ERA 2008: Eastern Airways remains unfazed by soaring oil prices

 - October 8, 2008, 6:45 AM

UK regional airline Eastern Airways is “exactly on track, or slightly ahead” of projections for this year, according to COO Chris Holliday. Although he attributes continued profitability to tight financial controls, Eastern has “always been extremely focused on costs,” he said.

The 10-year-old carrier, based at Humberside Airport, about halfway up the eastern coast of England, operates 30 aircraft on 20 scheduled routes from 18 airports in the UK and Europe and maintains an extensive contract and ad hoc charter business. As much as 80 percent of scheduled passengers travel on business. The airline has consistently ranked among the continent’s top airlines in European Regions Airline Association (ERA) award selections, having won Airline of the Year for 2006-07 and runner-up in 2003-04 and 2004-05.

“We wanted to provide a high-quality service that didn’t exist in the UK regional air travel market,” said Eastern chairman Bryan Huxford, who claims to have delivered a high standard that includes on-board champagne for passengers as part of its full-service approach. “We expanded our network to include underserved remote parts of the UK, while maintaining the levels of service, which has helped to make us a success.”

The strong business element in Eastern’s scheduled passenger traffic might
appear a liability as expected recession threatens to soften many markets, but the operator stands apparently unfazed even as load factors have apparently fallen this year. Indeed, far from reiterating other airlines’ complaints about the effect of high fuel costs, Holliday seems unalarmed by recently soaring oil prices.

One major reason no doubt lies with the fact that Aberdeen Airport is one of Eastern’s two most important bases. After major oil- and gas-field discoveries under the continental shelf between the UK and Europe more than 40 years ago, Aberdeen became the point of departure for related aviation in the British northern sector of the North Sea. The east-coast city remains the “oil capital” not only of Scotland, but also of the UK (and arguably Europe). The tremendous volume of North Sea helicopter traffic has made the airport reputedly “the world’s busiest commercial heliport.”

Given that much of Eastern’s business traffic relates to energy exploration and production, an increase in oil price has always reflected positively on the airline’s patterns of scheduled passenger traffic and in requirements for charter flights to support exploration.

Acknowledging that mid-year activity is “always flat,” however, because of the airline’s business-oriented traffic, Holliday ranks this summer “on a par with last year.” Scheduled traffic for this year’s first six months equalled January-June last year. At 280,000 passengers, total traffic–including a high proportion of ad hoc and contract charter work–rose 9 percent.

Holliday told AIN that Eastern typically adjusts its mid-year schedules to accommodate reduced demand. “In July, we reduced flights by 10 percent and by 20 percent in August [because of] the downturn in business traffic over the holiday months,” he said.

Planning for Capacity Changes
Eastern Airways was still in its infancy during the economic recession in the early part of this decade, which nevertheless proved a growth period for the fledgling carrier. Holliday said the airline’s business philosophy has always centered on matching capacity to traffic, placing “the right-size aircraft in the right-size market” and moving in and out of routes and adjusting capacity and frequency as necessary.

After starting in 1997 with no staff, no assets and no owned aircraft, the airline took a major step the next year by acquiring Manchester-based Air Kilroe, its two BAe Jetstream 32s and its air operator’s certificate. Eastern has subsequently proved its ability to “move in where others were moving out,” through the use
of smaller aircraft.

Holliday claimed that the collapse of other UK regional carriers, such as Gill Airways at Newcastle Airport, had no bearing on Eastern’s development, although he concedes that Eastern benefited from the British Airways decision to leave Newcastle. Its light-footedness also has seen the regional resurrecting routes previously abandoned by others. Asked about the prospects for Eastern’s development through the expected upcoming economic recession, Holliday is circumspect. “It’s too early to see if realignment opportunities will emerge this time round,” he said.

By late August this year, Eastern had seen no sign of growth driven by economic recovery in recent years blunted by higher fuel and other costs: “No, I don’t think so,” said Holliday. “We have an all-turboprop fleet, which has given us a fuel-efficient solution.”

A major factor no doubt rests with Eastern’s close monitoring of costs and therefore yield, which follows Ryanair’s “no fuel surcharges” approach: it simply raises its own prices. “We take the view that fares should reflect costs,” said Holliday. “Higher oil prices mean more [energy] exploration, which translates into increased traffic.”

Response to Market Demand
As a private independent operator, owned equally by chairman Bryan Huxford and managing director Richard Lake, Eastern does not have to consider other
shareholders when responding to market developments, especially competition. “We have a strong brand,” asserted Holliday, “particularly in Aberdeen and [some] other markets. Not being aligned [with any airline group or partnership] allows us to address any opportunity without constraint.”

An example remains the Manchester-London Stansted route, from which Eastern withdrew in 2006 when German low-cost carrier (LCC) Air Berlin introduced services. “We pulled out completely because it made no sense at all to operate against an LCC,” said Holliday. “But Air Berlin left [in 2007], allowing Eastern to step back in.” Earlier this year, the airline increased frequency on the route from three to four flights a day.

Holliday also cites its international trans-North Sea flights to Stavanger, Norway’s oil capital. “From Aberdeen, we’re happy financially competing against [Norwegian regional] Wideroe from Newcastle and against Wideroe/SAS Norway from Aberdeen,” he said. A third operator to Stavanger, Aberdeen-based City Star Airlines, ceased all services in January.

Eastern flies twenty-three 29-seat British Aerospace Jetstream 41s, one 19-seat Jetstream 32 and six 50-passenger Saab 2000s. The UK regional flies the world’s largest fleet of J41s, equipment it adopted for its “outstanding operating economics,” according to Holliday. It also uses the type to build frequency on strong routes. Meanwhile, Eastern has given little thought to replacement or retirement, especially given its large in-house maintenance capacity.

Holliday praises the Saab 2000’s combination of “passenger appeal, seats, airfield performance and operating-range envelope.” Eastern expects to have acquired one, and possibly two, more Saab 2000s by year-end. It uses the higher-capacity machines for Newcastle services to Aberdeen and London Stansted, and for four daily round trips between Norwich, which serves energy-industry business in the southern North Sea, and Aberdeen.

The Saabs also fly weekend holiday-charter services, which for their three-hour sector length the Swedish turboprops have proved valuable. Eastern will likely apply additional Saab capacity to a new route or an unidentified “other project,” according to Holliday. One Saab currently engages in wet-lease charter work in Sweden.

Eastern applies “no particular pattern” to its aircraft acquisition. “We like to own some, [but] we have to lease Saab 2000 capacity because there are so few available to buy,” Holliday said, who added that for any aircraft, the method chosen reflects the prevailing circumstances.

The “vast majority” of Eastern’s passengers are origin-and-destination travelers, although Aberdeen effectively serves as a hub from which it flies 11 routes.

Eastern employs around 420 people in the main airline business, with additional employees in associated activities such as a ground-handling joint venture. There are about 140 flight personnel and about 80 people engaged in maintenance. Flight crew represent a mix of long-term employees and more recent recruits. Holliday said the airline constantly looks for engineers, although the local workforce at Eastern’s main bases is stable.

So, in 2008 is Eastern where it wanted to be five years ago? “Yes, in the sense that we have become a significant regional airline with good punctuality, strong finances and high standards of service,” said Holliday. And by 2010? “We don’t have a rigid plan, because that means you cannot capitalize on opportunities, so our aims are in purely business terms to do what we need to do [to be successful].”