WA aviation growth eases as China demand slows

A report in the Australian says that the foot is coming off the accelerator of Western Australia’s aviation boom, but it’s only to change down from overdrive.

That is the prognosis from Skywest Airlines managing director Hugh Davin on the economic downturn that threatens to ground some planes at Perth’s overcrowded airport.

“The light is amber, not red,” Mr Davin said this week.

“There is some slight evidence of Chinese demand slowing down and any company that doesn’t take note of that is a very brave.”

Skywest, like a number of other operators, has been growing at an unprecedented rate serving the resource industry fly-in, fly-out market.

The airline has added two 46-seat Fokker 50s and five 100-seat Fokker 100s to its fleet in little over 15 months.

During the past five years, Perth Airport has experienced unprecedented growth in demand, with the number of passengers using the airport leaping from 4.8 million in 2001-02 to 9.15 million in 2007-08.

Mr Davin said Skywest’s client base was blue chip and, while the airline was not planning any changes, it would proceed with caution.

But he cautioned that failure of some of the smaller mining operations was a growing risk for some operators.

“You can’t dismiss the possibility and those who have been around the industry for a long time know these things happen,” he said.

Resource-contracted airlines are generally protected against both fuel and exchange rate losses in industry-standard contracts.

“Aircraft leases are in US dollars but under contractual terms we can recover the exchange rate impact,” Mr Davin said.

The upside for the resource companies was that their products were sold in US dollars.

Network Aviation general manager operations Wally Estermann concurs with Mr Davin’s take on the situation.

Mr Estermann noted that the Chinese had recently poured billions into new iron ore joint venture developments and were unlikely to turn off the tap.

“They (the Chinese) were keen to develop new mines to enable more sourcing options to reduce prices,” Mr Estermann said. “While there is some caution, the Chinese have made solid commitments and have indicated they are still going ahead. But other projects may be more susceptible to greater change.”

Mr Estermann added that Network Aviation’s plans to introduce a third Fokker 100, which was in Perth awaiting a D-Check, were still on track, with a new maintenance hangar under construction.

The airline executives believe the next six months will be pivotal to West Australian aviation. “It is going to tell us about the significance of any Chinese slowdown, it will tell us more about the (airline) competitive situation in WA and what the world economic slowdown is going to do to passenger traffic,” Mr Davin said.

On the regular public transport (RPT) front, Mr Davin suggested there has been a slowdown in the eastern states that was prompting some east coast operators to move capacity into WA.

Virgin Blue launched double-daily flights from Perth to Karratha and daily flights to Newman on Tuesday using Embraer jets.

Virgin chief executive Brett Godfrey said the launch of the new routes was a vote of confidence in the market and predicted WA would become an even more important part of the airline’s national route network.

But the power levers are coming off a little on RPT operations, cautions Skywest chief executive Paul Daff. “Fair to say a bit of a softening in the market, with mums and dads thinking a bit more carefully about the spending,” Mr Daff said.

However, that softening is not dampening Skywest’s enthusiasm for an A320 introduction next year or an additional Fokker 100. Mr Davin said: “We are looking at aircraft, collecting information and we may go for another F100.”

“And we are still working on the AOC for the A320 so we are ready to move early next year.”

The possible slowdown is also not affecting the plans of Westralia Airports Corporation, operators of Perth Airport. Work is proceeding at top pace on the preliminary earth works for the apron of Terminal WA, which will have 36 much-needed stands for mainly intra-state flights.

WAC chief Brad Geatches said: “Perth Airport’s plans for the delivery of new airport infrastructure remain on track. We expect to issue a draft major development plan for Terminal WA very soon.”

Mr Geatches also clarified reports that WAC was seeking government assistance with the airport redevelopment.

“WAC is not seeking any public funding for on-airport infrastructure,” he said.

“What we are seeking is the Government’s prioritisation of upgrades to the Main Roads WA arterial road network around Perth Airport.”

A Report by The Mole