.”She was also non-committal about Boeing’s proposed sonic cruiser,which she said Boeing had “casually” mentioned to her. “If it is moreefficient, why not?”While CAL has been reported in the past to be looking for a foreigninvestor, Ms Tsung said such plans, if they existed, were not on the tableat present. “We are not looking for it because we don’t need it.”She indicated that CAL was in no particular hurry to join an airlinealliance, saying that with the airline’s present high load factors, suchan alliance might mean sacrificing some of CAL’s current yields. “Wehave a lot of partial alliances right now. Eventually, when we settledown capacity and growth, we would like to join one that would becomplementary to us.”She said she already had an alliance in mind, adding with a laugh:“But I prefer not to tell you.”Charm she may have in abundance, but there is no hiding thehard-nosed businesswoman in Ms Tsung that has helped to dissipatethe scepticism that greeted her appointment last year.Of the many innovations in style and substance she hasimplemented since taking over, she highlights a tougher policy towardsmanufacturers supplying the airline’s equipment, saying CAL managershad in the past too easily swallowed sub-standard work.“I am very sweet, very considerate, very Oriental, but I have mybottom line. I am firmer than my predecessors,” she says, possibly withdelicate understatement.Looking ahead to what she saw as a bountiful future for CAL,Ms Tsung invoked the legendary hardiness of the plum blossom thathighlights the airline’s logo.“I tell people, the more severe the weather gets, the prettier theplum blossom gets. That’s China Airlines, and we’ll get prettier. Trustme, the numbers will speak for themselves.”In the swingIn her company profile Christine Tsung listsgolf among her free time pursuits. But hergolf clubs were idle for a year until thefirst anniversary in July of her accepting theappointment as president and chief executiveofficer of China Airlines (CAL).And even when she did take time offfor a game, it was not her idea. It was herfellow managers who pressed her to relaxfollowing a whirlwind year that may haveleft Ms Tsung’s colleagues feeling it was timefor a breather as well.At least some of those colleagues hadharboured doubts about the wisdom of givingher the job as boss of Taiwan’s largest airline.After all she was a newcomer to aviationwho had spent a large portion of her careeroutside the island, and a person who in herstatement in CAL’s annual report for 2000freely acknowledged her “concerns of beingup to the task”. Moreover, she is a femalein a male-dominated environment, the firstwoman to run an international Asian airline.But a year into the job, many of thoseconcerns, both on the part of Ms Tsung andher peers, seem to have been laid to rest.“The atmosphere changed from an oldair force style to a commercial style,” said oneadmiring CAL veteran.It is also a more personal style. Staff arenow encouraged to e-mail their boss directlyinstead of being obliged to pass their thoughtsonly to their immediate superior.Away from the public spotlight MsTsungcontinues to cut a stylish figure in her raremoments of relaxation“I didn’t expect anything from this job,”said Ms Tsung, whose previous post was as aconsultant for the mass rapid transport systemin the southern city of Kaohsiung and whohad spent 13 years as a city finance directorin southern California.“But it’s been one of the most excitingyears of my life, very challenging, very rewarding.”And she has no qualms about workingwith men. On the contrary. “I enjoy everyminute of it because they give me a lot ofattention. They are not macho at all.“Personally I didn’t feel anything differentfrom any job I have had. In all the jobs I havehad I have been mostly surrounded by men.Females are more sensitive, more peopleoriented,and this is a people-oriented world,“ said Ms Tsung.Describing her work style, the presidentsaid she spends most of her time on the bigissues. “But I don’t get into the nitty-gritties.I delegate, I give people responsibility andauthority, and they are happy. People enjoyworking with me because I make the jobenjoyable.”Enjoyable, but not necessarily easygoing.Ms Tsung describes herself as happy-go-lucky,but then adds: “I don’t have any personal lifeany more, but that’s fine. My friends sendme e-mails, flowers. We may not spend somuch time doing fun things, but they are veryunderstanding.”They may have to be understandingabout Ms Tsung’s lack of time for fun thingsfor some while, as she makes clear her task atCAL is by no means complete.“I feel there is more room to improveChina Airlines,” she said.30 | Orient Aviation | September 2001

i n f l i g h tBy Jonathan SharpGrant Jeffery is not exactly a disinterestedparty when he says:“As a frequent flyer I have lost countof the number of times in the past I havedesperately needed to send an e-mail duringa long flight.”As vice-president airline programmes forSeattle-based Tenzing Communications Inc,Jeffery can be expected to be an energeticbooster of his company’s inflight productsnow being trialled or introduced on a handfulof airlines.Singapore Airlines may have been able toclaim bragging rights as the first Asian airlineto offer global e-mail and Internet serviceswith the first Tenzing-equipped flight leavingSingapore for Los Angeles on April 22.But rival Cathay Pacific Airways, whoseinterest in Tenzing includes a US$10 millioninvestment for a 10% stake in the company,is hard on its heels. It has begun rolling outthe Tenzing service with 21 aircraft due to beequipped by the end of 2001 and with thesystem installed on the entire fleet by 2003.In June, at the biennial Paris air showin France, Finnair and Varig, members likeCathay of the oneworld global alliance, announcedcommencement this year of trialsof the Tenzing system on selected aircraftin their fleets. Air Canada has conductedan extensive trial on four aircraft servingCanada-U.S. routes during the last 12 monthsand has said it will equip its entire fleet withthe Tenzing system. Virgin Atlantic Airwaysalso said it would install the Tenzing systemonboard its aircraft.The Cathay-Tenzing service would be providedfree until the end of the year. That’s thegood news. However, from January there willE-MAIL CLICKSINTO GEAR ONBOARD CATHAYE-mail on board Cathay Pacific Airways:Tenzing Communication Inc.’s e-mail andInternet system to be installed fleet-wide onthe carrier by 2003be an introductory offer in which passengerswill pay US$9.95 for a 24-hour period. Jefferysaid the amount would enable passengers tocheck an unlimited number of e-mails. ThereNicol at Tenzing helmIn August, Ed Nicol, a 25-year veteran ofthe Swire Group, who most recently hasbeen running the 11 kitchens region wide forCathay Pacific Catering Services, took over asthe new chief executive officer of TenzingCommunications Inc.Nicol successfully ran the three airlinepremium class frequent flyer programme(FFP), Passages, until the airline partners– Cathay Pacific Airways, Singapore AirlinesMalaysia Airlines – decided to set up individualFFPs three years ago.He takes up the job six months afterCathay Pacific bought 10% of the inflight e-mail and Internet company and two monthsafter Airbus Industrie bought a 30% stake inTenzing in what the parties call “a strategicpartnership”.Airbus said in a June statement that Tenzingis valued at US$148 million and it is nowthe aircraft manufacturer’s preferred supplierfor inflight e-mail and Internet solutions.The Tenzing system will charge passengersUS$4.95 for unlimited access to the titles andsenders of e-mails throughout North America,said Airbus. “Passengers would pay anotherUS50 cents or so to read or send each pageof text,” said Airbus. Travellers also will havefree access to websites, chosen by Tenzing andeach airline, as part of the service.will then be a per kilobyte charge for sendingand receiving e-mails.Users will be able to send attachments,but they may need to pay an additional feeto send and receive large attachments. Tenzingemploys a mail management system thatasks users if they wish to receive attachmentsover a certain size.Customers, who give their credit carddetails when they register for the service, aresent itemised bills. A limited – but expanding– amount of regularly refreshed Web content,which will include coverage of news, business,technology and sport, will remain free.Tenzing notes there are 40 million frequentbusiness travellers worldwide and inthe U.S. alone 2.7 million frequent businesstravellers are away from home for an averageof 98 days per year.The technologically-challenged may bedaunted by the system. Is the whole worldreally sure what USB cables are? Well, Tenzingadvises that to access the service on CathayPacific, users must have them to connect tothe onboard server.Tenzing gives the assurance that passengersrunning into hurdles during flight canmake a free call to a hotline number in Seattlefor 24-hour help to solve problems. There arealso instruction cards on board.But Jeffery said sending e-mails from30,000 feet is just like doing it at home or theoffice. The difference is that instead of themessages leaving the aircraft immediately,they are bundled so that there is a 5-15 minutetime lag before delivery. The same applies toarriving messages.Competitors, notably Boeing, have sniffedthat the Tenzing system is a limited pathfinderthat does not provide full real-time e-mailservice or full Web-surfing capability.On Cathay aircraft, the Tenzing service willbe available in first and business classes and aportion of economy class. The thinking is thatnot all economy class passengers are laptopcarriers. On the technical side, equipping allaircraft seats with the Tenzing system wouldrequire installing an extra server.32 | Orient Aviation | September 2001

