British Airways: “Down under’s not over”

There’s a great modernity about British Airways’ simple but stylish Australian newspaper advertisement. Taking a subtle, cheeky swipe at Qantas following the ending of the Joint-Service Agreement in favour of Emirates, British Airways is keeping calm and carrying on.

BA will upgrade all its Australian services to new B777-300ER aircraft from March 30, 2012. Timed to match the commencement of the Qantas Emirates partnership, the introduction of the aircraft with upgraded long-haul product, and BA’s shift of Australian services from London Heathrow’s T3 to its T5 hub marks another competitive upgrade in the fierce Australian international market.

The move is part of BA’s renewed focus on the Asia-Pacific region. BA will commence five weekly services to Seoul from next month, and three weekly services to Chengdu from September 2013. In addition, BA is likely to recommence schedules to Kuala Lumpur and Taipei, markets the carrier exited in 2001, as well as new services to additional cities in mainland China.

British Airways served Taipei from London and Hong Kong as British Asia Airways (英亚航空) until 2001. British Asia Airways was incorporated to overcome a now overturned Chinese Central Government policy prohibiting national carriers serving mainland China from serving Taiwan. Image: Daryl Chapman.

There is also nothing delicate about British Airways’ new oneworld push. For many years oneworld has been quiescent, foundering without a meticulous leader as Star Alliance has in Lufthansa. But the signs are this has changed, limited by expansion options at London Heathrow, British Airways and its parent company International Airlines Group (IAG) are making an active effort to engage and mold oneworld into an entity that supports BA’s sustainable growth and underlying business goals.

British Airways has already formed a comprehensive JV partnership with oneworld member and long-time Qantas partner Japan Airlines, and invited Qatar Airways to join oneworld in 2013/14. Could BA’s Asian focus see the airline engage Malaysia Airlines in place of Qantas to expand in South-East Asia?

A British Airways led quadruple entente would secure a network between Australia and Asia to Europe covering all major traffic paths via Northern and South-East Asia and through the Middle East. Image: GCMapper and Carry-ON.

Malaysia Airlines has much to offer BA, with a South-East Asian network, services to every major Australian city, and code sharing agreements with Japan Airlines, as well as oneworld members-to-be Qatar Airways and SriLankan Airlines already in place. To leverage this through an alliance or a comprehensive JV between the three carriers opens up incredible network and traffic flow options as the map shows. The grouping would be well placed to gain a formidable position in the growing high yield markets driven by Asia’s growing middle class, and provide substantial traffic feed into BA’s long haul network in Asia, and connections to BA short haul services across Europe.

oneworld is on the brink of change, and British Airways is now firmly at the helm. Tally ho.

Cathay Pacific engages Qantas-Jetstar in airline weiqi.

 

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Cathay Pacific has used a submission to the Australian Competition and Consumer Commission (ACCC) to publicly reveal its stance to the Qantas/China Eastern establishment of a Jetstar Hong Kong subsidiary.

Cathay has been biding its time in indicating its position toward the establishment of Jetstar Hong Kong. Rather than publically lambaste the opposition, Cathay has veiled its opposition in a response to Qantas’ application for greater pan-Asian cooperation with subsidiary Jetstar.

Cathay Pacific and sister carrier Dragonair, have spent decades developing a formidable operation at their HK hub carried on the back of Hong Kong and China’s booming economies.

Supported by an unquestionably good product, multiple daily services to almost every destination they serve, and significant versatility in the way they use their fleet. Cathay CEO Slosar makes it clear “we compete with multiple low cost brands every day,” and any challenge to this dominance is not taken lightly.

While still undetermined, Cathay’s submission gently reminds the ACCC of the potential restrictions any Jetstar HK operation may/will be subject to, if the carrier is granted permission fly at all:

It is also possible that conditions may be imposed on any approval given in Hong Kong. Accordingly, it may be difficult for the ACCC to authorise the proposed conduct in relation to Hong Kong if it is unclear whether Jetstar will be give approval to operate flights within Hong Kong.

The statement highlights the sway over relationships that Cathay has spent years developing right up to the top levels of the Hong Kong Government, and indeed, throughout Asia. Any Jetstar operation in Hong Kong will require a change of Hong Kong’s constitution, and Cathay also knows full well that a decision on regulatory approval for Jetstar HK is unlikely to be made “made until some way through 2013”.

 

Why did Cathay make its move?

In late June, Qantas’ applied to the ACCC to cooperate more closely with Jetstar in the Japan, Singapore and Vietnam markets. Qantas is requesting to coordinate various business and operational functions between Qantas and all Jetstar Airways carriers; and also between Japan Airlines, Vietnam Airlines and China Eastern and their respective Jetstar subsidiaries. Without approval of the the agreement, Qantas says its pan-Asian expansion will be under threat.

