Air Pacific Ltd. Business Information, Profile, and History

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History of Air Pacific Ltd.

Air Pacific Ltd. of Fiji is a leading airline in the South Pacific. Its main international markets are Australia and New Zealand. The airline maintains a fleet of up to a half-dozen jets. Its base, Nadi International Airport, is an important stopover on transpacific routes. Air Pacific participates in a number of codesharing arrangements.

Origins

Air Pacific Ltd. was not the first airline to connect the islands of Fiji. Fiji Airways, an airline backed by Guinea Airways, was established in Adelaide, South Australia, in 1932. It began short-lived services in the spring of 1933, according to A History of the World's Airlines by R.E.G. Davies.

In 1947 New Zealand National Airways Corporation (NZNAC) began a flying boat service connecting New Zealand with Fiji, Tonga, Samoa, and the Cook Islands. This was called the "Coral Route." The Australian airline Qantas also began flying to Fiji in the late 1940s.

Harold Gatty, the famous aviator dubbed "the Prince of Navigators" by Charles Lindbergh, established a second airline called Fiji Airways in September 1951. It was originally named after Gatty's coconut farm, registered in 1947 as Katafaga Estates Ltd.

Gatty had flown to fame with Wiley Post in their 1931 circumnavigation of the globe. He had then helped Pan American Airways set up its South Pacific routes. He then settled in Fiji with his Dutch-born wife.

Fiji Airways was acquired by Qantas in August 1958. Air New Zealand and British Overseas Airways Corporation had acquired stakes in the mid-1960s, as did the governments of Tonga, Western Samoa, Nauru, Kiribati, and the Solomon Islands. The intent was to make Fiji Airways a regional airline.

Fiji Airways used small de Havilland Dragon Rapide and Drover aircraft at first. The fleet soon included Douglas DC-3s. Several de Havilland Herons were added after the acquisition by Qantas, and the network spread throughout neighboring islands.

In 1971, the fleet was standardized to include BAC1-11 jets and Hawker Siddeley 748 turboprops. The airline's first international flight, to Brisbane, Australia, came on June 1, 1973. (Its flight engineer was future Air Pacific CEO Andrew Drysdale.)

In the 1970s, tourism surpassed agriculture as Fiji's leading industry, making Air Pacific's role in the country's economy even more important. The government of Fiji acquired a controlling interest in Air Pacific in 1974. Services to Auckland, New Zealand were launched in 1975, followed by Brisbane (via Noumea) in 1975.

Challenges in the 1980s

A 1981 New York Times profile of the region's aviation industry described some of the challenges of operating in the South Pacific. The long over-ocean stretches required more catering, and salt spray made corrosion an issue.

Around 1984, the government of Fiji, planning to buy out some of its partners in Air Pacific, stopped requiring the airline to maintain loss-making jet connections with neighboring isles. The airline received no subsidies. It also had to finance its own aircraft. While there was little competition at home, international routes were contested by larger rivals. The company's main market was Australia, which saw Fiji as an exotic yet affordable vacation spot.

Air Pacific used a DC-10 jet to begin flying to Honolulu in 1983. This adventure, dubbed "Project America," produced disastrous results, however, and was canceled after 14 months.

Air Pacific was losing $4-$7 million a year and had accumulated losses of more than $20 million when Qantas began a ten-year management contract with the airline in 1985. Its fortunes were soon reversed, when in 1986, it posted a profit of nearly $100,000. According to the Journal of Commerce, the association with Qantas helped Air Pacific win business from travel agents. Qantas paid a reported $3.5 million for a 20 percent stake in Air Pacific in 1987.

Two coups in 1987 disturbed the local travel industry. As Air Pacific CEO Andrew Drysdale told Airline Business, however, the importance of Fiji having its own national airline was underscored when other international carriers temporarily withdrew from the market.

Forging Alliances in the 1990s

Operating profit hit a record $11 million in fiscal 1989-90. Revenues were up 52 percent to about $100 million. The airline was carrying about 300,000 passengers a year. The fleet then included two leased jets, a Boeing 747 and Boeing 767, and two ATR-42 turboprops, bought in 1988. There were about 650 employees.

Air Pacific relocated its headquarters from the capital city of Suva to the coastal town of Nadi, site of the main international airport. The company also constructed an elaborate aircraft maintenance center there.

The airline tried the American market again in 1994, adding a service to Los Angeles. By this time, Continental Airlines had abandoned its South Pacific routes. There was also increasing awareness of Fiji in the United States.