h e l i c o p t e r sBuying powerAnd its all in the name of saving lives.How do you persuade your bosses topart with US$93 million to buy newhelicopters when the ones you havealready are modern, in excellent shape andapparently adequate for the job in hand?No problem, said Captain Brian Butt, Controllerof the Hong Kong Government FlyingService (GFS), which is about to start takingdelivery of three Eurocopter AS 332 L2 SuperPumas and five Eurocopter 155 B1 machines.They are to replace the current GFS fleetof three Sikorsky S70 Blackhawks and sixSikorsky S76’s, which are familiar sights inHong Kong skies in roles ranging from casualtyevacuation, search and rescue, firefightingand police operations to flying VIP visitors onsight-seeing trips above Hong Kong’s spectacularskyline.Replacing the powerful Blackhawks,which were bought new in 1994 and eachhave a mere 3,000 hours or so on the clock,may seem a particular extravagance. But theyhave their drawbacks for their particular rolesin Hong Kong, said Butt. The main one is that,versatile and effective as they may be while inthe air, they cannot float, which restricts theiruse over water.“The Blackhawk has been very useful tous, but we want to expand our search andrescue capability from 100 nautical miles to200 nautical miles,” he explained. Hence theSuper Pumas, which in addition to flotationgear have avionics enabling them operate atnight and in all weathers.Another difficulty is that the Blackhawk,basically a military machine, is embargoedfrom Mainland China, and while the embargodoes not affect Hong Kong – even after Chinaresumed sovereignty of the territory fromBritain in 1997 – problems do arise.“When we want to have spare parts, wehave to go through a lot of procedures andthis creates inconvenience for us,” said Butt.Under the rules, even parts that have becomeunserviceable have to be sent back to theUnited States for disposal. “Since the handover(to China) we have to be even more careful.”As for the present fleet of S76’s, themain shortcoming cited by Butt is a limitedpower margin, which curbs their ability to, forexample, land on hospital roof helipads. WithController of the Hong Kong GovernmentFlying Services, Capt Brian Butt:expanding search and rescue capabilitythe new helicopters, Butt wants to introduce aservice in which his pilots can land on highwaysto rescue victims of traffic accidents.Butt said that once these points in favourof the new equipment were put to the pursestring holders, there was little difficulty ingetting the go-ahead for the purchases.Two GFS aircraft that are not due tobe replaced are fixed-wing machines, BAEJ41’s, whose major responsibilities lie withsearch and rescue operations. But they alsohave a more unusual role: pinpointing illegalpager operations in Mainland China that affectflight safety by creating radio frequencyinterference.GFS, which Butt said is the biggest government-runcivilian operation of its type in theregion, currently has 30 pilots – almost all ofthem locals and including one woman – for its24-hour services, in which saving lives takes absolutepriority over all other duties, includingthose in support of police operations. Butt sayshe has advertised for two more pilots – andreceived no less than 700 applications.That would seem to be a generous talentpool, but in a three-month selection processabout half get rejected for failing eyesighttests. Others get weeded out for lack of leadershipabilities.“Leadership is a very important element inour selection, and unfortunately the educationin Hong Kong does not train people in goodleadership,” says 47-year-old Butt, who wasonce rejected by Cathay Pacific Airways andserved as a police inspector before flyingfull-time with what was then called the RoyalHong Kong Auxiliary Air Force.There is also a cultural problem in findingthe right recruits. “Parents want their childrento become doctors, lawyers, engineers orbusinessmen. No one wants them to be a pilotbecause they think it is very dangerous.”But of those accepted by GFS, very fewchoose to leave, partly because of pay scalescomparable to those in the private sector and– a big incentive in expensive Hong Kong – freeaccommodation.Training continues during the career– including a six-month stint flying in therugged environment of the North Sea.Pilots also receive training in Singaporeon underwater escape techniques in whichthey practise on a sunken mock-up aircraft,including white-knuckle drills with traineesblindfolded.Orient Aviation will feature helicoptersstories from the region on a regular basis. Ifyou have a heli-service in region and have astory to tell call us on (852) 2893 3676One of the Hong Kong bound Eurocopter AS 332 L2 Super Pumas on show at the Paris Air34 | Orient Aviation | September 2001

S p e c i a l R e p o r tAIRPORTSThailand • Hong Kong • New Zealand • South KoreaChina • Australia • Macau • The Philippines • JapanAirports Council International chiefoffers an olive branch to the airlines ...Rising aeronautical charges are a constantirritation to airline managements,who have seen fees at new and modernisedairports hit their hip pockets hard.But the world’s airports believe carriersare way off beam with their complaints.TOM BAL-LANTYNE talks to the directorgeneral of Airports Council International(ACI), Jonathan Howe.Jonathan Howe is puzzled. He understandsconsumers in the street aregoing to complain about the price ofgasoline, but he does not see why airlinesare constantly complaining about the levelof airport charges.“I have never understood why this issueshould be one where they have divergentinterests.“To me their interests should be identicalto the airport because the alternative is thateither the airport goes out of business or theairline pays a hundred percent, a lot more thanthey are paying now,” he said.The ACI represents more than 1,260airports around the world and Howe arguedairlines are “sophisticated” users and shouldbe able to understand the essential equation;if airports do not diversify their revenue base,airlines will end up paying the entire cost ofoperating an airport.“This diversification of revenue worksdirectly to the airlines benefit because it holdsairline costs down, assuming the airlines areinterested in modernising, expanding, capitalimprovement and all these type of things,”he said.That diversification was highlighted inLET’S PULLTOGETHERACI director general Jonathan Howe: airlines and airportsshould ‘not have divergent interests’September 2001 | Orient Aviation | 37

