With that as the starting premise, it is remarkable that these airlines are doing so well. Most began as government departments, sovereignty symbols operated with a public utility mentality. But nearly all have moved past that and now, with unprecedented cooperation between them, most are profitable.
Island aviation has progressed through distinct phases. With the advent of jets in the 1960s, the trans-Pacific airline operators created Air Pacific to act as a single regional carrier, essentially feeding traffic from all the islands to a central Fiji hub served by the majors.
As colonialism declined in the 1970s and island nations gained independence, dissatisfaction with this single regional airline grew. Larger islands launched their own carriers. That led to management contracts in the 1980s - essentially efforts by Qantas and Ansett to rescue small or poorly managed carriers which threatened to bankrupt their governments. Four years ago the last of those contracts ended, with the fate of Pacific island carriers once more in the hands of the islands themselves.
This new era is characterised by more stable balance sheets, routes extending beyond the islands, clashes with some outside airlines, and alliances with others. There is closer cooperation between island airlines on common subjects, but also a growing potential for conflict between them.
The number of locally owned international carriers is still growing, albeit gradually. Royal Tongan is the latest to join this group. It still owns no jets, but has progressed from wet leases to a B737 joint operating lease with Air Pacific. Airlines for two other nations (Niue and Cook Islands) have folded, while a third (Kiribati) recently revived with the aid of a US benefactor.
Most Pacific nations or territories which lack their own international airlines get by with service provided by others. Only two small nations, Niue and Tokelau, face the danger of being stranded. But even where air links exist, reliance on outside carriers means service on their terms, a constant cause of griping and, accordingly, a fertile ground for potential upstarts.
Airlines from the Pacific and Caribbean may appear to share similar problems, but in reality they differ markedly. Caribbean island carriers are besieged by an invasion of major airlines from outside. The Pacific's problem is exactly the reverse. Major carriers have been retreating for years, cutting islands off from their inbound tourist markets. The obituary is long, starting with Pan Am and British Airways and ending most recently with Canadian Airlines International and Continental.
In this respect, Qantas is fading fast. Come January it will withdraw from Fiji in favour of a codeshare with Air Pacific, leaving Tahiti as its only remaining island stop. Qantas has already threatened several times to leave Tahiti - a move it is sure to make eventually. 'If I ran a trans-Pacific airline I'd do exactly the same thing,' comments Andrew Drysdale, CEO and general manager of Fiji-based Air Pacific. 'It makes sense for those carriers to fly end-to-end as much as possible.'
Withdrawal of outside carriers has left a vacuum for the island airlines. Fortunately for the Pacific, the retreat has been gradual enough to give local airlines time to adapt. The result is wider networks with longer routes beyond the islands. Eight local airlines fly to Australia, seven to New Zealand, three to Asia, and one each to Hawaii and the US mainland.
'The real hubs for the South Pacific have become Australia and New Zealand,' notes George Faktaufon, secretary general of the Association of South Pacific Airlines. Island carriers have shunned a hub in their own region in favour of point-to-point routes beyond it.
One casualty of this expansion has been inter-island traffic. Few local carriers can afford both the jet needed for long routes and the smaller aircraft suited to island hopping, Faktaufon notes. Yields are generally good on local routes, but in typical chicken-and-egg style low frequencies discourage local traffic.
The expansion of island carriers beyond the Pacific has sparked friction where the airlines of other countries also carry island traffic. Nowhere is this more evident than with New Zealand, which once administered several island colonies on behalf of Great Britain. Many emigrant Polynesians now live in New Zealand. Air New Zealand has done much to promote tourism to the region from Europe and is the only outside airline with a route network through the islands. Some island airlines also see it as a rival.
Because of its former status as colonial administrator, New Zealand enjoys favourable air agreements with many island nations. Typically, Air New Zealand has unlimited rights to and beyond these islands, but some of the early bilaterals did not even envisage island carriers flying to New Zealand. Such attitudes hark back to the days when Air New Zealand and others flew all the trans-Pacific routes and island carriers simply provided the feed.
Obviously that is not today's reality, but a gap still persists between treaties and the growing international presence of island airlines. Twice, Fiji has renounced its bilateral with New Zealand in an effort to 'claw back its sovereign rights,' as Air Pacific's Drysdale puts it. Currently, talks are focused on charges that Air New Zealand has dumped capacity between Fiji and Japan. Drysdale claims 140,000 seats are chasing 40,000 annual passengers in that market, with Air New Zealand and Air Pacific recording load factors of 47 per cent or less.
Island leaders are somewhat coy about their proposed response to these allegedly unbalanced bilaterals. While criticising these bilaterals, Senator Filipe Bole, Fiji's minister for foreign affairs, tourism and aviation, recently told the Association of South Pacific Airlines: 'It seems natural, if we are unable to resolve national issues that are common to us, that we should seek a collective solution - exactly as you are trying to do in ASPA.'
