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Australia reduces aviation threat level

Australia has downgraded the aviation threat level to where it was before police uncovered an alleged terrorist plot amid expectations charges will be laid against those involved.

Prime Minister Malcolm Turnbull announced the move Thursday but said there would still be “enhanced” security measures at airports as a result of the plan to target an aircraft.

Turnbull said the decision to downgrade the threat level was made in consultation with intelligence and security agencies, including the Australian Intelligence Security Organisation (ASIO).

“We have outstanding security measures at our airports,’’ he told reporters in Perth. “They are going to continue to be enhanced, but they will be modified in a way that will cause less delays to the travelling public.”

Under upgraded measures introduced in Sydney a week ago and to other airports on Saturday, passengers had been asked to arrive two hours before a domestic flight and three hours before an international flight.

They had also been told to limit the what they packed in cabin and checked baggage.

They will now be allowed to turn up in accordance with airline policies in place before the threat emerged.

However, not all airline policies are the same and low-cost carriers can require an earlier check-in. There can also be a difference in recommended check-in times for business and economy passengers.

The Qantas Group said the decision to moderate the additional security measures put in place on July would reduce the time it took to get through an airport.

While Qantas is now asking passengers to follow its previously recommended check-in times,  it said they should ensure they arrived in plenty of time for their flight.

“The Qantas Group works closely with the Australian Government and intelligence agencies to make sure we have the right security measures in all the destinations we fly to,’’ it said in a statement. “The safety of our passengers and our crew is always paramount.”

The investigation into the threat is ongoing but one of four men arrested in raids in Sydney on Saturday has been released.

However, Turnbull said police had uncovered “very substantial evidence’.

“The commissioner, the federal police commissioner Andrew Colvin, has advised me that the investigation efforts are proceeding very successfully in terms of the gathering of evidence and that I should expect, and Australians should expect, charges to be laid in due course,” he said.

The Prime Minister would not comment on a report in The Daily Telegraph that an unwitting airline passenger had been used to take an improvised bomb to the airport packed in cabin baggage. The report said bag had been rejected as too heavy at check-in.

The move also comes after calls for security at airports to be further upgraded, including demands for passenger IDs and screening of ground workers.

The Australian and International Pilots Association argued its members were subject to tougher screening procedures than other airline staff because they were forced to go through security. It backed the introduction of US-style screening that requiring photo identification.

Asked about the calls, Turnbull said airport security measures were constantly under review and there were already strong security measures at airports which “have been enhanced and they will continue to be enhanced”.

“But we are very focused too on ensuring that we look after…. (and) respect the convenience of the travelling public as well,’’ he said.

Gulf carrier Etihad earlier this week confirmed that it was helping police with their inquiries but would not elaborate.

Air New Zealand sets sights on Brazil and North America’s east coast.

Air NZ

Air New Zealand has Brazil and the east coast of North America in its sights as it looks to replace its fleet of Boeing 777-200 aircraft with next generation long-range planes.

AirNZ chief executive Christopher Luxon told AirlineRatings on the sidelines of a CAPA Centre for Aviation summit in Sydney that the airline was looking at the Brazilian cities Sao Paulo and Rio de Janeiro as potential destinations to complement its existing service to Argentina’s Buenos Aires.

“We are very interested in trying to get ourselves further to the eastern seaboard of North and South America,’’ he said

“Locations like Sao Paolo and Rio de Janeiro and others on the eastern seaboard of America are really important for us.’’

The Brazilian destinations are outside the range of the airlines current fleet of Boeing 777s and B787-9s.

“We get there sometimes, we can’t always get home back across the Pacific Ocean,’’ Luxon said. “We’re about to go through a replacement process for our 777-200s — we’re obviously looking at aircraft that can get us into Sao Paulo and to Rio.”

The AirNZ boss said the airline planned to issue a request for information on replacements for the B77-200 fleet towards the end of this year with a request for proposals by the end of 2018 ahead of a competition between Boeing and Airbus.

The competition would pit Boeing’s 777X against longer range versions of The Airbus A350.

In the interim, Luxon said airline’s service to Buenos Aries was attracting many Brazilians, particularly young people heading to work in New Zealand’s tourism industry.