s p e c i a l r e p o r tthe latest Airport Retail Study published byconsultants Arthur Anderson. Analysis ofthe retail performance of 31 internationalairports that handle 968 million passengersannually, 30% of the world total, showedtheir gross retail sales through 4,965 outletswere US$11.9 billion.Airlines believe since passengers arepassing through airports to catch their flights,all revenue should be taken into accountwhen their fees are calculated.At the heart of the airline versus airportcharging debate is a disagreement overwhether fees for airlines should be workedout on the basis of the so-called “single till”or “dual till” system.Airlines argue money from non-aeronauticalactivities – retail, parking and otherrevenue – should be lumped together withaeronautical income into a single total andtheir fees determined on that basis. Airportswant the two kept separate and the fees paidby airlines worked out solely on the return oninvestment based on aeronautical charges.“The airline argument is if you consolidatedall of those revenues then they wouldpay less. What it completely ignores is thatthe airport has got to provide some way ofattracting investment capital so it can expandand do what it needs to do,” said Howe.The ACI has seen dramatic evidence of thisin work done on airport privatisations. “Whatthe bond rating companies, the investmentbankers and others are looking for in theinvestment appeal of an airport is if it has anattractive, stable non-aeronautical revenuebase,” said the director general.“People understand an airline can comein today and go tomorrow and if an airlineall of a sudden pulls out that obviously hasa dramatic affect on the revenue base of anairport. Diversification of the revenue base iswhat really makes the airport viable in a commercialsense from a long-term standpoint.The airlines must understand that this revenuebase is in their best interests just as it is in theairports’ best interests.”But how does he feel when an airport announcesit is proposing to double its chargesas was the case with Sydney Airport? “I amfamiliar with what happened in Sydneybecause we did some statistical analysis forthem. For an enormously long period of timeSydney’s fees were way, way, way belowthose charged at the average comparableairport, particularly in Europe. So the airlineswere getting a heck of a good deal. The airlineswere in effect being subsidised by otherforms of revenue,” said Howe.He argued new airports on greenfieldHowe, a manof many partsJonathan Howe has not always been anairport man. He began his aviationcareer nearly 40 years ago when hereceived his first pilot’s licence in Santiago,Chile. Since then, he has been involved inalmost every aspect of the business as apilot, lawyer and administrator.During his many years with the U.S.Federal Aviation Administration (FAA) heoversaw the certification of new aircraft,directed the FAA’s legal and regulatoryactivities and was administrator of theauthority’s largest region.During this time he played a pivotalrole in the first widespread use of satellitesand implemented an airspace system planfor the Caribbean and Central America.After leaving the FAA in 1986, Howebecame president and chief executiveofficer of the National Business AircraftAssociation (NBAA), headquartered inWashington DC.Before joining ACI in 1997, Howe wasa partner in the Washington DC law firmof Zuckert, Scoutt & Rasenberger wherehe was involved in the firm’s extensiveinternational aviation practice.sites also represent risk for airport investorsand airlines can hardly complain aboutincreased fees when there is enormouscapital investment involved, such as at HongKong’s Chek Lap Kok and Japan’s New Kansaiairports.The new airport at Denver, Colorado,is an example. “When they set out to buildit the two principal users were United andContinental Airlines and both said: yes, we’llagree to what this entails. Yet when theyfinally got it built and charged fees high byU.S. standards, Continental said goodbye andpulled out.“That’s the problem an airport has. Theydo it with the knowledge and commitmentof the airlines and then all of a sudden theairline decides to go somewhere else. They’releft holding the bag and in Denver’s case thatwas a big blow.“When airlines start talking about airportsbeing monopolies and that they don’treally have any control, the airlines have anenormous amount of control because airportscannot move their assets around whereas theairlines can move them around.”Howe believed it would be extremelydifficult to come up with a common standardfor airport charging. “The first problem is youare dealing with different currencies and costbases. I don’t know if it would be possible tocome up with a uniform system. At least inthe near term it is going to be between anairport, or at least a group of airports, and agroup of airlines.”Airports have a host of issues to confrontin their efforts to meet the rising demand formore capacity, including air traffic control(ATC) congestion, the environment andcapacity constraints.Older airports around the world – suchas London Heathrow, Amsterdam’s Schiphol,Los Angeles and Sydney – are under severepressure, but have little space available to addcapacity. “You have to look at other alternatives.You face such issues as how long it takesto build a new airport and raising the money.All over the world you have to jump throughhoops to satisfy all kinds of federal, state andlocal requirements,” said Howe.There is no doubt that without environmentalconstraints – curfews, noise limitations,movement caps – there could be anenormous increase in the capacity of a numberof airports around the world, he added.An airport was unlikely to want toinvest a large amount of capital expandingin infrastructure if it is going to have an environmentalcap or ATC limitations, said Howe.“Airports will do their utmost to try to expandtheir infrastructure, but there is no point inthem trying to do it alone. We have to havethe ability to squeeze more real time capacityout of the ATC system and out of relaxingenvironmental restrictions.”He is not advocating wholesale relaxingof limits. “Airports want to be responsibleneighbours. They understand noiseproblems.“For instance, the airports of Korea havea wonderful programme of working withtheir neighbours as has Japan’s Narita airport.Most major airports have such programmes.In many parts of the world the neighboursin closest proximity are on the side of theairport.“They are no longer the complainers. It’sthe people who live 30 miles from the airportwho end up protesting.”The problems of airport capacity aresolvable, but those involved must be realistic,he urged.“There are some things that are easier todo than others. The environmental side of italways has been about compromise. We arenot likely to ever find a perfect solution toevery place in the world in that area.”38 | Orient Aviation | September 2001

s p e c i a l r e p o r tTIME FOR ACTIONIt has been forty-one years in theplanning, but a cloud still hangs overthe future of Bangkok’s proposednew international airport hub. Now,international and local aviationofficials are warning further delaycould cause Thailand serious economicdamage. TOM BALLANTYNE reportsfrom Bangkok.When Thailand’s Prime Minister,Thaksin Shinawatra, announcedin July he would step in andpersonally oversee the US$2.6 billion NewBangkok International Airport project, ensurecosts were kept down and that constructionwould be completed in 2004, it brought norelief to the frustrated airline community inBangkok.They all know about the political machinationsthat have dogged the developmentfor more than four decades. They know onlytoo well there are no guarantees that Thaksinwill be prime minister in four years time andthat, if not, his replacement may have differentideas. Ultimately, they will only believetheir own eyes when the doors open towelcome the first passengers.Dogged by controversy, construction ofSuvarnabhumi Airport – previously knownas Nong Ngu Hao – has been repeatedlypostponed and even cancelled at one stage.There is now growing concern in Thailandand elsewhere that if it is not completed thistime, the ramifications could be serious forThailand’s position in the region.The International Air Transport Association(IATA) has expressed its concern.Corporate communications director, WilliamGaillard, has warned any further delayswould “not only damage the tourism andaviation industries, but also the country’seconomy”.Lt-General Bunchon Chawansin,the spokesman for the New BangkokInternational Airport Company (NBIAC), saidanother construction postponement couldjeopardise Bangkok as a global airport hub.He disclosed British Airways had warneda delay would force airlines, particularly longhaultrans-continental flights, to switch theirhub from Bangkok to Singapore.The existing Don Muang InternationalBangkok’s Don Muang airport will reach its design capacity this yearAirport is expected to reach its saturationpoint of 35 million passengers this year. “DonMuang airport is getting too congested.Flights, particularly on the Australian routes,which have to stay overnight, are likely tochoose other countries as their hubs if thenew airport is not completed on time,” saidLt-Gen Bunchon.Thailand’s need for a new facility hasgrown critical as neighbouring nations raceahead with development of their own airporthubs. Singapore Changi International Airportcontinues to expand and Malaysia’s greenfieldsKuala Lumpur International Airport hasbeen in operation for three years. Other majorairport developments in the region, such asHong Kong and Seoul, have left Bangkok wellbehind in international airport facilities.The Suvarnabhumi project was firstlaunched in 1960. The plan has since passedthrough the hands of 15 premiers and 30cabinets. There have been disputes about itssize and design, alleged corruption in contractawards and if Thailand could afford a newairport. During the Asian economic crisis theproject was cancelled altogether in favour ofa scheme to expand the existing airport.IATA said projections suggest Thailandcould lose 9.8 million business and leisurevisitors as well as 3.8 million other travellersin transit to other destinations if its airportsare unable to handle the traffic. It warnedadditional losses would be substantial ifthe deadline was not met, especially ifDon Muang was not upgraded to handleincreasing traffic in the interim.Even if the Suvarnabhumi airport doesopen on time, the second phase will not beready until 2006, which means Thailand willoperate a split-airport system for more thantwo years. The plan involves opening thefirst phase of the new airport in 2004, withannual capacity of 30 million passengers, andthe second phase in 2006, with capacity for50 million passengers. To operate from bothairports airlines will face huge cost overruns,according to IATA.Don Muang now handles about 80 airlines,but several carriers, including Germany’sLufthansa, have already moved their regionaloffices to Singapore from Bangkok.While many industry insiders remainsceptical the airport will be completed onschedule, Lt-Gen Bunchon is optimistic aboutthe prospect. After prime minister Thaksin visitedthe site the airport spokesman declared:“He is the first premier to come to the site.This is a good omen. Malaysian and Singaporeanairports were completed on schedulebecause their premiers were hands-on.”Indeed, Thaksin has stepped in to personallynegotiate with the project’s majorfinancier, the Japan Bank for InternationalCooperation (JBIC), to ensure it accepts anamended – and cheaper – design for one ofthe facility’s most controversial projects, thepassenger terminal. One of the difficultiesin implementing plans is under its lendingterms, the JBIC requires Thailand to seek itsapproval for the selection of all the project’scontractors.Thaksin is insisting the terminal design bealtered to make more use of local constructionmaterials, reducing the cost from US$1.2 billionto US$790,000, but this adjusted designhas been opposed by the JBIC. “I will convincethe JBIC to accept changes to the passengerterminal design and the accompanying reducedconstruction costs,” said Thaksin.Whether he can remain in office longenough to make good his promises is anothermatter altogether.40 | Orient Aviation | September 2001

