PACIFIC BLUE ON GROWTH FLIGHTPATH
16 August 2008
ALAN WOOD
Christchurch-based airline Pacific Blue says 2008's expansion represents a 40 per cent increase in business over 2007 bolstered by a raft of new services domestic, trans-Tasman and within the Pacific.
The upsizing of routes at a rapid rate of knots begs the question where will it end?
While Pacific Blue's New Zealand operations are based on aircraft with limited mileage capacity, the business is part of the wider Australian Securities Exchange-listed Virgin Blue group led by ever optimistic Brett Godfrey with the ebullient Sir Richard Branson's Virgin Group a shareholder.
Aviation analysts are picking that on a day not too distant Pacific Blue will be part of a substantial Asia Pacific network criss-crossing blue water and islands between Australia and the United States.
Christchurch-based Pacific Blue chief executive John Bartlett is as bullish as his bosses. He says the airline's low-cost model was flattening out the shoulders of a cyclical growth industry by adding new passengers.
"It's a much more level playing field and that's proved to be the case in that the Tasman is 40% bigger than when we first came here, and that traffic's being shared with all the carriers."
Pacific Blue started operations in New Zealand in January 2004.
Would you ever go to Asia? Pacific Blue general manager commercial Adrian Hamilton-Manns says the 180-seat Boeing 737-800 next generation aircraft will not reach. Pacific Blue's shortest sector is Christchurch-Wellington at 24 minutes, and the longest Apia-Sydney 6 hours 40min. It is not big enough for the Singapore-Auckland sector of 9hr 30min.
"That's getting into wide-bodied (aircraft) country, which is not where we are," Bartlett says.
"Well, not yet," Hamilton-Manns says.
"We never say never ... it's been a hugely exciting ride with an amazing company driven by some very innovative and entrepreneurial minds, and to have that opportunity to deliver it as we have and have it accepted in the New Zealand travel market place has been the icing on the cake," Bartlett adds.
Sydney-based analyst Brent Mitchell, of Shaw Stockbroking, says Virgin Blue's international arm V Australia will begin a Sydney to Los Angeles route (with a reported 10 return flights a week) from December 15. Virgin has applied for a licence to fly to South Africa.
Virgin and Pacific Blue would likely at some point try to link with the Star Alliance group of airlines to attract more high-yield passengers on to its flights, although the alliance had yet to take on a low-cost carrier.
"They need to be able to lock in a (bigger) passenger base. That entails being able to offer a wider service ...," Mitchell says.
"I'd expect them to try and use their networks in Australia and to New Zealand to lock passengers into V Australia ... they'll look to expand those services to probably San Francisco and certainly from Melbourne."
Asked whether the fuel spike and world economic downturn will mean winners and losers in the Australasian airline scene, Hamilton-Manns says he thinks not: "If you look at each of those entities (Qantas, Jetstar, Virgin Blue group, Tiger and even Air New Zealand), they're all very strong." There would be short-term pain with the fuel spike and worldwide economic slowdown but "it's just a case of everyone's going to weather this one out."
Speaking last week in Christchurch, Ken Morton, of Boeing, said the Seattle-based aircraft maker was confident of demand over the next 20 years particularly in Asia.
"The industry is very resilient, we think that airline passenger numbers will grow around 4% per year," he told a tourism conference.
Boeing expects about $US3.2 trillion ($NZ4.6t) worth of new aircraft will be needed over the next 20 years, with the Asia-Pacific (including India and China) countries taking $US1.15t of that, followed by Europe CIS ($US810 billion) and North America ($US740b).
Pacific Blue's Bartlett said the Australian passenger market was still growing but not at quite the capacity it had been. In the longer term travel across the Tasman and into Asia had become a commodity item for many people with modern technology continuing to make travel viable despite the doubters, proven by the growth of travel between Canterbury and Queensland.
"It would suggest to me it's become an absolute commodity. People wake up on Friday morning and say, `what will we do will we go to the movies or will we go to the Gold Coast?' and the price point virtually makes them able to make that choice."
Any slowdown will be short-term, he adds.
"You're not going to stop Generation X and Y on what they want to do," Bartlett says.
In his time at Pacific Blue aviation fuel had gone from 17% of the airline's cost base to around 40%.
"It certainly get's your attention to make sure the stuff you don't need to be spending is not spent.
"I would say airlines whose cost bases are driven by legacy things (including labour agreements) are going to find it more difficult than somebody with the agility that we have." Hamilton-Manns says the aviation industry as a whole is very adaptable. During Ralph Norris' tenure at Air New Zealand as chief executive he said about 2003 that if fuel went to $US70 a barrel the airline would be bankrupt. At the time fuel was $US35 a barrel, with a long-term prediction of it going to $52 a barrel.
But while fuel had gone to twice that level, people had adapted.
Bartlett says with 2008's 40% growth it stretches the airline not only in terms of putting packages in the market, selling the seats and dealing with guests but with added engineering and ground-handling requirements, although costs for these came down with extra scale.
But via a combination of outsourcing to contractors and boosting its own staff, the airline is pushing boundaries. This month it announced nine return services a week from Auckland to Sydney to start in October.
It has also added to its Pacific Islands network, and late last month announced a new daily Auckland to Melbourne service.
The airline will take delivery of another aircraft in early September to fly the new Auckland-Sydney route, bringing the fleet number to nine.
Timeliness of flights are all important, Bartlett says, given the airline kept aircraft in the air an average of 15 hours plus a day "nearly twice what Air New Zealand's domestic fleet does". The high flying time was to take into account that a new $US80m aircraft was leased from the group at $US420,000 a month.
With high-priced fuel "you're better to spend very large amounts of money upfront on the fuel-efficient airplane, and you also get benefits of (lower) maintenance."
So what are Pacific Blue's aspirations to win more market share?
"The next step in times of difficult outlook is a wee bit of a challenge but we are brave enough given where we're at to take more first mover advantage into markets. Just look at Auckland-Sydney ... (where) there isn't any more room for more of the same but there is room for a new bright energetic product at a price point that does attract people," Bartlett says.
The airline's management followed five key criteria: safety, cost per available seat kilometre, on-time performance, guest satisfaction and staff satisfaction.
On-time performance this month was around 96% compared with 89% on a year to date basis, and was a good barometer of an airline's operating aspirations, he says.
"If (flights) are not leaving on time something's probably out of whack ... I call it the balance of imperatives, commercial and operational imperatives have to remain in sync," Bartlett said.
With 737-800s of an average age of three years, the airline ran a "front foot" maintenance programme servicing frequently to ensure all niggles were attended to at the New Zealand bases. The planes were kept "clean" because Pacific Blue could not afford to service defects in the Pacific, for example.
There was a common thread through the Pacific Blue/Virgin Blue model, Bartlett says.
"It's difficult for me to know why it is so well received yes it's low fare, and people recognise that and they'll go for that but there seems to be a brand awareness we've created," he says.
© 2008 Fairfax New Zealand Limited.
The Press
Go to top
Print Page
Smaller
