Aug
26

Too little, too late for Perth Airport’s lacklustre redevelopment?

This article is a supplement to last month’s Perth Airport, best in airport design? Unlikely.

Perth Airport’s $750 million redevelopment is resonating well with a public that laments current facilities, but will the terminal redevelopment actually provide ample space to handle growth?

Westralia Airports Corporation (WAC) Perth Airport’s is known for underestimating traffic forecasts. Master planning is based on a prediction of 3.5 per cent compound annual growth, with total passenger traffic of 18.9 million per annum by 2028-29. Unsurprisingly redevelopment plans provide no terminal passenger capacity forecast, stating only that the consolidated development will ensure the already under-capacity terminal is capable of handling passenger growth to 2020.

Australian Government BITRE statistics show between FY1991 and FY2011 Perth Airport recorded:

  • 20-year compound growth rate of 7.6 per cent p.a.; and
  • an increase in aircraft movements of 260 per cent.
  • Passenger growth between FY2006 and FY2011 was 9.2 per cent p.a.

In FY2012 passenger traffic will pass the 12 million mark for the first time. If growth continues at current rates passenger traffic will reach 24.8 million to 40.7 million passengers p.a. by 2028/29.

My math tells me it’s unlikely.

Perth Airport’s current international terminal. Royal Brunei no longer serves Perth. Image: Stuart Sevastos

Is airline resistance to blame?

When WAC reduced its commitment from a ‘world-class’ facility, its main reason for not investing more was “any attempt to design to a higher standard would be met with resistance by airlines, reflected in a refusal to support resulting investment plans”. Perth’s smallest international operator Qatar Airways is ‘the world’s best airline’, and the majority of Perth’s largest international operators are based at airports designed to IATA Level of Service (LOS) A standard, and others such as China Southern, Virgin Australia and Garuda are moving upmarket. Wouldn’t these carriers want facilities at a standard higher than simply average?

Further proselytizing its decision, WAC ‘recognised’ “that lower airport operating costs relative to other airports enhances the viability of air services to Perth and therefore increases the prospect of attracting new services”. True for all airports, particularly those in high competition areas, but Perth Airport’s nearest major competitors are Adelaide, South Australia; Darwin, Northern Territory; and Denpasar, Bali, all over 2,000km away.

What about new operators and LCC traffic?

  • Air China will likely be the next Chinese airline serving Beijing and/or Shanghai, China Eastern focused on growing North American services;
  • Vietnam Airlines to Ho Chi Minh City is a possibility given Perth’s growing Vietnamese population and outbound Australian tourism;
  • Etihad and Virgin Australia to Abu Dhabi;
  • Kenya Airways has confirmed Boeing 787 services to Nairobi from 2016; and
  • Long-term potentials: Korean Air (KE) to Seoul, and Hawaiian Airlines (HA) to Honolulu. HA has made significant strides in developing HNL into a Pacific hub. KE is aggressively targeting in-transit traffic and serves many small-low traffic cities with less than weekly frequency using convenient connections to high-frequency heavy traffic destinations to attract custom.

Air Asia’s largest Australian operation is to Perth with 31 return services a week from KUL and DPS.

In 2007, Low-Cost Carriers (LCCs) accounted for just four per cent of Perth’s international seats. By 2010 they accounted for 27 per cent. While LCCs have increased the ratio of outbound trips per person, frustratingly WAC believes this is over as “there is a limit to the number of outbound trips from residents that can occur”. Pardon? Correct me if I’m wrong, but LCCs:

  • do actually carry inbound passenger traffic;
  • have a substantial stimulation effect on markets; and
  • operators serving Perth will increase. Batavia Air and Lion Air may serve Perth from Indonesia. Jetstar may introduce new Asian destinations, including perhaps resuming QF Group services to Tokyo. Not to mention IndiGo in India, and more services by Air Asia.

WAC highlighted the differentiated basic service needs of LCCs noting only “some LCCs are unlikely to support the redevelopment…because it will increase airport charges”. If it was only ‘some’ LCCs that opposed a ‘world-class’ terminal, why didn’t WAC plan a fully independent LCC terminal allowing the airport to offer diversified services through distinct airline products? Dedicated terminals only enhance an airports value proposition for both LCCs and full service carriers.

