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