“Buenos Aries is a very good town in that it actually collects everybody versus in Brazil where you have six cities and you sort of have to knock off a little bit to get the same O&D (origin and destination) traffic,’’ he said.

AirNZ has been pursuing a Pacific Rim strategy under Luxon which has already seen the carrier forge alliances and significantly expand its own services within the region.

“When I started, lots of people would come up to me and say — I even might have read a CAPA report that said as much — that we were structurally disadvantaged,” he told the conference.  “We were an end-of-line carrier, two rocks at the bottom of the Pacific Ocean close to Antarctica, fly five hours you might hit 25 million people, all of them leisure travellers, how does any of this make sense?

“The bottom line was we said that’s rubbish — we are actually bang smack in the middle of the most exciting region in the world.’’

AirNZ’s expansion had been accompanied by a tight rein on costs to protect the airline’s balance sheet and provide the cash to fund the growth.

It has spent almost $NZ3 billion simplifying and upgrading its fleet, $NZ150m upgrading lounges and is investing heavily in digital capability.

In addition to Buenos Aires, new markets have included Houston, Beijing, Japanese destinations Osaka and Haneda and Vietnam’s Ho chi Minh City.

Luxon said the investment in Boeing 787-9 Dreamliners and B77-300s had allowed the airline to unlock the Pacific Rim and had seen its network grow by 35 per cent over the past five years.

“And this is giving us tremendous scale benefits because for the first time now in our history, in 77 years, we can now start to connect emerging parts of the world through new Zealand to other parts of the world,’’ he said.

“So if you think about it, the fastest way to get from China and South-East Asia to South America is through New Zealand.

’If you think about the fact we are three hours closer, and therefore can get three hours deeper towards the eastern seaboard of North and South America than you can from the eastern seaboard of Australia, we connect Australians to North and South America as a consequence very strongly.

“So it’s giving us a huge, huge capability and opportunities that we previously haven’t seen. We can go to double daily or triple daily services with more capital efficiency by virtue of aircraft asset rotation.’’

A key for Luxon has been to ensure that the experience on the carrier is consistent, with the same product in both aircraft and lounges so customers can rely on a consistent product.

Read our latest review of AirNZ.

The airline also talks to 4000 customers a month and has “mystery shoppers’” taking its flights and testing the booking process.

The push has paid off in terms of industry recognition and Luxon said customer satisfaction was now at record high levels.

Read: AIrline soars on award-winning service.

New domestic airlines still possible in Australia, conference told.

Sprit ancillary revenue

The conventional wisdom that Qantas and Virgin Australia have the Australian domestic airline market locked up has been challenged at an aviation conference by arguments there remains scope for an ultra-low-cost carrier or an operation backed by Chinese interests.

The dual brand strategy pioneered by Qantas and Jetstar and later adopted by Virgin and Tigerair is seen as a major hurdle for new entrants to the Australian domestic market but some believe there are still gaps in the defence.

Malaysia Airlines chief executive Peter Bellew,  who is also a former executive with budget carrier  Ryanair, predicted ultra-low-cost carriers would become a growth area globally and that there was an opportunity for a start-up in Australia. 

Ultra-low-cost carriers offer rock-bottom fares but charge fees for everything else. US carrier Spirit is one example of a ULCC.

“We haven’t got one in Australia at the moment,’’ Bellew told the CAPA Australia Pacific Aviation & Corporate Summit in Sydney on Tuesday.

“I suspect there’s probably a couple of kids in a university in a Sydney dorm or a university right now looking at the two legacy carriers, Virgin and Qantas, and plotting and scheming some devious plans for a third carrier, an ultra-low-cost carrier.”

Bellew said the ultra-low-cost carrier model had generally worked well everywhere. 

“I‘m taking really bare bones, charging you for absolutely everything and starting at a bootstrap mentality,’’ he said.

Asked how an Ultra-low cost carrier would differ from Qantas low-cost subsidiary Jetstar or Virgin’s Tigerair Australia,  Bellew said both were “ lowish” -cost operators.

“They don’t come anywhere near the cost base of a Ryanair or an AirAsia and it is possible to go lower than that again,’’ he said.

Alan Polivinick — a Bangkok-based partner with international law firm Watson, Farley and Williams — had earlier told the conference that Australia’s liberal approach to foreign investment in airlines made it easy set up a domestic carrier.

