CIVIL AVIATION UPDATE: EXPANDING U.S. OPORTUNITIES IN FIJI,

UNCLAS SUVA 000032 PLEASE PASS TO EEB/TRA/AN, Terrie Robl E.O. 12958: N/A TAGS: EAIR FJ KI SUBJECT: CIVIL AVIATION UPDATE: EXPANDING U.S. OPORTUNITIES IN FIJI, KIRIBATI, AND THE PACIFIC ¶1. (SBU) Summary: Direct air links between the United States and Fiji will likely expand as Air Pacific seeks new destinations for its forthcoming five Boeing 787 Dreamliners. While direct negotiations between the USG and Fiji's interim government are off the table, Air Pacific seeks informal discussions with the USG about what an Open Skies Agreement might look like. Meanwhile, Continental Airlines is evaluating a Guam-Nadi-Honolulu routing, which would make it the only U.S. carrier flying into Fiji. Continental also hopes to begin service to Tarawa as part of its weekly Guam-Honolulu "island hopper" service if airport security and infrastructure issues can be resolved. Continental is also submitting a proposal to provide service between Hawaii and Christmas Island. End summary. Expanding U.S.-Fiji Links and OSA Discussions -------------- ¶2. (SBU) The sole direct air link between the U.S. and Fiji at present is a Nadi-Los Angeles flight operated by Fiji's national carrier, Air Pacific, five times per week. When Air Pacific takes possession of five Boeing 787 Dreamliner aircraft, perhaps in 2012, its capacity will exceed current requirements. As part of an expansion strategy, Air Pacific recently asked the Civil Aviation Authority of the Fiji Islands (CAAFI) to approach the USG about possible code share partnerships with U.S. carriers. In a November 2008 letter, CAAFI advised the USG that Air Pacific would like to provide service to Seattle, Sacramento, Portland, Dallas, Chicago and Denver. Initially, Air Pacific would like to introduce these destinations through code share arrangements. When Air Pacific's 787 Dreamliners arrive, it hopes to fly these routes directly, particularly since the longer range of the 787 would make these routes cost effective relative to the price of purchase. (Comment: Air Pacific previously offered American Airlines a code share on the Nadi-Los Angeles flight but the U.S. carrier dropped it, and until 2007 Air New Zealand flew the route.) ¶3. (SBU) While the embassy has not formally responded to CAAFI's letter, the Ambassador verbally told Interim Prime Minister Bainimarama that an OSA would not be signed with Fiji's illegitimate government. However, the Ambassador used a visit by a Boeing sales team on December 14 to hold informal discussions with Air Pacific Managing Director John Campbell. Campbell said that Air Pacific would be interested in informally passing its priorities with respect to an OSA to EB for their consideration and feedback. Such informal discussions should enable an agreement to more swiftly be concluded when Fiji's political situation changes, he pointed out. Ambassador noted that there are templates for an OPA which Air Pacific could review. Campbell commented on the relative swiftness in concluding an agreement between the U.S. and Australia and hoped to emulate those negotiations. Continental Airlines Thinking About Fiji -------------- ¶4. (SBU) While Air Pacific sees future growth in the U.S. market, other destinations have suffered. In December, Air Pacific cancelled direct service between Nadi and Tokyo, citing low passenger volumes. The move has prompted Continental Airlines to look at a Guam-Nadi-Honolulu routing. While at present the route is "marginal," it has solid long term prospects, Scott Zeglin, an international route analyst with Continental told us. The situation is fluid, however, with rumors that Korean Airlines may cancel or scale back its direct Nadi-Seoul route. This routing is used by passengers traveling to Fiji from Europe, the Middle East and India, as well as Korean tourists. With South Korea's currency losing more than 25 percent of its value last year, the number of Koreans coming to Fiji has dried up, and the route is losing money, we hear. Should Korean Airlines cancel these flights, the Guam-Nadi route would look even better, Zeglin told us. Continental Airlines Very Interested in Kiribati -------------- --- ¶5. (SBU) Continental is also looking at Kiribati. Virtually all traffic into and out of Tarawa goes via Air Pacific's thrice weekly Nadi-Tarawa flight. The route is a near-perfect monopoly, with high prices and high profitability. The Government of Kiribati has publicly stated its desire to "introduce additional capacity and competition to this route." Continental wants to add Tarawa to its weekly "island hopper" service between Guam and Honolulu. ¶6. (SBU) The immediate problem is infrastructure. A Continental operations officer who recently surveyed airport operations described Tarawa's airport as "like Majuro 25 years ago." The most significant problem is fencing. Tarawa's airport needs a solid perimeter fence. The Taiwanese have on offer a soft loan for upgrades to Tarawa's airport. Continental hopes the prospect of breaking Air Pacific's monopoly will spur the GOK into action. On Janaury 23, during a luncheon at Ambassador McGann's Suva residence, he raised the issue directly with Kiribati's President Tong. Kiribati wants this route, Tong said, and he promised to make completion of the fence a priority. ¶7. (SBU) Continental is also looking at flights into Cassidy Airport on Christmas Island. Air Pacific operated this weekly service as a stopover on its Nadi-Honolulu route until August 2008, when it terminated the service because of the condition of the runway. There was also a dispute over the fuel subsidy that the GOK paid Air Pacific to operate the flight. Obtaining air service to Christmas Island is a high priority for the GOK, which has a long-term plan to encourage population growth on the island. ¶8. (SBU) The lack of regular air service jeopardizes the viability of life on Christmas Island and has reportedly resulted in acrimonious debate in Kiribati's parliament. The GOK issued a Request for Proposals on December 24, 2008, with proposals due by January 26, 2008. Continental will submit a proposal, Zeglin told us. Of course, flights cannot commence until the runway is repaired. The RFP claims that an engineering study of required rehabilitation works commenced this month and that repairs to enable the resumption of flights will be completed between March and June ¶2009. Embassy will verify when work has begun on Cassidy Airport. ¶9. (SBU) Comment: Air Pacific has an all-Boeing fleet and options to purchase three additional 787 Dreamliner aircraft. The airline should be in a position to service new destinations and is desirous of fifth freedom rights as well in the U.S. in three to four years. While the USG will not negotiate or sign an OSA with Fiji's interim government, Embassy will continue to explore with Air Pacific the broad parameters of an agreement. At the same time, Air Pacific will likely pursue restarting code share relationships with U.S. carriers. ¶10. (SBU) A future OSA with Fiji benefits U.S. commercial interests to the extent it encourages Air Pacific to exercise its option to purchase additional Boeing aircraft. Continental Airlines would not need an OSA to begin service to Nadi. Embassy is prepared to work with Fiji's civil aviation authorities, as appropriate, to support the airline's bid to fly between the U.S. and Fiji. Given Continental's interest in Kiribati, it also may be an appropriate time to revisit current aviation agreements with Tarawa as well. End Comment. CSMCGANN