The recent collapse of two little-known Australian carriers shows how precarious life can be for second-tier airlines. But three others are going strong, and the start-up of two more suggests that survival in any sector depends less on its size and more on a savvy business plan.
OzJet and SkyAirWorld seemed constantly in search of one. OzJet's niche changed from all-business class on trunk routes like Sydney-Melbourne to a mix of charters, wet-leases, and scheduled flights on obscure routes. By the time it collapsed OzJet was down to one scheduled route in Western Australia, ad-hoc charters, and flights to Bali on behalf of an Indonesian resort.
SyAirWorld's plans were also fluid. For a while it was due to become the local partner with Indonesia's Lion Air in a new domestic Australian carrier. Then it switched to Solomon Islands flights.By the time of its collapse, the Solomon Islands were looking to replace it, and its only other service was an Embraer 190 flight from Port Moresby to Brisbane on behalf of Air Niugini.
"SkyAirWorld was always looking for work," notes Paul Tyrell, chief executive of the Regional Aviation Association of Australia. Both OzJet and SkyAirWorld, in Tyrell's view, suffered from aircraft utilisation that was too low and undependable to sustain their cash flow needs. Neither airline, he says, had nurtured the relationships essential to long-term commercial ties.
By contrast, Australia's other second-tier carriers - Skywest, Air North, and Cobham Aviation Services, formally National Jet - have avoided flitting about. They differ, but Skywest and Air North in particular both have networks they grew organically far from the trunk routes of the majors. Skywest concentrates on the vast state of Western Australia; Air North's focus is on the equally-remote Northern Territory.
Jet operations, longer stage lengths, and limited international service distinguish this group from the smaller regional airlines, but a key to success is the relations these second-tier airlines maintain with the majors. Cobham operates in QantasLink livery under long-term contracts across the Outback. Skywest is a partner in Virgin Blue's frequent flyer plan. Air North codeshared on its Darwin-Bali flights with Qantas low-cost unit Jetstar until the latter decided to fly the route itself.When it did, Air North pulled out. As David Blake, chief executive of Brisbane-based Strategic Airlines, says: "If you compete with the majors, you can get squashed."
Strategic Moves In
Strategic is the newest member of Australia's second tier. It plans to launch in August with a leased Airbus A320, operating scheduled Honiara-Brisbane service on behalf of Solomon Airlines thrice-weekly. The rest of the week it will fly mostly military charters. Early in October Strategic will also introduce an A330-300 into Australia that is already committed for military charters.
Michael James (below), founder and executive director of Strategic, cites the pitfalls of second tier start-ups and the steps he has taken to avoid them. "High lease rates are the biggest," he warns, explaining how Strategic has been able to exploit the current downturn to acquire at "very favorable rates" two A320s that are just coming off C-checks.Strategic will base the second A320 in France to provide charter service in Europe and elsewhere.
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"Having the business in place to sustain revenues is second most important," James adds.We have proposals on the table to use the [Brisbane-based A320] 100% for scheduled service on behalf of other airlines." He hesitates to say which ones, but hints at imminent contracts in Australia and the Pacific islands.
"When recession hits, airlines will dump capacity as fast as they can and they dump too much," James explains. "Then, when recovery happens, they don't have enough. That's where we see ourselves filling a gap."
Blake adds that Strategic's low lease rates free it from a need to chase high utilisation, that basing aircraft in both Australia and Europe will allow it to shift them with the seasons, and that its newer jets distinguish it from typical second-tier start-ups, which often fly older planes with high operating costs and low passenger appeal.
"We're opportunist," James admits. "With new opportunities popping up every day, we're a bit of a chameleon."Strategic demonstrated this in late June by buying OzJet out of administration, with plans to resume its flights.
Finally, another startup may soon emerge. Brisbane-based Pacific Wings hopes to launch flights in October from Australia to New Caledonia and some smaller New Zealand cities using a 737 wet-leased from Nauru's Our Airline.Geoffrey Bowmaker, former chief executive of Nauru's airline, heads the new entrant. Both Strategic and Pacific Wings demonstrate the diversityand dynamics of the second tier.
Click here for more on developments in the Australasian market
Source: Airline Business