s p e c i a l r e p o r tHKIA records first profit and clinches top award, but third anniversary brings ...A sense of dejà vuBy Jonathan SharpChaotic scenes at Hong Kong InternationalAirport (HKIA) as it marked itsthird anniversary in early July wereeerily reminiscent of those at the opening,with thousands of frustrated passengers facedwith delayed or cancelled flights milling aboutthe terminal, venting their anger on staff andphysically confronting security personnel.But unlike the airport’s embarrassingopening in 1998, when computer faults andother troubles resulted in a public relationsdisaster, the problems on this occasion couldnot be blamed so easily on the controlling body,the government’s Airport Authority (AA).A particularly troublesome typhoon,Utor, was buffetingnot justHong Kong at thetime but Taiwan,south China andthe Philippines aswell, putting theregion’s air trafficinto what the AAtermed gridlock.Industrial actionby Cathay PacificAirways pilotscompounded theproblem.Nevertheless,the AA and itsrecently appointed chief executive, DavidPang, came in for storms of criticism. AlbertCheng, a popular and outspoken local radiotalk show host, accused Dr Pang of beingslow to respond to the havoc and quick toshirk responsibility, noting he has no previousexperience of managing airports.As a result when Dr Pang presided overthird anniversary ceremonies (which weredelayed several days because of the badweather), he was obliged to spend a largeportion of his press conference patientlyexplaining what had gone wrong and whatneeded to be fixed.He expressed regret for the disruptionand stressed the importance of improvingcommunications with business partners andthe public. He also pledged to ensure strandedpassengers would have essential needs such aswater, blankets and food.Doubtless he would have preferred tospend more time dwelling on the more positivedevelopments at the airport in the past year,including the survey by British research firmSkyTrax that named Hong Kong as having theworld’s best airport for 2001.The airport at Chek Lap Kok off LantauIsland has also showcased plans to improvepassenger services, including vastly expandedretail and food/beverage outlets, an area thathas previously been seen as the weakest linkin the airport’s package of facilities.Among new attractions are shower rooms(US$8.35 a visit), napping areas, specialistcoffee counters and new web-based servicesproviding updated flight information andallowing passengers to pre-order duty freegoods and collect them at the airport.Also, the AA announced its first annualprofit, making HK$71 million (US$9.1 million)for the year to March 31, compared with a lossof HK$168 million in the previous year.The results would have been better butfor the authority’s decision to cut landing andparking fees by 15% from January 1, 2000in response to airline pressure. The AA saidthe reductions would be maintained for thefinancial year beginning April 1.Authority officials have reiterated that aprime task is to ready the airport for eventualprivatisation. Although no timetable has beendisclosed, some analysts have spoken of 2004as a target date.The past year has seen the opening of amarine cargo terminal at the airport’s edge aspart of its strategy of building links with theeconomically dynamic Pearl River Delta regionadjoining Hong Kong. The terminal enablesair cargo to be ferried by barge to and from16 ports throughout the Delta, a supplementto busy land routes. Also on the cargo front, acontract was signed this year with an internationalconsortium to build and operate HongKong Tradeport, a 28,000 square metre logisticscentre to develop supply chain managementin Hong Kong.Airport officials lay great stress on theneed for integration with the Delta as a conditionfor growth, and understandably playdown concerns that Hong Kong’s intermediaryrole will be erodedas China joinsthe World TradeOrganisation andmore traffic flowsdirectly betweenthe mainlandand the rest ofthe world. Themantra – by nomeans universallyaccepted – is thata bigger trade piewill be sufficientfor all, and HongKong’s superiorskills and facilitieswill offset the lower costs available on themainland.Much effort – and expense – is being putinto a new masterplan called the StrategicOverview of Major Airport Development(SOMAD) aimed at providing a blueprint tomaximise the airport’s traffic potential.AA officials disputed a report in HongKong’s iMail newspaper that consultantsworking on part of the masterplan had beentold to revise their proposals for terminal andcommercials projects for being, at HK$15 billion,too costly.One strong recommendation on the tableis for Hong Kong to develop facilities for expresscargo. “They found that express cargowould be a sensible way to go,” the spokesmansaid. It’s a faster growing segment.”Hong Kong International Airport: made a healthy profit in only its second full year of operation42 | Orient Aviation | September 2001

New Zealand’s biggest airport,Auckland International, is bracingitself for a tough fight with thecountry’s competition watchdog overproposals to impose price controls on someof its services, writes Tom Ballantyne.A July recommendation by the CommerceCommission could affect up to one third ofthe airport’s US$70.8 million annual revenue.Airport owner, Auckland InternationalAirports Ltd (AIAL), has expressed “completesurprise” at the proposed move and promiseda “forceful and comprehensive submission”in response.It is angry at two key components of therecommendations contained in what is still adraft report. One point of contention is thatAIAL should not be allowed to earn returnsfrom land held for future runway and airfieldexpansion. The second is the recommendedvaluation methodology relative to runways,taxiways and apron assets. AIAL said thesuggested system is inconsistent with normalpractice applied now and accepted in otherregulated New Zealand industries.Airport managing director, John Goulter,Auckland angry atprice controls threatsaid the regulator’s proposal is based on itsview the airport should not earn money offvacant land it has earmarked for a second runway.The second runway will be required foraircraft operations around 2007 and any saleor development in the meantime will increasethe cost of the project later, he said.Goulter said the commission’s preliminaryrecommendation also was based on assetvaluations at historic costs, although theairport values its assets at replacement cost,including depreciation.The prospect of price controls hit the airport’sshare price, which immediately dropped8%. The airport is 7%-owned by SingaporeChangi International Airport.“If the company is forced to divest this assetdue to an inability to achieve a return on it,then this would seriously affect the company’sability to deliver the necessary infrastructurewhen required and would inevitably increasethe cost in the event of the later repurchaseof the land involved,” said Goulter. “Given thepressure already on much of the infrastructureof the Greater Auckland area, it would haveto be a retrograde step that sees long-termplans for New Zealand’s gateway airport andkey support provider of the tourism industry,the wider New Zealand and Greater Aucklandeconomies, frustrated in this manner.”The commission’s report is due in November.A final decision on the recommendationswill be made by the New Zealand Government.The airport is expected to report profits ofaround US$24.6 million for the 2000-2001 year.Income in the first half, ending December 31,2000, rose 13% to US$11.7 million. The airportis a transit point for 70% of all tourists to NewZealand.Macau acceptscargo challengeThe threat of the introduction of direct air links betweenTaiwan and China has hung over Macau Airportsince it opened in 1995. Take away the Taiwanese and mainlandChina passenger traffic and there is not a lot left.But as a new China – Taiwan Air Services Agreement allowsfor the introduction of cargo flights, cargo is seen as one ofthe keys to future success and Macau Airport and its airline,Air Macau, have started to tap that potential.The airport operator, CAM Macau International AirportCompany, has said its goal is to claim 10% of the air cargomarket in the Pearl River Delta, which is put at three milliontonnes a year. In 2000, Macau Airport handled 68,084 tonnesof cargo. To snare 10% of the market with the likes of HongKong, Guangzhou and Shenzhen breathing down their necksin the region, is quite a challenge.For starters, Air Macau has chartered Malaysia’s TransmileAir Serices to fly a B727 freighter between China, Macau andTaipei. A second aircraft will be introduced in October.As well, twice weekly charter flights between Huangshan,in China, and Macau were launched by China Eastern Airlinesin August using a B737-400.September 2001 | Orient Aviation | 43