Polivinick said there was a gap in the Australian market and he was watching with interest for a Chinese airline or big tour operator to work out it could set up its own airline rather than pay Qantas or Virgin to fly its passengers around.

“That is potentially one of the biggest threats to Australian carriers in their own market and I think that’s one to watch,’’ he said, adding the caveat it could be harder to keep a foreign-owned carrier flying.

Speaking after his presentation, Polivinick said it was less likely that carriers with existing relationships in Australia would follow this path.

 “It could be any of them, there’s nothing to stop them from doing it, but Air China’s the obvious one that’s not involved in any way here,’’ he said.

“But I think in terms of who might actually do it, it’s probably likely to be one of those big Chinese outbound operators.

“You can see what they do in South-East Asia —  they run the bus companies that drive the people around.’’

The law firm partner said a tour operator could pitch the operation on the basis that it would not be using peak slots in major airports.

It would not have to be a fully-fledged airline and because the company was selling a complete package in China it could construct the tour to take advantage of quieter times at airports.

“If you had a 3 pm slot in Sydney on a Sunday then you factor the tour around that,’’ he said.

Southwest’s slow surge south

For years, Southwest Airlines confined its route structure to the U.S. mainland proper. Then it bought AirTran, and almost in an instant, it was a player in Mexico and the Caribbean.

Now comes news the low-fare juggernaut is continuing its slow surge south, making Indianapolis its 17th international gateway. To be sure, Indy isn’t any mega-hub, but come March 10, 2018, it will see Saturday-only nonstop service to the Mexican resort of Cancun.

From March 8, 2018, Southwest adds a new route from its busy Fort Lauderdale/Hollywood, gateway to the Caribbean island of Aruba.

Polishing its U.S. Midwest product, there will also be a new domestic leg between Milwaukee and Houston Hobby, a prime Latin and Caribbean connection point for Southwest to places such as Cancun, Belize and Mexico City.

This new service illustrates the metered sort of expansion that’s a hallmark of the airline. JetBlue and Spirit offer a slew of service south, but Southwest’s measured approach indicates it’s in no particular hurry to be king of Caribbean.

Etihad helping police in Australian ‘bomb’ threat investigation

Abu Dhabi-based Etihad says it is cooperating with Australian Federal Police about an alleged plot to take down an airliner with an improvised explosive device.

Media reports in recent days have suggested an Etihad aircraft travelling from Sydney to the Gulf was a target of a plan to smuggle the device on to a plane and possibly gas passengers.

Sydney tabloid The Daily Telegraph reported the plan was to put substances in a common kitchen meat mincer that may have exploded on board or gassed hundreds of passengers.

There has been no official confirmation of the reports and few publicly-released facts beyond Prime Minister Malcolm Turnbull’s initial comments that a major joint counterterrorism operation disrupted a terrorist plot to bring down an aircraft.

Australian Federal Police commissioner Andrew Colvin said over the weekend the attack planned to use an improvised device to target an Australian plane.

Colvin described the threat as “credible’’ and said authorities believed it was Islamic-inspired.

But he said there was no evidence to suggest airport security had been compromised.

Four men were arrested after a series of raids on Sydney properties on Saturday and one was released on Tuesday night without being charged.

A joint police statement released Wednesday said three men remained  in detention under

Three men remain in detention under and the investigation was ongoing, the statement said.

Etihad confirmed on Tuesday it was assisting police with the investigation.

“The Etihad Airways aviation security (AVSEC) team is assisting the Australian Federal Police (AFP) with its investigation and the matter is ongoing,’’ it said in a statement.

“Etihad is complying fully with the enhanced security measures at airports in Australia and monitoring the situation closely. Safety is the airline’s number one priority.”

Sources have told Australian media outlets that the intelligence that led to the raid came from Britain and that the plot was well advanced before Australian authorities intervened.

There have been delays and queues at Australian airports since authorities tightened security at Sydney Airport on Thursday and at Melbourne, Brisbane, Darwin, Perth, Adelaide, Canberra, Cairns, Gold Coast and Hobart airports over the weekend.

Travellers were advised to arrive two hours before domestic flights and three hours before international services.

