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Pacific Islands Development Program, East-West Center

With Support From Center for Pacific Islands Studies, University of Hawai‘i


Tonga Businesses Worried Over Local Air Services
Average lifespan of domestic airlines about 3.6 years

NUKUALOFA, Tonga (Matangi Tonga, Jan. 24, 2013) – The pull-out of Chathams-Pacific airline and government plans to lease out two gifted aircraft has got businesses nervous over the uncertainty of ongoing domestic air services and their economic reliability.

At a Tonga Chamber of Commerce & Industry members event yesterday, January 23, the local business community expressed their frustration at Chathams-Pacific's decision to end its service in Tonga. Questions were raised over the reliability of a replacement locally-run airline.

The meeting came eight days after Chathams-Pacific's General Manager Noel Gillespie announced the airline would be ending its service in Tonga, saying they had lost "business confidence in Tonga" after discovering government's intentions to facilitate competition by leasing aircrafts to an alternative air service.

Short life of airlines

Former Minister of Transport, Paul Karalus, a veteran of the Tonga's airline industry, presented a view on Tonga's 40 years of domestic airline services, and said that Tonga has had eleven airlines, with an average life of 3.6 years for each airline. "This is not good on an international scale."

His paper outlined the issues to be taken into account when determining the minimum regulatory and economic requirements, "for adequate, reliable and safe domestic air services for the Kingdom."

He criticized a Chinese-built aircraft project for Tonga.

"There has yet to be full and total consultation of the public despite the government apparently embarking on a major exercise in the acquisition and operation of aircraft from the People's Republic of China. While heralded as a "grant" the public needs to be aware of the huge call for capital that will be required to establish a new airline, and, once operational, of sustaining its viability," he said.

He explained how it was important to match the aircraft type to the market for it to be economically sustainable and profitable. "Pricing of air services is very much dependent on an optimum match of aircraft to routes, the traffic on those routes and the economic utilization of the aircraft chosen," he said.

"Even a gifted aircraft has numerous costs involved, not least of which is the replacement cost at the end of its useful life."

New aircraft

Paul believed the new aircraft the MA60 and Harbin Y12 would be a commercial failure in Tonga because they would not meet the market needs and the highly valued MA60 would require a lease rate that the market could not support.

He stated the MA60 model, "being a 60 seater aircraft means that it would operate less than 1000 hours per year; an unsustainable level for a new aircraft, both economically and financially. Regional services could increase this, but the cost of certification would be beyond Tonga’s financial capacity."

A member pointed out that the MA60 was not certified in the U.S., UK, New Zealand or Australia.

Uneconomical

Paul added that the 17-seater Harbin Y12 would be "impossible" to run commercially in Tonga because it would not be able to accommodate fuel costs with lower pay loads.

"Fuel costs, the minimum fuel loads required for the sector and, now, the considerably higher body weights of passengers in Tonga, all combine to make such aircrafts uneconomical as they cannot carry an economic revenue payload over the sector."

Paul said the government "has yet to divulge its scheme to reenter the domestic airline industy. The government has obviously been in negotiation with the People's Republic of China to provide assistance in supporting the domestic airline industry." He believed that a government task force had been set up "to further the intention of government to accept a grant from the PRC of up to US$25 million equivalent for the supply for aircraft and initial operational support."

"The Deputy Prime Minister told the House on 18 June 2012 that the task force included members from Tonga Airports Ltd., Air Terminal Services, Palu Aviation and others to work on the details of the project before it was brought back to the House for final approval."

But Paul believed that it had not been brought back to the House since then.

He said the project was said to be one where government receives aircraft as gifts "and then passes this on to the private sector for it to be operated."

Paul said this opened a number of questions that need to be answered.

"The question we now have now in Tonga is really this: can the market sustain more than one airline and can the economy of that one airline be improved upon to make air services more affordable and safe?

"To fully answer this question requires a lot more thought than the simplistic idea that 'competition results in cheaper services' when it may well be that the result will be a spasmodic boom for the travelling public followed by a bust for the airlines.

"To think that two airlines can provide competition is probably not going to happen. The real competition for an airline here is the ferry," said Paul.

In conclusion, he said "consideration needs to be given for where best for Tonga and Tongans to direct local scarce capital."

Concerns

Concerns were expressed by Chamber members over safety issues and ongoing uncertainties.

One of the largest tourism operators in Vava'u, Shane Walker said that Chathams Pacific was the first airline to pull out rather than go broke and he questioned their reasons. He said that in the eight days since the Chathams Pacific announcement it had caused over NZD$80,000 [US$46,053] in yacht charter and resort cancellations. "This is a Chathams decision and what follows is a period of uncertainty." He said he was gravely concerned that the uncertainties could lead to international tourism operators simply pulling out of Tonga and relocating their investments elsewhere.

Real Tonga

Meanwhile, Real Tonga has announced today, January 24, that it will commence air service on the 4th March after securing a lease of two Y-12 aircrafts from Vanuatu.

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