s p e c i a l r e p o r tChina’s Shenzhen Airport: one of the five airport members of the Pearl River Delta ForumPower to the DeltaRepresentatives of the five airports of Greater China’s PearlRiver Delta (PRD) pledged to work more closely togetherat the inaugural meeting of the PRD A5 Forum in HongKong recently, said a press statement released by the group afterthe first gathering.Forum delegates were senior vice-general manager ofGuangzhou Baiyun International Airport (Group) Corp., JiaoXinping, Macau Airport chairman, Joao Manuel de Sousa Moreira,chief executive officer of theAirport Authority of Hong Kong,Dr. David Pang, vice-president of the Shenzhen Airport GroupCompany, Tang Shenhua, and chairman of the board of ZhuhaiAirport Group Corp., Feng Zhaoming.The airport bosses said they discussed the roles of each of theairports in the region’s economic development. They also agreedto work on common interests such as cross border and boundarytraffic management issues, tourism, intermodal transport links,developments in China’s aviation industry and the impact ofChina’s entry to the World Trade Organisation on PRD airports.The next PRD A5 Forum will in Shenzhen in March, 2002.Incheon defies the doubtersOn July 1, South Korea’s showpiece airport,50 kilometres from downtownSeoul, was 100 days old. To mark theoccasion, the chairman and chief executiveof the US$5.5 billion Incheon InternationalAirport (IIA), Kang Dong-suk, declared, withobvious relief, that daily income at the newfacility was 70% higher than at the South Koreancapital’s former global gateway, crampedand shabby Kimpo.He added: “The airport has exceeded allexpectations and we are now planning for thesecond phase of construction at IIA,” alreadya 24-hour facility.Like Hong Kong International Airport,IIA experienced problems with its baggagehandling system when it opened on March 29this year. Said Kang: “The baggage handlingsystem has been fully automated since Mayand is now operating smoothly – at this stageit is working at 37.6% of its capacity.”At press time, 43 airlines were using IIAto service routes to 103 cities worldwide. InIncheon International Airport chiefexecutive Kang Dong-suk: “In the 20thcentury Singapore and Schiphol Airportsprovided the best service to passengers.In the 21st century it will be Incheon.”July, the latest figures available, an averageof 302 flights a day used IIA, carrying 53,000passengers and 4,726 tons of cargo.On August 14, after an 18-month implementationprogramme, IIA’s new air trafficmanagement system, designed and built byThales ATM and South Korea’s Hanjin InformationSystems and Telecommunications,became operational. The system, which alsoprovides air traffic management for KimpoAirport, includes a Eurocat 2000 Air TrafficControl System, airport surface detectionequipment produced by South Korea’s ParkAir Systems and two sets of solid state approachradars and monopulse secondarysurveillance radars.At IIA’s opening Kang said his goals werefor IIA to become one of the top three cargoairports in the world by 2004 and for transferpassengers to make up at least 30% of travellerspassing through the airport within thesame three year time-frame.“In the 21st century Incheon will providethe best service in the world for travellers,” hedeclared, as IIA marched forward from its first100 days of operations.44 | Orient Aviation | September 2001

By Tom BallantyneThe new owner of Australia’s primarydomestic and international hub,Sydney’s Kingsford Smith Airport, couldbe decided by the end of October. The victor,likely to be buying into a rich source of revenueas well as a few ongoing problems, may haveto pay up to US$2 billion for the prize.There has been little open lobbying by theprospective candidates following a warningfrom the government’s Office of Asset Salesand IT Outsourcing (OASITO), which is organisingthe sell-off, that they should not play theirbids out in public.While an official list of bidders was notreleased following the mid-July deadline forprospective buyers to submit non-indicativebids, the main players are all consortiums:• Southern Cross: Macquarie Bank, CommonwealthBank of Australia (CBA) andGerman airport operator Hochtief.• Sydney Gateway: Hastings Funds Management,insurance group AMP, DeutscheBank, Hong Kong’s Cheung Kong Infrastructureand Canada’s CDP Capital. Britishairport operator, BAA, has a non-exclusiveconsulting role.• Connect: ABN-Ambro, Egis of France andSchiphol/FAG of the Netherlands.Under the terms of the offer Australianinvestors must own a minimum 51% of theairport. Since July, the preferred bidders havehad access to special data rooms to studythe airports highly confidential operationaldata, the information they will use to decideprecisely what to offer for the facility.Investors are keen to win a stake inSydney Airport because, like all airports, it isa virtual monopoly business. The hub handlesabout 40% of all international passengertraffic moving through Australia as well ashalf the country’s air cargo.Insiders suggest the airport will post solid10% underlying earnings growth annually.“Our estimate is ROA (Return On Assets) nextyear of 6.9%, rising to 9% by 2005,” said theairport’s chief executive, Tony Stuart.The sale price for Sydney has beenboosted by an estimated US$600,000, followinggovernment approval earlier this year of anear doubling of airport charges. That movecaused anger among airlines, but in one fellswoop lifted the airport’s annual revenue byaround US$45 million.Another potential concern, the possibilitya second Sydney airport might be built atsome stage in the future, providing seriouscompetition for Kingsford Smith, has beenneatly sidestepped.New Sydney airportowner will facetesting issuesSydney Airport: strong assetWhile the proposed Badgery’s Creekairport, in Sydney’s western suburbs, hasofficially been put on the shelf for the timebeing, government has eased concerns forbidders by saying the winning contender willhave first right of purchase on any secondfacility that is built.The winner also will receive an extremelyefficient and modern facility, thanks to ahuge spending splurge over the past fewyears to ready it for the 2000 Sydney OlympicGames. Indeed, the International Air TransportAssociation (IATA) Global Airport Monitorranked Sydney Airport as the world’s “bestin class” for international airports for the year2000, up from tenth place the year before.The airport has been praised by internationalcredit rating agency Standard & Poor’s,with its associate director of corporate andinfrastructure ratings, Parvathy Iyer, describingit as a “very strong asset” with strong growthprospects. “We view the current managementas quite positive. It’s a very well run airport,”she said.However, she did sound a warningthat the airport could receive a credit ratingdowngrade after privatisation, regardless ofthe buyer. Iyer said she would not be surprisedif the ratio of debt to equity, or gearing, roseto 75% from 40% after the sale, based onother similar airport sell-offs. S & P currentlyrates Sydney Airport with a long-term creditrating of A-plus, with negative outlook and ashort-term rating of A1.Iyer believed the rating could easily fall toBBB if the gearing rose to 75%, as was oftenthe case in an airport sell-off. “If the gearing’sgoing to go up to 75%, that is definitely goingto be a trigger for a downgrade,” she said.The new airport owners will have other issuesto confront, apart from airline complaintsabout levels of charges. Already touching thelimit of its capacity during morning and lateafternoon peak periods, there are seriousconstraints on expansion. The airport operatesunder a strict government-imposed capof 80 aircraft movements an hour as well asan 11pm to 6am curfew.Because the airport is close to the citycentre and heavily populated areas there arerestrictions on flight paths for environmentalreasons.And, like many big airports, it facesconstant attention from local protest andgreen groups fighting issues such as noisepollution. They are steadfastly opposed to anyhint of expansion or easing of environmentalrules.September 2001 | Orient Aviation | 45