They were also being asked to limit the amount of carry-on and checked baggage where possible to help ensure the efficiency of security screening.

Jetstar Group chief executive Jayne Hrdlicka said yesterday most customers had not seen a huge impact but the time to get through security screening had gone from two to three minutes to “maybe 10 minutes’’.

“The lines are fast and everybody’s happy to contribute,’’ she said after flying from Melbourne to Sydney for the CAPA Australia Pacific Aviation & Corporate Summit on Tuesday. “And if it improves safety and security then everybody’s for it.’’

There has been no indication yet of how long the increased security will last and what additional costs it might impose on airlines and airports.

Hrdlicka said it was hard to see where it would go but for the moment “everyone has risen to the occasion and we’re comfortable with where we’re at”.

“Safety and security are the most important things in the industry and I don’t think anybody’s going to argue with that,’’ she said.

The Jetstar boss said she was confident that the airline could handle any new security processes such as a requirement for domestic passengers to produce ID and options included biometric identification.

She said such a move would not affect the airline’s automated check-in kiosks.

“All through the US, almost airports now are predominantly kiosk -based check-in now even for international,’’ she said. “So what you do is you go through the kiosk process and then you go have your ID checked.

“it sounds like quite a big step but it’s been very easily integrated into a quite simple, efficient processes around the world.’’

Malaysia Airlines brand has recovered, says CEO.

Malaysia Airlines’ brand has recovered from the battering it took from the loss of two aircraft in 2014 and the carrier is now seeing load factors of more than 80 per cent, according to chief executive Peter Bellew.

Bellew said the crashes were something that would never be forgotten within the Kuala Lumpur-based airline and they were still having a massive impact on colleagues.

“I’ve no doubt there are many people that have a negative perception of us because of what happened,’’ he said Monday ahead of the CAPA Australia Pacific Aviation and Corporate Travel Summit in Sydney. “But the brand I believe has recovered very well in pretty much all marketplaces.

“You don’t get load factors of over 80 per cent if there’s something wrong with your brand.

“The month of December last, we hit a network wide load factor of 90 per cent. That was the highest load factor of any full-service carrier in the world last December so there is nothing wrong with the brand, the brand is strong.’’

Bellew’s predecessor considered changing Malaysia’s brand and livery after the mysterious loss of MH 370 in March, 2014, and the destruction by a Russian-made missile of MH17 three months later.

But Bellew said he decided quickly to keep it after talking to thousands of customers at the airport.

“I could see they loved Malaysia Airlines, they loved what the airline had stood for 40 years so I took the decision we’d stick with the brand,’’ he said, admitting it was “a little bit retro’’.

Bellew did not know if finding the wreckage of MH370 would help the airline but he believed scientific advances meant it would be found in the next three for four years.

However, he argued there was more scientific work to be done before the search was resumed.

“The search has moved from trawling the sea to scientific research around locating realistically where the aircraft is,’’ he said.

“There are a lot of bright people in a lot of universities and other companies who are spending a lot of their own resources at the moment and coordinating with authorities to try and work out that part of the challenge.

“I think that’s time better spent right now and then once they have a firmer fix on where they think the wreckage may be and then you go back to the more traditional (search).

“The advances are taking place in data analytics are so rapid in many fields at the moment, it wouldn’t surprise me in the next three or four years if somebody isn’t able to cross -reference data and have a much better attempt at  locating it.’’

The straight-talking Irishman ­— a 30-year industry veteran who came to Malaysia Airlines after holding a series of senior positions at low-cost carrier Ryanair — said the carrier remained on track to return to profitability next year and be publicly relisted in 2019.

“We expect to be profitable and cash positive in the second half of next year,’’ he said. “We would have reached there earlier but unfortunately I couldn’t control the election of Donald Trump and we saw a 6 per cent weakening in the ringgit against the dollar which hit us this year on some costs.’’

Many of the airline’s problems pre-dated the crashes and Bellew has been working to repair its reputation with the travel trade and passengers.  A switch to the Amadeus passenger service system is allowing to re-establish codeshares with other carriers and travel agents. It is also upgrading Its fleet, lounges, in-flight entertainment and food offerings.

The strategy has already seen the load factor on its Australian routes averaging 90 per cent for the first six months – up 9 per cent — with revenue per available seat kilometer posting a double digit increase.