The carriers have never had what one would described as a close relationship, and Australian anti-competition laws forbid them from cooperating on services between Australia and Hong Kong. Slosar, denies that a Jetstar HK subsidiary will strain the carrier’s relationship with parent Qantas. His recent referral to the fact that “alliances always have certain overlaps” was certainly an attempt to smooth the waters, although Cathay’s subsequent strategic play has reinforced the limits of any relationship.

Qantas’ applies and Cathay responds

Qantas’ original application suggested that “When a LCC enters a market, all competitors (FSAs and LCCs) are forced to innovate in order to remain competitive. That is, LCCs force FSAs to re-think long standing business practices and competitive responses”. In the case of Hong Kong, why is Qantas forcing other carriers to innovate while its own “long standing business practices” remain the same?

Cathay has responded by focusing on consumer interests alluding to the anti-competitive nature of the Jetstar Qantas relationship. Questioning the necessity of Qantas and Jetstar to cooperate anymore closely, as other airlines can provide the “stimulatory effect of Low-cost Carriers (LCCs), including the competitive reaction they may elicit from Full Service Airlines (FSAs)”. There is a sense of effrontery in Qantas’ suggestion that it isn’t anti-competitive for it to operate a Jetstar subsidiary in Hong Kong, and other Asian countries, in addition to closer relations with the Jetstar group as a whole.

A320NEO range from Hong Kong. Source: Airbus

Jetstar’s fleet plan

Leveraging the opportunity to force Jetstar to reveal its long-term fleet plans and allocation of aircraft across the Jetstar group, Cathay asks, “could Jetstar Hong Kong or Jetstar Japan buy or lease planes that could reach Australia? Does the Jetstar group have, or have on order, aircraft capable of reaching Australia that could be allocated?”.

Seemingly unaware of the capabilities of the fleet of 15 787-8s (delivery from 2013), and over 70 A320NEOs (delivery from 2016/17) Jetstar has on order. Qantas asserts that “Jetstar Japan and Jetstar Hong Kong cannot offer services to or from Australia because they do not have the aircraft that is necessary to make travel over such distances economically or practically viable”. The 787-8′s 14,000km range puts all of Australia well within range, and the A320NEO is capable of reaching almost one-third of Australia including Jetstar’s Darwin hub, and Perth.

Henry Kissinger enthuses that in war “Chinese ideals have long stressed subtlety, indirection, and the patient accumulation of relative advantage”. In what is likely to become a patient contest of relative gain and long-range encirclement, Cathay has made its first very deliberate and subtle move.

Deciphering the future of China’s aviation industry. China Airborne by James Fallows.

 

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China’s aviation industry is growing and with it so are the aspirations of many millions of Mainland Chinese. Predicted to become the worlds largest market for business and general aviation, China’s middle class unsatisfied with simply owning an Audi or two, increasingly desires to take to the skies in their own aircraft. China’s aviation industry seems unstoppable, but is it really on the verge of take off?

James Fallows’ (journalist, China correspondent and plane enthusiast) latest book China Airborne, puts two of my favourite interests, planes and China, under one communist-revolutionary-zeal-esque cover.

Fallows’ 236 page narrative sets about detailing the development of China’s aviation industry, how it has evolved, the factors influencing its development and the future direction of the industry. Writing with perspective and humour, Fallows turns what could have been a dull read into a fascinating insight into the status of aerospace and aviation in today’s China.

Readers are taken through a history of China’s aviation pioneers, and the unique cultural factors that have influenced the development of China’s aerospace industry. Fallows details the important roles Boeing and the FAA have played China’s aviation safety, and we are introduced to the Chinese and foreign ‘middlemen’ who are facilitating the next stage of the industry’s development.

China is determined to build an aerospace sector equivalent in strength and quality to others around the world. Fallows explores the factors influencing the development of an aerospace industry with ‘Chinese characteristics’ including its achievements and inherent limitations. There is also discussion of companies taking advantage of the explosion to introduce navigation technology, which is delivering improvements in environmental efficiency and safety in Tibetan operations.

We experience first hand the restrictions of China’s general aviation industry as he joins a friend on a cross-country Cirrus flight from Changsha to Zhuhai – GA never took off in China, because of the military’s control of airspace. And meet the provincial officials and aviation visionaries, with no aircraft, but runways at their disposal, who aim to take general aviation mainstream

Disappointingly the final two chapters could have done with far more discussion about aeroplanes. Losing their flight path, the chapters focus more on a general discussion of China’s current political situation and development. Although, those with little knowledge of the extent of China’s internal trials and tribulations will learn a great deal.

Fun and full of Chinese idiosyncrasies, and lacking complex jargon, China Airborne is well worth the time.

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