s p e c i a l r e p o r tJapan’s aviation authorities are considering radical changes to flight routes andconstruction of a fourth runway at Tokyo’sHaneda Airport as part of a new strategyto increase traffic flow and ease congestionon the country’s major airways.If a study of the runway addition supportsthe move it could lead to the scrapping of earlierplans to build a third airport in the Tokyometropolitan area. It may also strengthenmoves aimed at allowing more internationalflights to use Haneda, which currently handlesonly a handful of offshore services.The Ministry of Land, Infrastructure andTransport has included US$41million in itsfiscal 2002 budget for the Haneda runwaystudy.Under consideration will be a 2,500 metrerunway on reclaimed land, running parallel tothe current Runway B and located southeastof the other runways.An existing study group looking into thethird airport option has been told the HanedaTokyo may scrapits third airport planexpansion plan will now take precedence.Ministry officials believe it will be cheaper toadd a runway to Haneda, which already hasrail and road connections.The runway could take more than 10 yearsto build, but it would lift the airport’s trafficcapacity to 400,000 take-offs and landings ayear from the current 275,000.Meanwhile, ministry officials have foreshadowedwork on new routes into Hanedaas well as the introduction of simultaneouslanding operations at Tokyo’s major internationalfacility at Narita, with the aim of improvingtraffic flow and lifting capacity.The changes will come into affect in Maynext year when an interim 2,180 metre secondrunway will open at Narita in time for the 2002soccer World Cup, being co-hosted by Japanand South Korea.Simultaneous landings using parallelrunways to help reduce peak hour delayswere introduced for the first time in Japanat Haneda airport in March, but at presentit remains the only airport in the country toallow such landings.Narita handles 370 flights a day. This willrise by 48% to 546 when the second runwayis opened. The airport has only one 4,000metre runway.The ministry also has begun a reviewof flight routes around Kansai and Osakaairports.‘Exhorbitant’ rates anger airlines as...PAL says ‘no’ to new terminalPhilippine Government aviation officials may be celebrating thestart of work on Manila airport’s third terminal, but the projectis already the focus of heated debate with national flag PhilippineAirlines (PAL) announcing it will boycott the facility because of proposedhigh charges.The US$500 million Ninoy Aquino International Airport Terminal 3(NAIA 3) is on a site at the former Villamor military air base, which abutsManila’s commercial facility. Due for completion by December 2002, itwill handle 13 million passengers a year, replacing the 20-year-old NAIATerminal 1, which passed its planned capacity of 4.3 million passengersmore than two years ago.The problem for airlines, already hit by rising airport fees internationally,is a planned 10-fold increase in airport service fees, includingcharges for check-in counter rental, office space lease as well as servicefees for passenger service agents and airport ground handlers.PAL, still recovering from debilitating affects of the Asian financialcrisis and a pilot strike that almost drove it to the wall two years ago,issued a statement saying it will not transfer operations to NAIA 3,claiming the move will be financially disastrous to the airline.The Philippine flag carrier is not alone in its condemnation ofproposed fees by the Philippine Air Terminal Co. Inc. (Piatco), thecompany that won the bid to build the facility under a Build-Operate-Transfer (BOT) scheme. It expects the terminal to be fully operationalearly in 2003.Several members of the Airline Operator’s Council (AOC) haveexpressed their apprehension over Piatco control of the new terminal.Philippine Airlines: says it will boycott new terminal because of proposedhigh feesOne AOC member from a foreign airline described the company’srates and charges as “exorbitant”, warning they will hurt the operationsof the entire airline industry. “Should they maintain the high fees, wewill be forced to pass the burden on to the passengers,” he said.A number of foreign airline country managers boycotted Piatco’sofficial July topping-off ceremonies to show their disapproval. The issueis expected to be the subject of an intense ongoing dispute betweenthe contractor and airlines.46 | Orient Aviation | September 2001

Schiphol boost for KLIA?By Tom BallantyneDutch airport operator, Schiphol, ofAmsterdam, is expected to sign amemorandum of understanding forup to 30% in Malaysia Airport Bhd (MAB), thebody that runs the country’s airports, includingMalaysia’s troubled hub, the Kuala LumpurInternational Airport (KLIA) at Sepang, 70kilometres from the capital.The asking price is understood to bebetween US$250 million and US$300 million.Both MAB, 72.24% government-owned, andSchiphol have confirmed talks are taking placebetween the two parties.The involvement of a highly experiencedforeign airport operator is believed by manyanalysts to be a key to the long-term successof KLIA, which has had some major airlineswithdraw their services since it opened inmid-1998.The development appears to be a logicalstep following an announcement in June thatnational flag carrier Malaysia Airlines (MAS)has agreed to share marketing, sales anddistribution activities with KLM Royal DutchAirlines, a possible prelude to MAS joining theairline alliance headed by KLM.MAB is the manager of Malaysia’s 37civilian airports. KLIA and the former hub atKuala Lumpur’s Subang Airport (now a domesticfacility) account for half the country’spassenger movements and two-thirds ofcargo volume.Schiphol is understood to have a goodchance of reaching a deal with MAB, particularlyafter confirmation there is no truth inreports local group, Sapura, planned a bid totake over the airport company.The Malaysian government had originallyset aside 20% of MAB shares for placementto institutional investors two years ago, butthis fell through because of the Asian financialcrisis, which hit Malaysia particularly hard.Schiphol’s arrival on the scene came asMAB launched a major marketing campaignaimed at attracting new airline customers toKLIA and luring back carriers that had abandonedKuala Lumpur.Qantas Airways, Ansett Australia andLufthansa stopped flying to KLIA in 1999. BritishAirways (BA) and Aeroflot halted servicesthis year. All cited unprofitable services forthe cutbacks.Japan’s All Nippon Airways, however,Kuala Lumpur International Airport: arrivals up but more flights neededwhich had suspended flights in March, relaunchedservices in July, with flights to Tokyovia Bangkok.In April, the Malaysian Governmentannounced major cuts in airport fees toincrease business and offered new passengerflights a one-year exemption from landingand parking charges.New flights introduced by airlines alreadyserving KLIA are also being offered the feeexemption.The acting managing director of the MAB,Datuk Adnan Shamsuddin, said in August BAand Qantas had been informed they wouldqualify for the concessions if the carriersresumed services to KLIA.The airport is also moving to speed upbaggage handling and resolve passengertransport issues in its attempts to make thefacility more attractive.Despite the withdrawal of major airlines,it is claimed that KLIA has not suffered adecline in the volume of passengers. PrimeMinister Mahathir Mohamad said recentlythe number of passengers using the airporthad increased.In 2000, arrivals at KLIA rose 11.8% over1999 to 14.7 million. In the first six months of2001 passenger numbers lifted 4% to eightmillion.The average growth in passenger trafficis expected to hover around 7% in the nextfew years.In 1999, the airport was ranked third inthe world for passenger satisfaction by anInternational Air Transportation Association(IATA) survey.MAB chairman, Tan Sri Bashir Ismail, isvery upbeat about the future of KLIA andpointed to its performance levels and recognitionas a world class facility.Bashir commented that KLIA was muchcheaper to build than other new airports in theregion like New Kansai International Airport,Hong Kong International Airport and Korea’sIncheon International Airport.He said Malaysia had made the rightdecision to build the airport in 1995 when theexchange rate was RM2.50 to the US dollar.It would have been double the cost at thepresent exchange rate.Original plans schedule a second phaseof development, which would increase theairport’s capacity to accommodate 35 millionpassengers by 2008, with a third phase cateringfor 45 million passengers by 2012.September 2001 | Orient Aviation | 47