Bellew is committed to preserving the airline’s status as a full-service carrier, reversing moves by his predecessors to push business mainly through the Web and axing plans to unbundle fares.

He said the airline would not be charging extra for bags, food, entertainment or credit card use.

“So at a time when everybody else is starting to skim people for these things, we’re not going to do that,’’ he said.

“We want to regain our position over the next couple of years … the perception of a quality five-star carrier dealing with business people.’’

The fleet upgrade includes six Airbus A350s  due to begin arriving later this year as replacements for the carrier’s A380 superjumbos.  They will be used initially on the Kuala Lumpur-London route with other routes still under consideration.

Bellew said many of the improvements would come together by the beginning of next year at which point it will be a case of educating people about the change.

“So I think we’re about six or seven months from getting the quality back to where it needs to be and then it will be about convincing people that it’s there,’’ he said.

From a network viewpoint, the airline sees China as a big growth area and it is the focus this year of the biggest expansion in the airline’s history with 11 new routes.

But it also sees opportunities in Australia, with double daily Boeing 737 flights to Perth and widebody flights to Brisbane on the cards, subject to aircraft availability.

An increasing number of Malaysians are visiting Australia and Bellew wants the airline to rekindle efforts to sell Malaysia to Australians as an affordable destination. He also sees Kuala Lumpur developing as a hub for people wanting to visit China.

Talks are now underway with both Boeing and Airbus as well as aircraft lessors about additional aircraft.

“What I’m trying to do is put extra widebody capacity in place for the second half of next year and 2019,’’ Bellew said, noting this would give the airline the capacity to service Brisbane.

Also in the pipeline when the airline receives its Boeing 737 Max 10 aircraft in 2021 are lie-flat business seats similar to the Mint product introduced by JetBlue in the US.

“I’m shamelessly copying what JetBlue have done,’’ Bellew said, describing Mint as a “fantastically innovative product”’ that would be popular on routes to China and Perth.

UPDATED: Australian police raids foil airliner ‘bomb’ plan

Australia has tightened airport security after authorities foiled what they say was a plan to take down an airliner, with at least one report claiming the target was an international flight to the Middle East.

Passengers are being told to allow extra time and minimise cabin baggage when checking into airports after the New South Wales Joint Counter Terrorism Team (JCTT)  arrested four men in raids in several Sydney suburbs on Saturday.

Australian Prime Minister Malcolm Turnbull said security had been increased at Sydney Airport since Thursday and extended to all major international and domestic terminals overnight.

“I can report last night that there has been a major joint counterterrorism operation to disrupt a terrorist plot to bring down an airplane,” Turnbull told reporters. “The operation is continuing.”

The Australian newspaper said Monday it had been told by sources the plan was to attack the plane with “a non-traditional device” explosive device that would have used a toxic sulphur-based gas to kill or immobilise everyone on the plane. The newspaper said authorities believed the plan had been orchestrated by Islamic militants in Syria.

Transport Minister Darren Chester said additional security measures were put in place at Sydney, Melbourne, Brisbane, Darwin, Perth, Adelaide, Canberra, Cairns, Gold Coast and Hobart airports.

Both Chester and Turnbull urged travellers to go about their business with confidence.

“Some of these measures will be obvious to the travelling public, others will not,’’ Chester said. “The increased measures will include additional checks of cabin and checked baggage.

“These additional measures complement the security arrangements already in place and are being applied as an extra precaution, in coordination with counter terrorism raids in Sydney last night.”

Searches were conducted at five properties in the Sydney suburbs of Lakemba, Surry Hills, Wiley Park and Punchbowl on Saturday by Australian Federal Police, New South Wales Police and intelligence agency ASI0.

Australian Federal Police commissioner Andrew Colvin said the attack planned to use an improvised device to target an Australian plane.

Colvin described the threat as “credible’’ and said authorities believed it was Islamic-inspired.

But he said there was no evidence to suggest airport security had been compromised.

“Australia has some of the best, if not the best airport security arrangements in the world and we’re confident those measures are effective and would have been effective, in this circumstance,’’ he said

Colvin cautioned the investigation was “at very early stage” and that searches at four of the five raided premises were ongoing.