Air Pacific also soon added flights to Melbourne as Qantas reorganized its transpacific services. In a unique cooperation with another Polynesian carrier, Air Pacific jointly leased a Boeing 737 with Royal Tongan Airlines. The two airlines' colors were painted on opposite sides of the plane.

Qantas raised its equity in Air Pacific from 17.45 percent to 46 percent in 1998. It paid FJD 27 million for the additional shares. The government of Fiji owned 51 percent.

Qantas was a member of the oneworld global airline alliance, and deals with fellow oneworld members followed its increased participation in Air Pacific. Air Pacific signed a codeshare agreement with Canadian Airlines, allowing it to transport traffic from Toronto on to Auckland, New Zealand. A codeshare with American Airlines soon followed.

By this time, the airline had 730 employees. The fleet included up-to-date Boeing 737 and 767 jets. ATR-42 turboprops were used on flights to neighboring islands.

By the late 1990s, the airline had experienced something of a turnaround in the main direction of its cargo trade. Whereas inbound freight of consumer goods had dominated previously, the airline then had trouble filling the belly capacity of its passenger airliners with westbound cargo. Air Pacific had little cargo marketing support in the United States, reported the Journal of Commerce. Its flights from Fiji to Los Angeles were, however, full of fresh fish, fruits, and clothing.

The airline was thriving on the strength of passenger traffic. Revenues were FJD 371 million in the fiscal year ended March 31, 1999, with profits rising 60 percent to FJD 13 million. These impressive results were achieved in the face of a currency devaluation. Air Pacific carried 412,000 passengers during the year.

Air Pacific was beginning a large expansion program, raising the fleet to six aircraft (three mid-sized Boeing 737s--two of them the latest -800 series variant, a widebody 767, and two 747s) and adding flights to Australia and North America.

New Planes, New Challenges in 2000 and Beyond

While some airlines worried about whether to cancel flights during the changing of the millennium because of possible Y2K computer issues, Air Pacific used Fiji's location on the International Date Line to offer passengers a flight with two New Year's celebrations. In spite of this auspicious beginning, the year was to be a very challenging one. There was another coup in May 2000, which devastated the economy and led tourists to avoid the country. Faced with a falloff in traffic, Air Pacific returned one of its two leased Boeing 747 jumbo jets. Such measures were not enough to avoid the worst loss in its history, which totaled FJD 38.5 million ($15 million) in fiscal 2000-01.

Air Pacific was soon in the black again, however, and made FJD 10 million ($3 million) in the fiscal year ending March 31, 2002. By 2003, tourist arrivals, which fell to 270,000 after the 2000 coup, reached record levels (about 400,000). Fiji seemed to benefit from its relative isolation from world events following the 9/11 terrorist attacks on the United States.

Air Pacific was replacing its remaining 747 with two newer ones leased from Singapore Airlines. Two Airbus A330s were being bought to add to the fleet in 2005. These deals, worth FJD 1.3 billion, were the largest business investment in Fiji's history, according to New Zealand's National Business Review. This amounted to nearly two-thirds the country's annual GDP.

The additional capacity allowed for more frequencies on long-haul routes. Managing director John Campbell told Wellington, New Zealand's Dominion Post that the airline expected strong price competition from Air New Zealand, which also was adding capacity, and new entrant Virgin Blue. Air Pacific also faced being undercut by charter operators and tour packagers.

Air Pacific remained profitable and reached another record in fiscal 2003-04, posting net income of FJD 24.5 million for the year. Weaker U.S. currency against the Aussie and Kiwi dollars contributed.

Principal Operating Units: Air Pacific Charters; Air Pacific Holidays; Airport Ground Services.

Principal Competitors: Air New Zealand; Virgin Blue.

Chronology

• Key Dates:
• 1951: Fiji Airways is founded by famed aviator Harold Gatty.
• 1958: Qantas acquires Fiji Airways.
• 1971: The airline is renamed Air Pacific Ltd.
• 1973: The airline schedules its first flight to Australia.
• 1974: The Fiji government acquires a controlling interest.
• 1985: Qantas begins managing Air Pacific through a turnaround.
• 1987: Coups upset Fiji tourism.
• 1994: Air Pacific begins service to Los Angeles.
• 2000: Another coup rattles the local tourist industry.
• 2004: A new FJD 1.3 billion airliner order is the largest commercial investment in Fiji history.