Is this development too little, too late? Perth Airport doesn’t think so, but it’s not going to take the public long to realise they weren’t given the best in airport design.

Aug
23

Qantas, the little airline that couldn’t.

When I was young I wanted to be a Qantas pilot. Growing up I was granted the privileged opportunity of being invited into the cockpit for landing in various Qantas aircraft at various airports around Australia. The dedication and enthusiasm with which staff undertook their jobs was an inspiration to me.

20 years later, and I don’t know how I feel about Qantas. Today’s Qantas just goes through the motions. The timid annual result announcement is a reflection of the diminishing presence Qantas is playing in the lives of Australians. It is also a reinforcement of the distinct strategy which Qantas has chosen to follow.

The annual results also show a distinct change in Qantas rhetoric. Gone are the battle cries of a “65% line in the sand”, replaced by “The Group aims to maintain a profit-maximising 65 per cent domestic market share”. Brave faced Qantas executives are worried.

Where once an airline was highly respected and always the object of choice, Qantas today is increasingly the bane of our lives, unable to provide the services Australians want. Its big foray into social media attracted 60,000 responses, yet the airline has 7 million frequent flyers. An airline shouldn’t need to give 91 reasons to passengers to board a Qantas plane, they should only need one ‘we are the best’ or a variation thereof.

Yes, Qantas International has suffered from some serious structural issues and needs reform. Virgin Australia does with 6,500 people what Qantas needs 30,000 to do, and Australia’s operational environment is fiercely competitive. But, Qantas’ adoption of American style bankruptcy strategy to cut deep, shrink and grow later in an Australia with extensive open skies agreements and an economy increasingly intertwined with Asia seems inappropriate and uncompetitive.

In the 2000s, Air New Zealand suffered from similar structural problems and undertook major structural reform but continued to grow and expand as it cut. ANZ realised new opportunities and became a leader in industry innovation. Since the 1980s Qantas has avoided innovation like the plague. Qantas has had the money, but why has it been so scared?

Qantas today cancelled its firm commitments for Boeing 787-9s, pushing its firm options to 2016. It’s worrying that Qantas can’t afford its Boeing 787 capital expenditure even with the heavy discounts offered during purchase, and the substantial delay compensation the airline received from Boeing. Qantas A380s are substantially cheaper to operate and return yields up to 3% better than its 747 aircraft yet they have also been deferred until 2016, indicating Qantas no longer believes efficient aircraft are a viable short-term fix for its operations.

Tomorrow is a long time in aviation. Yet with these moves Qantas has hand delivered the impetus, opportunity, and four years, for Virgin and premium international carriers with arguably better product to fill the Qantas void and reinforcing their market positions with once loyal Qantas passengers. What does Qantas International do in the meantime?

As Qantas shrinks Jetstar continues to be given growth priority. But why is a low-cost brand being given brand new 787s and the premium parent being returned close to eleven year Airbus A330s? Alan Joyce sings efficiency, but isn’t really trying hard to achieve it with aircraft. Qantas management seems unwilling to realise the flying public doesn’t want to be forcibly reduced to flying Jetstar, but increasingly have little option.  Perhaps Qantas’ return to Coolangatta this month was a wake-up call to this.

Qantas management isn’t only to blame. Unions that represent the airline need to realise, the airline industry has fundamentally changed and we no longer live in the 1960′s when people had a ‘job for life’. They play an important role, but having union officials standing in-front of the media bellowing that passengers shouldn’t fly the carrier only hurts Qantas potential and members’ jobs further.

I hope that in 20 years time Qantas is still there for the aspiring pilots of today who stand with their noses pressed against the airport windows watching planes, as I was 20 years ago. Unfortunately, if current trends are anything to go by I doubt there will be anything left to watch. Qantas needs to become the little airline that can.

Aug
07

Cathay Pacific subtly engages Jetstar-Qantas in a game of 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.

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