“And we anticipate they will be ongoing for many hours if not days,’’ he said.

The ABC reported it had been told police had found materials and items that could have been used to make a homemade bomb at a property in inner-city Surry Hills.

The broadcaster said it understood authorities believed the group was intending to smuggle the device onto a plane.  Seven News later said it had been told the target was an international flight tot he Middle East, possibly Dubai.

It is not clear how long the extra security measures will be in place and airlines have been texting and emailing passengers to urge them to be prepared.

There is no change to what can or cannot be carried on aircraft but travellers are being advised to arrive two hours before domestic flights and three hours before international services.

They are also being asked to limit the amount of carry-on and checked baggage where possible to help ensure the efficiency of security screening.

As expected, the Monday-morning surge in traffic caused long lines at major airports but passengers appeared to generally accept the need for tighter security.

The Qantas Group, which includes low-cost carrier Jetstar, said it was working closely with government and airport partners to implement the increased measures.

“Australia has very strong safeguards in place at its airports; these changes are about making them even stronger,’’ it said.

Virgin Australia said in a statement: “The travelling public can expect to experience an increased level of security scrutiny at the airport but they should not be concerned about these precautionary measures.

“As the measures place an additional burden on the screening system, it may take a little longer than usual to get through the process.”

US authorities warned of ongoing terrorist interest in targeting commercial aviation when they introduced a controversial ban on taking laptops and other large electronic devices as cabin baggage on direct flights to the US from airports in the Middle East and North Africa.

In a Q&A released at the time by the Department of Homeland Security, the US said it was concerned about terrorists “ongoing interest in targeting commercial aviation, including transportation hubs over the past two years, as evidenced by the 2015 airliner downing in Egypt, the 2016 attempted airliner downing in Somalia, and the 2016 armed attacks against airports in Brussels and Istanbul”.

“Evaluated intelligence indicates that terrorist groups continue to target commercial aviation, to include smuggling explosive devices in various consumer items,’’ it said.

The DHS  has since lifted the laptop ban but required airports operating direct flights to US destinations to have in place “enhanced” security measures.

These included a boost to overall passenger screening, heightened screening of personal electronic devices as well as increased security protocols around aircraft and in passenger areas.

Chester said security measures in place in Australia included passenger, cabin and checked-luggage screening as well as hardened cockpit doors, security-related cabin crew training and plain clothes in-flight security officers.

He said the government also worked closely with airport operators to ensure that physical security measures were in place to protect publicly accessible areas of airport terminals.

“This includes the design of airport infrastructure to reduce the impact of a terrorist attack,’’ he said.

“As the Prime Minister has said, the safety and security of the travelling public is the government’s number one priority.”

Airline chiefs generally upbeat as Etihad posts massive $US1.87b loss

Etihad loss massive

Airline chiefs are generally optimistic about the future despite a headline-grabbing $US1.87 billion loss at Etihad Airways caused mainly by a fleet write-down and one-off charges related to troubled airline investments.

A business confidence survey conducted in early July by the International Air Transport Association found that more than three-quarters of airline chief financial officers and heads of cargo indicated profitability increased in the second quarter of calendar 2017 compared to last year.

“Industry heads were markedly more confident about the outlook for profitability over the year ahead than they have been in recent surveys, mainly reflecting expectations that the demand backdrop will remain robust,’’ the survey said.

“Once again, the survey responses were consistent with the strong opening to 2017 for both passenger and freight volumes.

“Given the broad-based pick-up in global economic conditions, more than four-fifths of respondents expect passenger volumes to rise over the next 12 months, while the majority of respondents expect air freight volumes to continue their positive growth trend over the year ahead too.”

Half of the respondents to the Business Confidence Survey reported decreased operating costs and responses about yields “were consistent with the bottoming out of passenger yields and an upward trend in freight yields’’, the survey said.

Airline employment was also up, with 44 per cent of respondents planning to add workers in the year ahead.

But it was a gloomier appraisal that came out of Etihad’s headquarters in Abu Dhabi.

The Etihad loss compared to a profit last year of $US103m and comes at a time the Gulf carriers have been hit by lower oil prices, increased competition and external events such terrorism in Europe and adverse US government policies.

