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Tuesday, February 1, 2005

Charter/Air Taxi

Kathlyn Horibe

Charter, Air Tour Operations Going From Bad To Good

BUSINESS APPEARS TO BE ON THE upswing this year for charter and air tour operators, who are finally surfacing from the ashes of September 11th. The economy is recovering and confidence in air travel is returning, with the U.S. Office of Travel and Tourism Industries predicting 5 percent more international visitors, offsetting three consecutive years of decreases.

Viewed as a relatively safe region, the Caribbean is also a bright spot. In the rest of the world, growth has been less than stellar due to fluctuating currency rates, sky rocketing fuel prices and soaring insurance rates.

For Los Angeles-based Helinet Aviation Services, business doubled in 2004 due to a revitalized economy and overall business growth. The biggest chunk of its revenue comes from wet-leasing 26 Eurocopter AS350s to TV stations throughout the country for electronic newsgathering (ENG). The balance of its 50-helicopter fleet supports medical transport, law enforcement, corporate charters for Fortune 500 companies and aerial coordination for Hollywood blockbusters like "Pearl Harbor."

With the acquisition of Cineflex, Helinet grew its business thanks to a live, high-definition aerial camera system. The HiDEF is used in the ENG operations of network television affiliates in Denver, Phoenix and San Francisco and in the TNT broadcasts of the NBA, kicking off with the Detroit Pistons' home opener against the Houston Rockets. With the system's ability to depict details as small as a car license plate, it can also be applied in motion pictures and law enforcement agencies for that split-second life-or-death decision.

On Kauai, Hawaii, tourism was up in 2004 resulting in 2 percent growth for Air Kauai Helicopter Tours. More direct flights took off from the mainland United States to Lihue and the average stay increased from three to five or seven days.

"In past years, most visitors flew into Honolulu and transferred to an inter-island carrier," said Chuck DiPiazza, president of the last of Kauai's 10 air tour operators to start up.

With the island's high proportion of timeshares and vast choice of activities, attracting repeat customers is a challenge. Other unique conditions include the salty environment that corrodes the customized AS350BA and B2 helicopters and the island's remoteness, which requires high overhead costs in obtaining a half-million dollars worth of spare parts.

Caribbean Helicopters, Ltd. of Antigua is well acquainted with these challenges. Cindy Fleming, general manager, admitted a lot of time is spent on maintenance planning. "In an AOG situation, the added challenge is getting the part out of customs. The tropical climate can also be an issue."

Nevertheless, Caribbean Helicopters' revenues are up 30 percent. The hotel and cruise sectors increased partially due to the weak dollar, which is pegged to the Eastern Caribbean dollar at a fixed rate. Last year, 9,000 passengers were transported on three Bell 206s outfitted with pop-out floats. The company provides tours, aerial photography, medical evacuation and search and rescue to Antigua and the surrounding islands of Montserrat, St. Kitts and Nevis.

Compared to the United States and the Caribbean, the picture's not as bright in Asia and Australia.

"The 2004 cycle will be down by 7 percent compared to 2003 due to a decrease in agricultural spraying and the transport of materials," said Ken Asano, president and chief executive officer of Aero Asahi Corp.

Established in 1955, Japan's oldest helicopter operator services the agricultural and forestry industries and provides cargo and medical transport, newsgathering, aerial photography, corporate charters, movie filming and sightseeing flights. With 82 rotorcraft of 11 different models, Aero Asahi has the largest share of Japan's helicopter market.

"One of the challenges unique to Japan is the rescue operations to areas hit by earthquakes and typhoons," Asano said.

About 1,000 earthquakes rock Japan each year, while an average of 10 typhoons wreaks havoc. In July 2004, a series of quakes in northern Japan caused $202 million in damage.

The pace has also slowed for Australia's Cape York Helicopters due to less government work, though the first six months were busy, said Capt. Dennis "Brazakka" Wallace, director and chief pilot.

Located in North Queensland, the company operates from Kuranda, outside Cairns, and from Horn Island in the Torres Strait. With a fleet of five R44s, Cape York supports mining, power line, pipeline and geographical surveys; fights fires; conducts property inspections and provides helicopter safaris for fishermen and hunters. Cairns is the gateway to the Great Barrier Reef, stretching over 1,200 mi. along the northeast coast. Americans, Japanese and Europeans are ferried to the region's world heritage site rain forests, reefs and outback.

Though Cape York's growth is sluggish, according to Des Davey, managing director of Heli Biz, new helicopter sales increased by 26 percent, with pistons out-selling turbine helicopters, which he attributes to an ongoing demand in Australia for economical and affordable aircraft to own and operate. Though Eurocopter enjoyed buoyant sales, the R44 Raven II outsold other Robinson models by 100 percent both this year and last.

"The R44 perfectly complements an AS350 or LongRanger without the expense of starting up a turbine for smaller and shorter flights," Davey said.

On the other side of the world in Belgium, the first nine months of the year were stagnant, said Claude Cauwe, manager of Sky Project Aeronautics. Despite some increase in public service sectors, leisure flights kept on decreasing. He speculated the media might be responsible as some newspapers arranged to arm passengers with screwdrivers or box cutters to test airport security.

"As some succeeded in getting through, the general and hasty conclusion drawn by the media was that flying was unsafe," Cauwe said.

With preferential leasing agreements for five rotorcraft, including two Robinsons and an AS355 TwinStar, Sky's aim is to lease more Eurocopters in case of an imports disagreement between the United States and Europe. "We don't want to rely on politicians to get our spares delivered at regular price," he explained.