B U s i n e s s D i g e s tFreight traffic fallsfor third monthCompiled and presented by Kris Lim of the Researchand Statistics Department of the Association of AsiaPacific Airlines SecretariatThe consolidated passenger traffic growth rates of theAssociation of Asia Pacific Airlines (AAPA) membersdeteriorated further in May 2001: revenue passengerkilometres (RPKs) contracted marginally by 0.04%, while passengerscarried (PAX) managed to record a slight year-on-year increase of1.7%. Seat capacity rose 4.7% (a similar year-on-year increase tothe previous two months) resulting in a 3.2 percentage point dropin passenger load factor (PLF) to 68.2%.Vietnam Airlines (VN) and Royal Brunei Airlines (BI) continuedto demonstrate strong growth in the month under review. Sevenother carriers managed to post positive growth ranging from0.1% (Singapore Airlines – SQ) to 7.0% (Garuda Indonesia – GA).However, four carriers, led by All Nippon Airways (NH – minus16.5%), experienced a contraction in traffic. EVA Air’s (BR) RPKsshrank by 4.7%, Japan Airlines (JL) and Cathay Pacific Airways (CX)by 2.0% and 0.6%, respectively.The majority of carriers experienced a decline in PLF as trafficworsened while capacity growth remained positive. Five SoutheastAsia-based carriers increased their capacity from 10.7% (ThaiAirways International – TG) to 46.3% (Vietnam Airlines) in May.The traffic generated failed to match the capacity increase andthe carriers saw their load factors decline significantly: GarudaIndonesia’s PLF fell 10.7 percentage points, while the load factorof Vietnam Airlines was down 8.9 percentage points, PhilippineAirlines (PR) down 6.8 percentage points and Thai AirwaysInternational down 3.8 percentage points. Only Royal Brunei(5.4 percentage points), Ansett Australia (AN – 9.0 percentagepoints) and China Airlines (CI – 1.4 percentage points) showedimprovement.Four carriers filled more than 70% of their capacity – EVA Air(75.6%), China Airlines (75.1%), Asiana Airlines (OZ – 73.7%) andPhilippine Airlines (72.3%).Cargo ResultsAAPA members’ freight traffic contracted for the third straightmonth. Freight tonne kilometres (FTKs) were down 8.8% year-onyear.Capacity increased 6.0%, reducing the load factor (FLF) by9.6 percentage points to 58.3%. The percentage decline in trafficwas less severe than in the preceding month, but the drop in loadfactor was equally sharp as capacity growth in May was the highestsince November 2000.With the exception of Ansett Australia (16.7%) and VietnamAirlines (16.6%), all the carriers experienced a drop in their freighttraffic. All Nippon Airways (-24.9%) suffered the biggest drop.Philippine Airlines, EVA Air, Japan Airlines and Royal Brunei Airlinesalso experienced double-digit contractions in freight traffic.All carriers reported a decline in load factor. Despite cuttingcapacity, All Nippon Airways and Singapore Airlines experienced30RPK Growth by CarrierPercentage (May 01 vs May 00)30PAX Growth by CarrierPercentage (May 01 vs May 00)2020101000-10-10-20NHBR JL CX SQ ANOZPRCI TG GA BI VN-20NHCXJLPRBRTGSQAN CI BI GA OZ VN48 | Orient Aviation | September 2001

a deterioration in FLF as the decline in freight traffic significantlyoutstripped the capacity reduction. China Airlines (69.1%) andAsiana Airlines (67.8%) were the only carriers to register a loadfactor higher than 65%.Results of the 12 Months to May 31, 2001The AAPA carriers’ consolidated RPK traffic rose 8.6% whilePAX grew 8.2% during the 12 months under review. Capacityincreased 6.2% resulting in a 1.7 percentage point improvementin PLF to 74.9%.Cargo ResultsThe consolidated FTKs for the year to May 31 grew 2.6%.Capacity, up 6.3%, outpaced traffic and contributed to a declinein load factor of 2.5 percentage points to 67.9%.All Nippon Airways: Passenger and cargo traffic well down inFTK Growth by CarrierPercentage (May 01 vs May 00)SummaryPassenger traffic contracted marginally in May year-on-year.Nevertheless, the trend, after adjusting for seasonality, indicatedflat growth and it is expected to remain so for the next few months.The peak months for air travel from July to September may offersome improvements in load factor over previous months, butprovide little real growth over last year.Freight traffic continued to deteriorate. The overall load factorshed 10 points for the second consecutive month as capacityexpansion persisted. The best hope of a trade rebound may be inthe last quarter of the year with the expected accession of Chinainto the World Trade Organisation in November and the anticipatedrecovery of the U.S. economy evident by the positive outlook forcorporate profits in the fourth quarter of 2001.E-mail:krislim@aapa.org.my20100-10-20-30NHPR BR JL BI SQ OZ GA CX TG CI VN ANPassenger Load Factor Growth by CarrierPercentage Points Change (May 01 vs May 00)Freight Load Factor Growth by CarrierPercentage Points Change (May 01 vs May 00)1208-44-80-4-12-8-16-12GA VN PR CX TG JL OZ NH SQ BR CI BI AN-20GABR CI NH TG PR OZ JL BI CX SQ VNANROLLS-ROYCE NEWS DIGEST“Continental Airlines has awarded Rolls-Royce a $360 million Total Careagreement for maintenance of its RB211 engine fleet.”September 2001 | Orient Aviation | 49

B U s i n e s s D i g e s tPassenger Load Factor Growth by CarrierPercentage Points Change (Jun 00 - May 01 vs Jun 99 - May 00)10864Royal Brunei Airlines: positive growth in passenger market20-2GAVN CX OZ PR AN BR SQ TG JL CI NH BIFTK Growth by CarrierPercentage (Jun 00 - May 01 vs Jun 99 - May 00)20100-10China Airlines: healthy passenger and cargo load factors in May-20NHBI JL AN BR OZ TGSQ CX GA PR CI VNRPK Growth by CarrierPercentage (Jun 00 - May 01 vs Jun 99 - May 00)Freight Load Factor Growth by CarrierPercentage Points Change (Jun 00 - May 01 vs Jun 99 - May 00)404302200-210-40-6-10ANNH BR SQ JL OZ CXTGGACI BI PR VN-8BICI BR TG JL PR CX SQ VN AN OZ GA NH50 | Orient Aviation | September 2001

Monthly international PAX statistics of AAPA membersSeptember 2001 | Orient Aviation | 51

B U s i n e s s D i g e s tMonthly international cargo statistics of AAPA members52 | Orient Aviation | September 2001