Earlier this year, Dubai-based Emirates announced a 70 per cent slump in 2016-17 annual profit as officials predicted another challenging year due to “hyper competition” and volatility in many markets.

“This year is just as challenging for the global aviation industry and the ever-evolving competitive environment is likely to impact overall performance in 2017,’’ said Etihad interim group chief executive officer Ray Gammell. “However, our airline business remains strong and class-leading, and as an aviation group, we are in a stronger position.”

Etihad Airways chief executive Peter Baumgartner added: “We are in an industry characterised by overcapacity, declining market sizes on key routes, and changing customer behaviour as a weak global economy affects spending appetite.

“Our answer to these challenges is innovation and reinvention, and this gives Etihad Airways a competitive edge as we seek to leverage opportunities offered to us by a changing environment.’’

Etihad took a $US1.06 billion charge on aircraft to reflect the market value of the planes and the fact it was moving early to phase out some types.

It also wrote off $US808m on investments made under previous chief executive James Hogan as part of a strategy to expand the airline’s global footprint. These mainly related to failed carrier Alitalia, currently in administration after unions rejected a restructuring deal, and financially-troubled airberlin.

The charges suggest it is following a strategy used by Qantas to get its balance sheet in order by taking the write-downs in one massive hit. Qantas subsequently posted record profits.

Etihad said legacy fuel hedging contracts also affected 2016 performance, although this was expected to have a diminished financial impact in 2017.

Etihad did not provide an underlying pre-tax result but noted passenger revenue at the “core airline” had remained flat at $US4.9 billion, despite an increase in passengers from 17.6 million in 2015 to a record 18.5 million in 2016. Capacity was up by 9 per cent.

Yields, a measure of average fares, fell 8 per cent “amid market capacity pressures and the tough global economic climate” but this was partially offset by an 11 per cent reduction in costs.

“Yields were under pressure in all cabins, with business class impacted particularly as corporate travel policies continued to encourage flyers to downgrade to Economy,’’ Baumgartner said.

Etihad has been shedding staff as part of a restructuring program called Right Size & Shape which Gammell said had produced savings of about 4 per cent by the end of 2016.

“We are focused on maintaining the solid performance of our core airline business – operationally and financially – even amid difficult market headwinds,’’ he said. “At the same time, we continue to implement changes across the group as part of the comprehensive strategic review, with a focus on improving revenues and reducing costs. ‘’

It was better news in Singapore, where SIA Group airlines reported a 45.6 per cent rise in first-quarter 2017-18 operating profit to $S281 million ($US207m) after a surprise loss in last year’s fourth quarter.

Singapore Airlines, SilkAir, Budget Aviation Holdings, SIA Cargo and SIA engineering were all profitable with profit at the “parent airline’’ up from $S197m in the first quarter of 2016-17 to $S241m.

Passenger revenue rose  $S121 million as traffic increased by 7.6 per cent.

However, the airline said the business outlook remained challenging “as the uncertain global economic climate and geopolitical concerns, coupled with overcapacity in our key markets, continue to dampen yield performance.

“Fuel prices are expected to remain volatile in the months ahead, as the global oil market continues to adjust to demand and supply conditions,’’ it said.

Branson cedes control in bold alliance between Virgin Atlantic, Delta and Air France-KLM

DELTA Air Lines, Air France-KLM, and Virgin Atlantic are moving to deepen their alliance with a set of cross-ownership transactions that will move the industry another step towards international consolidation.

The airlines are hoping competition regulators will allow them to better co-ordinate frequent flyer programs, airport facilities, scheduling and fares in a move that will also see billionaire Richard Branson’s stake in the airline he founded cut to 20 percent.

The plan sees Delta buy a 10 per cent stake in Air France-KLM worth €375m euros ($US438m) as the European giant takes a 31 per cent stake in Virgin Atlantic for £220 million ($US287m). Delta already owns 49 per cent of Virgin Atlantic, a stake it bought in 2013.

The trans-Atlantic deal comes as China Eastern is also moving to buy a 10 per cent stake in Air France-KLM to strengthen the commercial ties between the two carriers. China Eastern and Delta are each subscribing equal amounts to two reserved capital increases totalling €751 million to obtain their shareholdings.