An emerging market for Sky is air ambulance flights. Though Belgium is a small country with short traveling distances, traffic jams are increasing. Also, a national catastrophe occurred in mid-2004. An underground gas pipeline burst in a town near the French border, killing 14 people and burning more than 200. With only three ill-equipped medevac helicopters, Belgium had to call in its army helicopters as well as France's SAMU rotorcraft.

In Canada, September 11th and severe acute respiratory syndrome (SARS) was a double whammy from which some operators in Ontario were still recovering in 2004.

"Basically, we held our own this year as far as continued business, but any expansion has been difficult," said David Tommasini, president of Four Seasons Aviation, who estimated business dropped 25-30 percent.

SARS brought the Toronto film industry, which accounts for the majority of Four Seasons' business, to a standstill, and now the rising Canadian dollar and political pressure to keep movie productions in the United States has resulted in a noticeable drop. Its AS355F1 TwinStar has been used in making films like "Fly Away Home," with one of two AStars dedicated to newsgathering.

Another concern for Tommasini is a tightness in the helicopter market for qualified personnel. "Salaries are rising due to demand without reflecting the quality of the work or ability."

For National Helicopters Inc., 2003 dried right up to essentially nothing because of SARS, said Dan Munro, president and operations manager. For 2004, operations were almost back to normal.

Founded in 1985, National generates the majority of its revenue from sightseeing and corporate charters for clients like golf legend Jack Nicklaus and media mogul Ted Turner. The company operates a fleet of 14 helicopters, using a Bell JetRanger and an EC120 to support two regional police forces, while a R22 Beta is used for flight training. Its service center handles third-party maintenance for both Bells and Robinsons.

Catering to tourists from Asia and the United Kingdom, National offers tours of Toronto and Niagara Falls. Flying over the United States, however, is a new ball game. "We have to acquire work visas as U.S. Customs and Immigration are much more stringent" regarding permitting crews to cross the border," Munro said.

As air tours over Niagara Falls account for almost all of his business, Andreas Engeli, president and chief pilot of Skyway Helicopters Inc., switched to corporate work in the early stages of SARS. This year, his business grew 30 percent mainly because of government campaigns to promote regions like Toronto and Niagara Falls.

In British Columbia, Wildcat Helicopters Inc. had a mediocre year compared to two years ago, when it operated 24/7 to fight the worst fire in 50 years around Kelowna, where the company is based.

"When California's burning in early May, we know we're probably going to get it good here," said Mike Michaud, president and operations manager, who dry-leases his rotorcraft and specializes in firefighting throughout Canada.

In 2005, fuel prices, insurances rates and maintenance costs will continue to plague both charter and air tour operators.

"Fuel increases will eventually have to be added into the hourly price," Cauwe said. Despite benefiting from a strong euro, he estimates a 20-percent increase in fuel by yearend, if the Iraqi conflict continues. With Canadian fuel costs the highest they've been since the first Gulf War, National recently raised its prices.

Discretionary operators, particularly those in the charter and air tour markets, will have trouble passing increased costs onto their customers and, as a result, they'll be considerably "oil-price elastic," said Dave Lawrence of Aviation Market Research.

The biggest killer for Skyways was the 20-25-percent increase in insurance, though the broker for National said the insurance market was starting to soften up.

Frustrating variables include the weak Australian dollar and the rise in the Canadian dollar. Last year, the Australian dollar was less than 47 cents U.S., while this year, it's almost doubled to 80 cents U.S.

"In the past two years, we've experienced a 100-percent increase in the cost of new aircraft," Davey said.

In the last four or five years, tourists came to Canada because of the low Canadian dollar, Munro said. Engeli believes its strength is already hurting the industry, though he's optimistic about 2005 as he feels the U.S elections affected traffic coming up to Canada. "After 9/11 and SARS, it can't get any worse," he said.

In the Caribbean, Canada, Australia and Japan, regulatory issues will put a real strain on manpower resources.

"In 2005, we have to operate to a new set of regulations, the third regulatory switchover in our nine years," Fleming said.

A major concern to the Canadian industry is the increased workload imposed by the regulatory maintenance side of Transport Canada. The regulatory challenges are never ending with changes every month, said Michaud who has people on staff solely to handle the paperwork.

Due to changes in Australia's Civil Aviation Safety Authority regulations, Davey anticipates an increased administration workload for aircraft owners that may dull some perspective buyers.

In Japan, Aero Asahi's Asano is trying to improve two government regulations, one that would set up an IFR policy to improve safety and cruising and the other to change how parts are certificated.

For Air Kauai, a continuing challenge is the FAA's SFAR 71. Applicable only in Hawaii, this emergency final rule was enforced in 1994 due to the number of helicopter accidents.

"As the resorts grow inland and up elevation, our minimums are being taken away with this rule of being so high above the ground and so far below the cloud and so far away from raw terrain," DiPiazza said. "Prior to SFAR 71, we couldn't fly on a handful of days because of the weather. Now that's well over 20 days a year."

Unfortunately for Air Kauai and other air tour operators, looming on the horizon is Part 136. The FAA's Air Tour Safety Rule would regulate a national standard. Lawrence thinks it will be enacted not so much because of safety but because it smacks of homeland security. To illustrate his point, he mentioned the recent theft of a crop-dusting helicopter.

"I'm not saying it's fair or even necessary," he added. "While it's going to be tough on some of the tour operators, the larger ones will be all right."

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