As Australia's two major carriers struggle to improve their finances, a potential threat to the stability of the domestic market has taken a step closer to reality in the form of proposed startup Aussie Airlines.

After less than a year at the helm, Ansett Australia's executive chairman Rod Eddington is discovering his initial measures to revive the troubled carrier are not enough and his target of a 10 per cent margin looks tough to achieve within the planned three year period.

Eddington has returned to the drawing board in the wake of a loss of US$27.3 million in the year to 30 June, down from a profit of $44.9 million the previous year, with the promise of emerging with a full-blown restructuring plan. He has temporarily shelved plans to place a US$1.6 billion aircraft order before year end - a move previously heralded as vital to Ansett's fleet rationalisation.

The postponement was taken in conjunction with 50 per cent owner Air New Zealand, which deferred orders for six new B737s, so the two carriers can study joint aircraft acquisition. Eddington warns a piecemeal approach is no longer acceptable. 'We must put in place fundamental change, far beyond the scale of incremental change we are currently pursuing,' he says.

But Eddington is not alone in lamenting his carrier's poor performance. His counterpart at Qantas, managing director James Strong, is also unhappy. He warns that the carrier's earnings are falling behind its international competitors and is worried about falling service levels. 'As an airline, we are treading water in terms of operating profitability and we lag behind our peers,' he told a staff meeting. His presentation was 'leaked' to the media but Strong has refused to comment publicly. He told employees that while shareholders had received good returns, this was primarily a result of a reduction in debt. In its latest year, Qantas reported a 5.6 per cent increase in net profits to US$197.7 million, but the result included a $78 million gain on the sale of its stake in Air New Zealand.

Qantas and Ansett may yet have more to worry about. Aussie Airlines has cleared one of the main hurdles that has led to a 10-month delay in getting the proposed startup off the drawing board - raising the spectre of a domestic bloodbath as early as next year. The man behind Aussie Airlines, former head of failed Compass Airlines Brian Grey, has reached an agreement with Qantas for the lease of domestic terminal space after the major was forced into negotiations by the Federal Airports Corporation.

At presstime Grey was trying to put together the financing but says March 1998 is a target date for launch. He plans A300 services on major trunk routes. The incumbents, which lost around US$250 million in their last tussle with Grey in 1991, face a similar discount war this time around.

Source: Airline Business