The partners are seeking a 15-year partnership and Delta said the expanded joint venture, which would include troubled Italian airline Alitalia, would offer customers “the most comprehensive“  trans-Atlantic network with almost 300 daily non-stop flights.

“A dynamic global landscape means it’s more important than ever for Delta to deepen ties with our global partners to provide opportunities for mutual growth,” Delta chief executive Ed Bastian said in a statement. “Bringing together the strengths of Delta, Air France-KLM and Virgin Atlantic into a combined joint venture will create the trans-Atlantic partnership of choice for customers.”.

Branson founded Virgin Atlantic in 1984 and said the deal would help the airline better compete with British Airways and its US alliance, partner American Airlines.

He told staff in an open letter that the alliance with Delta had already helped Virgin Atlantic with a traffic feed from America and the relationship with Air-France KLM would help overcome a lack of slots in London to provide network and connections in Europe.

He predicted the alliance would “extremely beneficial’’ to Virgin Atlantic.

 “We’ve also agreed with our partners how important it is the Virgin Atlantic brand lives on as part of our arrangement, and I will remain the largest individual shareholder,’’ he said.

“As I get a little older, I want to be certain that all the necessary building blocks are in place for Virgin Atlantic to continue to prosper and grow for the next 50 years.

“The airline industry has consolidated over Virgin Atlantic’s lifetime and it’s now our turn to put ourselves at the heart of an important alliance, to create a stronger customer champion and build an airline which provides great opportunities for our team around the world.’’

Delta has made a number of investments and alliances in past decade, mostly with fellow members of the SkyTeam global alliance, aimed at extending its global reach  

The Atlanta-based airline’s existing joint venture with Air France-KLM dates to 2009, with the addition of Alitalia in 2010.

It launched a joint-venture with Virgin Australia in 2012 and entered into an enhanced marketing arrangement with China eastern in 2015 that included buying a 3.5 per cent stake.

In 2017,  Delta launched its joint cooperation agreement with Aeromexico, increasing its equity stake in the carrier to 49 percent, and announced a joint venture with Korean Air Lines.  The US carrier also holds a 9.5 percent equity interest in Brazil-based airline GOL.

 Air France-KLM said the China Eastern deal would secure its presence in the Chinese market and give it a leadership position in China Eastern’s Shanghai hub.

It is also looking for increased cooperation in terms of network, pricing and operations and said the move would take place  “in accordance” with the partnership strategy of Delta, which holds a 3.2 per cent stake in China Eastern.

 “This partnership which is unprecedented in scale gives Air France-KLM a leadership position in the worldwide airline industry,’’ Air France-KLM chief executive Jean-Marc Janaillac said in the announcement.

“With Delta and Virgin Atlantic we are reinforcing our trans-Atlantic alliance, making us the number one alliance between Europe and the United States in terms of traffic. With China Eastern, we are consolidating our position on a high-growth market. ‘’

Qatar confirms Sydney, Canberra flights.

Qatar

Qatar Airways has confirmed it will start double-daily Sydney services from February 13 with a  “tag”  flight connecting Australian capital Canberra.

The airline will use a 358-seat Boeing 777-300 aircraft to fly Doha-Sydney-Canberra and then Canberra-Sydney-Doha.

The big jet will be flying the short Sydney-Canberra hop alongside ATR and Q 400 turboprops but it will not be able to fly domestic passengers between the two Australian cities.

It will be competing for passengers with Singapore Airline’s direct flight between Singapore and Canberra.

Singapore recently retimed that flight to improve connections with other flights in its network and make the service more efficient.

Qatar had used up its rights under the current bilateral air services agreement to service Australia’s major gateway airports of Sydney, Melbourne, Perth and Brisbane.

However, it is allowed an additional seven frequencies a week to one of the major airports provided it operates the “via or beyond to a point in Australia other than Sydney, Melbourne, Brisbane and Perth’’.

“The services intended to be operated by Qatar Airways to Canberra via Sydney are accommodated under this entitlement,’’ a spokeswoman for Transport Minister Darren Chester said.

Qatar Airways group chief executive Akbar Al Baker described Canberra as an important addition to the global route map that further boosted ties between the countries.

“We are confident our highly-acclaimed product will appeal greatly to government, business and leisure travellers alike and we look forward to welcoming our passengers on board very soon,”  he said in a statement.

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