AAPA monthly international statistics (MIS)*IN THOUSANDS2000to20012000to2001CalendarYearRPK ASK PLF FTK FATK FLF RTK ATK PAX(000) (000) % (000) (000) % (000) (000) (000)May-01 36,770,528 53,958,473 68.15 2,843,056 4,876,487 58.30 6,309,101 9,847,276 8,426Apr-01 37,790,518 52,208,954 72.38 2,818,058 4,673,534 60.30 6,327,333 9,446,016 8,715Mar-01 39,516,817 53,018,109 74.53 3,266,306 4,821,183 67.75 6,972,083 9,653,899 9,034Feb-01 34,904,256 47,888,140 72.89 2,822,702 4,283,837 65.89 6,099,155 8,663,278 7,966Jan-01 40,552,393 54,065,390 75.01 2,562,234 4,396,241 58.28 6,333,638 9,354,263 9,016Dec-00 39,744,563 54,234,897 73.28 3,306,664 4,887,447 67.66 7,046,451 9,860,647 8,846Nov-00 38,040,505 51,552,700 73.79 3,467,407 4,944,456 70.13 7,044,098 9,673,473 8,630Oct-00 39,213,125 52,689,409 74.42 3,556,216 5,025,502 70.76 7,253,911 9,859,762 8,782Sep-00 39,695,907 51,498,288 77.08 3,448,015 4,846,064 71.15 7,187,257 9,577,705 8,720Aug-00 42,563,884 53,219,304 79.98 3,328,928 4,835,287 68.85 7,329,682 9,731,918 9,411Jul-00 42,210,457 53,221,980 79.31 3,339,584 4,731,881 70.58 7,306,299 9,503,672 9,358Jun-00 38,462,047 50,721,560 75.83 3,205,060 4,554,317 70.37 6,825,239 9,220,322 8,539TOTAL 469,464,999 628,277,203 74.72 37,964,230 56,876,237 66.75 82,034,246 114,392,230 105,443RPK ASK PLF FTK FATK FLF RTK ATK PAX% % % % % % %May-01 -0.04 4.65 -3.21 -8.79 5.95 -9.61 -4.23 5.44 1.72Apr-01 0.89 4.09 -2.29 -12.12 1.47 -9.65 -5.97 2.54 2.15Mar-01 4.99 4.30 0.49 -3.04 2.95 -4.23 0.90 3.26 6.45Feb-01 0.35 0.95 -0.44 0.16 3.12 -1.97 0.19 1.80 -1.15Jan-01 13.04 6.72 4.16 -10.35 0.23 -6.98 1.73 3.51 14.38Dec-00 14.83 8.23 4.21 -0.57 2.97 -2.41 7.20 5.59 11.31Nov-00 8.68 7.03 1.12 4.36 6.83 -1.66 6.49 6.90 8.70Oct-00 9.61 6.70 1.98 3.01 4.44 -0.98 6.33 5.53 9.68Sep-00 12.50 8.09 3.02 10.84 7.56 2.11 11.72 7.84 12.21Aug-00 7.15 5.93 0.91 10.89 6.88 2.49 9.06 6.40 5.81Jul-00 11.40 7.07 3.08 11.87 6.29 3.52 12.01 5.30 9.48Jun-00 14.75 9.16 3.69 12.44 12.12 0.20 14.38 10.62 11.61RPK ASK PLF FTK FATK FLF RTK ATK PAX(000) (000) % (000) (000) % (000) (000) (000)1995 326,071,184 471,535,677 69.15 23,838,488 36,487,508 65.33 54,250,542 79,121,583 76,3781996 374,365,998 529,442,583 70.71 27,783,667 43,091,640 64.48 62,557,622 90,816,037 86,7031997 387,763,016 561,392,742 69.07 31,741,381 45,688,853 69.47 67,739,088 96,736,079 88,6961998 382,106,292 557,130,177 68.58 30,958,021 46,204,321 67.00 66,141,448 97,199,731 86,191999 416,820,106 576,253,703 72.33 35,277,459 51,519,550 68.47 74,179,615 104,437,440 94,2422000 462,466,095 617,787,854 74.86 39,020,611 56,255,588 69.36 82,533,153 112,874,721 103,5272001 6 189,534,511 261,139,065 72.58 14,312,356 23,051,282 62.09 32,041,309 46,964,731 43,157CalendarYearRPK ASK PLF FTK FATK FLF RTK ATK PAX% % % % % % %1996 14.81 12.28 1.56 16.55 18.10 -0.86 15.31 14.78 13.521997 3.58 6.03 -1.64 14.24 6.03 5.00 8.28 6.52 2.301998 -1.46 -0.76 -0.49 -2.47 1.13 -2.47 -2.36 0.48 -2.821999 9.08 3.43 3.75 13.95 11.50 1.47 12.15 7.45 9.332000 10.95 7.21 2.53 10.61 9.19 0.89 11.26 8.08 9.852001 6 3.83 4.18 -0.25 -6.87 2.76 -6.42 -1.53 3.34 4.64Note:1. The consolidation above includes 16 participating airlines.2. Data for May 2001 is subject to revision as actual data for KE May 2001, MH Apr-May 2001, and QF Jan-May 2001 is not available.3. KA and NZ do not participate in this report.4. AN data from Jul 1998 onwards. VN data from Jan 1998 onwards.5. CY denotes Calender Year (January - December). 2001 Year-To-Date (YTD): Jan 2001 - May 2001.6. YTD comparison: Jan - May 2001 v Jan - May 2000.September 2001 | Orient Aviation | 53

C o m m e n tNot surprisingly, the airway runningfrom Chiang Mai to Mae Hong in thenorth of Thailand does not figure inthe future network plans of the vast majorityof airlines in the Asia-Pacific. Yet it is a perfectexample of a malaise that continues todampen hopes that a number of carriers inthis region will ever be able to attain financialstability.Strangely, it also represents a reason whysome airlines don’t have a hope in Hades ofachieving what it is generally agreed theyneed to do; fundamentally and structurallyimprove their financial performance in thisnew, globalised world of ours.Even the International Air Transport Association(IATA), which represents airlines inthe world-wide arena, is convinced they haveto find new ways of doing business or theywill fall by the wayside.But how can they do that when somegovernments continue to talk about liberalisationand deregulation when, in reality, they areonly paying lip service to the concept?Let us return to Chiang Mai-Mae Hong. Itis a route served by national flag carrier ThaiAirways International (THAI) six times dailywith B737 jets. It also is unprofitable. THAIhas consistently lost a great deal of moneyon the flights. But Thailand’s domestic skiesare now, supposedly, deregulated, so THAIhas a solution. It will withdraw and handover the route to a small private carrier, AirAndaman.This would appear to be a good solution.THAI eliminates a loss-making route and asmall up-and-coming carrier, better able tooperate flights economically with smalleraircraft, acquires more business. THAI also willhelp the small airline with ground handlingand other back-up services, including puttingits flights into THAI’s reservation system.The people flying between these pointswill still have an air service, although it is estimatedone-way fares will rise marginally.Unfortunately, this is where economicrationality goes out the window. Local peopleprotest vehemently because they wanttheir jets, not little turboprops. With a bit ofpressure placed on the government it bucklesunder. Remember, the government is themajority owner of THAI. Bangkok orders itscharge to drop its plans. The governmentsays Air Andaman can provide supplementaryflights, but THAI must keep flying the route.This comes at a time when THAI has acritical debt/equity ratio of 11:1. It has accumulateddebt of nearly US$3 billion, lostUS$20 million in its first half to March 31 andis only just setting out on a restructure planShort-sighted govtsputting airlines at riskto try and turn things around.The chopping and changes on the ChiangMai-Mae Hong route is merely one exampleof the irrational economic behaviour of somegovernments in the region. Thailand hasrecently allowed a 4% increase in domesticairfares. Managers of the country’s airlines saythey need to push fares up by 50% to receivedecent returns from most of their routes.Malaysia and Korea also have given thego-ahead for small rises in fares, but theincreases will hardly allow the carriers tocover the cost of operation services. How caninternational airlines facing their highest everlevels of competition across the world’s skiesbe expected to succeed when they are beingforced to dig deep into their pockets to crosssubsidiselocal services?There is another point that has to be made.Can you deregulate fairly when one carrier isowned by the government? As the primaryshareholder in an airline, the government isunlikely to create a level playing field. Thisis why governments in countries such asAustralia and New Zealand privatised theirairlines as they liberalised aviation.Japan is an interesting market when itcomes to deregulation. Here was a country inwhich, throughout the 1990s, Japan Airlines,All Nippon Airways (ANA) and Japan AirSystem, lost millions as they operated in ahog-tied, restrictive environment.More than half of ANA’s domestic routes– it is the country’s largest domestic operator– were either struggling to reach break-evenor losing money. It could not dump routesbecause the government would not allow it.The airlines had a social obligation to provideair transport for remote communities.TURBULENCEBy Tom BallantyneBut now deregulation is allowing ANAand others to rationalise these operations and,along with other measures, has cleared theway for Japanese carriers to begin providingdecent returns to their shareholders.Yet in Thailand it is patently clear domesticderegulation is so lopsided that not one of thecountry’s fledgling airlines is able to take onTHAI on a single route. They have all carefullydesigned their strategies to avoid any paralleloperations with the national flag carrier. Thusderegulation is offering no real competition.Of course, governments have every rightto protect the position of groups within thepopulace and to ensure they have the sameaccess to air (and road and rail) transport aseveryone else.But there are ways of doing it that do notinclude driving a precious national asset, thecountry’s biggest airline, into the black depthsof financial deficit. If global markets, liberalisationand deregulation are to mean anythingthen airlines must be free to manage theirbusiness in a cost-effective way.As has been seen in a host of Asian countries,among them Indonesia, the Philippines,Malaysia and Thailand, allowing an airline tobecome a financial basket case ends up beingmore damaging to the economy than the costof social change which might see unprofitablejet services replaced by profitable turbopropflights.The point is those governments thatcontinue to force their airlines to operate in anegative commercial environment are goingto end up with no airlines at all. There is morethan one analyst in the region convinced thereare a few carriers that are going to be hardpressed to survive the decade.54 | Orient Aviation | September 2001