ASPA denies any plan to undertake bloc negotiations, but it does intend to become a clearing house on bilateral issues and a regional resource for islands in their individual negotiations. It is ironic, secretary-general Faktaufon notes, that New Zealand especially should complain about the financial performance of island airlines and then obstruct their success by defending its unbalanced route rights.
Air New Zealand responds that it has done more than any other airline to promote the South Pacific as a tourist destination, pioneered and still provides some of the best inter-island service on its so-called Coral Route, and it has come to the rescue for non-commercial reasons when island carriers, such as Polynesian Airlines, stumbled. Just like New Zealand as a nation, Air New Zealand does not regard itself as an outsider, but as part of the Pacific.
Aside from how Air New Zealand may perceive itself, most island carriers seem to regard Qantas as a less threatening ally. Peter Roberts, former Air Vanuatu general manager, recent author of a Canberra-sponsored review of Pacific aviation and now consultant to Air Nauru, notes the growing commercial links between Qantas and island carriers.
Qantas has taken a lead in helping them rationalise capacity. Two carriers now share aircraft with Qantas - Solomon Airlines and Air Vanuatu fly B737s on their own routes on certain days of the week and relinquish them for Qantas domestic flights on others. Air Caledonie is seeking a similar arrangement. Qantas also handles heavy maintenance on most island-based B737s - the aircraft of choice for island airlines.
Qantas may be pulling out in its own right, but it recently boosted its equity in Air Pacific and now owns almost 18 per cent of Fiji's flag carrier. Andrew Drysdale sees the regional role of Qantas evolving into one of 'non-patronising' help to island airlines on a commercial basis.
Peter Roberts says cooperation between island carriers is 'better than ever' and attributes this to the people now managing the airlines. ASPA's Faktaufon points to a growing 'philosophy of cooperation' that has become infectious.
Codesharing on inter-island routes has been common for years but ASPA now coordinates joint insurance, fuel buying, and training. For the first time this year island airlines will release traffic data to ASPA, which will start compiling consolidated traffic reports. Faktaufon is also urging airport managers to select a single vendor for security equipment, hoping this will improve response time on repairs. He talks of a central reservation system for all island carriers and centralised revenue processing. 'We could have one big accounting centre,' he says. 'It wouldn't have to be in Fiji; it could be anywhere.'
No one thinks this outbreak of cooperation will shift attitudes back towards the discredited idea of a single regional airline. All agree that backroom operations can and should be consolidated but everyone predicts that branding and control will remain the domain of individual island nations.
Yet there are hints of small-scale consolidation. The central Pacific island groups of Micronesia and Kiribati are discussing the possibility of sharing the Air Marshall Islands Saab 2000s, one of which is in service with a second due to follow in early 1996. The Saabs may simply be leased part-time to the other carriers, or they could be sold to a joint airline which would then lease them to the Marshall Islands flag carrier and others. The Micronesian states, former US wards, are considering creating an airline to supplement service now provided by Continental Air Micronesia, whilst Air Kiribati already exists. Several smaller Melanesian carriers reportedly are also discussing merger. That would be a first.
The likelihood of competition on inter-island routes is minimal; most are too thin to fight over. But the extension of networks beyond the Pacific raises the spectre of rivalries within the region.
Starting in January, Air Pacific will increase Fiji-Los Angeles frequencies when Qantas drops that route. Initially, this will be a modest boost from one flight a week to two, but it could grow with Qantas buying half the seats on each flight. Air Pacific foresees a big enough presence in Los Angeles to justify talking with European carriers about joint marketing and fares to the South Pacific. Several forecasts predict that European inbound traffic will equal North America's within five years.
Because of Qantas' ties with Air Pacific and British Airways, Air Pacific has already met with both Qantas and BA to discuss a proposed Europe-Pacific alliance. 'British Airways has a South Pacific hole in its inventory of holiday packages,' says Andrew Drysdale. 'Air Pacific could fill it.' Well ahead of any other island carrier, Air Pacific obviously hopes to dominate inbound European traffic.
It also hopes to use this dominance along with its North American and Asian routes to convert Nadi, Fiji's international gateway, into a South Pacific hub. With a network of B737 inter-island routes already in place, Air Pacific may be in a unique position to do this.
Other island carriers, already suspicious of Air Pacific's motives, are scrambling to form their own alliances. Polynesian Airlines, which nearly went bankrupt launching North American flights on its own last year, may codeshare with Air New Zealand to revive that route. Air Marshall Islands seeks a US airline link where routes meet in Honolulu. Air Caledonie is working more closely with French carriers which fly to the Pacific.
The day when Pacific island nations privatise their airlines is still beyond the horizon. Few have local citizens with enough capital to buy an airline, even if it were consistently profitable under international accounting standards. According to ASPA's Faktaufon, privatisation won't solve such problems as thin routes, insufficient hotel beds and vulnerability to outside influences. Moreover, even though most Pacific island carriers have been corporatised and operate on their own with minimal government interference, few islands would be prepared to let go of their lifelines.
Source: Airline Business
