Sep
07

While distracted by partnerships, Qantas sneakily changes their traffic stat reports.

Turning away from the giddy heights of Qantas’ new global focus for just a few moments, and back home it seems Qantas’ is a bit sore.

Qantas has been publishing monthly yield and traffic statistics for all Group business since 2000. However, yesterday while everyone was distracted by Qantas-Emirates announcement speculation, the airline released its July traffic statistics, and for the first time published only qualitative, not quantitative yield data.

Why is this important? Yield is the amount of profit an airline makes per passenger after all costs have been attributed for.

Australian Domestic yields (comprising Qantas Domestic, QantasLink and Jetstar Domestic) were lower than the prior period (July ’11), and Qantas mainline Domestic passenger numbers were also down 2.6% with seat factor down 4.3% to 77.7%. A fare war looms large as all four domestic Australian carriers increase capacity in the market, and as competition between Qantas and a ‘game on’ Virgin Australia escalates both carriers profitability will suffer.

Qantas says “going forward, yield commentary in the monthly traffic statistics will be qualitative in line with international and domestic peers”, the airline is playing coy. Competition in the Australian domestic market has not been this intense since prior to the collapse of Ansett.

Sep
02

Is Emirates or Etihad one step closer to the Pacific?

Will a unified Qantas and Emirates partner with Air Pacific or will Etihad and Virgin Australia move in?

The ambitions of Emirates and Etihad were given a boost this week, with Fiji and the UAE signing their first bilateral air service agreement. Apparently, Emirates had requested an open skies agreement, but the Fijian government declined reasoning that they want the national carrier Air Pacific/Fiji Airways to first become ‘stronger’.

The Fijian government is seeking an ‘airline’ partnership, though what form this will take is still unclear. The new Fijian ambassador to the UAE, Mr Robin Nair confirming “we have spoken with Emirates and are also in talks with Etihad, they are very close to circumnavigating the globe”.

Mr Nair also noted “Fiji needs more airlines to bring tourists and business people, especially from newer markets, such as from the Middle East and Europe.”

Would it be viable? Perhaps, but geographic and economic factors often stymie carriers in there attempts to viably serve the South Pacific Island Countries.

A significant proportion of international traffic to Fiji already transfers through Australia, and the market is also substantially tourism based with little high-yield business traffic. During Virgin Australia’s transformation the carrier’s Boeing 777 services to Fiji were cut, John Borghetti reasoning “to be operating a three class widebody (B777) service to leisure markets like Fiji has to be a no-no”.

The South Pacific suffers from separation anxiety. A long way most of the world, at 14,000km a direct Abu Dhabi (AUH)/Dubai (DXB) – Nadi (NAN) service pushes the economical range limits of any aircraft except the Airbus A340-500 or 777-200LR. In addition, Emirates Chairman Tim Clark maintains it won’t operate to a location unless it can operate daily services.

But would there be enough traffic to sustain daily services? Tellingly, Air Pacific only operates to Auckland, Brisbane, and Sydney at a frequency of daily or higher. Even with the power of Emirates and Etihad’s back-end network feed, it may be difficult to fill an A340 or B777-200LR daily,  let alone a 400-seat Boeing 777-300ER.

Emirates serve the largely tourist markets using 2-class 278 seat A330s operating direct from Dubai to Cairns,
piggybacking to Nadi, or to Nadi via Singapore. Image: Peter Russel

Emirates will inevitably operate to Cairns, and could piggyback NAN services through the city. Its current second daily Brisbane service operating DXB – Singapore (SIN) – Brisbane (BNE) could have a Nadi leg added on. Alternatively, services could bypass Australia altogether, operating via SIN to collect connecting intra-Asian traffic feed.

Air Pacific will rebrand as Fiji Airways in 2013 with new Airbus A330s replacing its three Boeing 747-400s.

In reality how would a Fijian Government ‘airline partnership’ take? Rumour is Emirates is close to announcing a comprehensive partnership with Qantas (perhaps even this week), but although Qantas and Air Pacific continue to code share, the carriers are no longer friends following a bitter political dispute over board executive influence. This may make a code share arrangement with a relaunched Fiji Airways difficult.

Etihad and Virgin Australia could also prove suitable suitors. Rather than operate its own aircraft to Fiji, Etihad could leverage its partnership with Virgin Australia with passengers connecting to Virgin services in Brisbane or Sydney. A relationship with Virgin could also be a boon for Fiji Airways. Coordination of services and traffic feed providing the relaunched carrier with better returns, and free aircraft to launch services to destinations outside the region. Perhaps even allowing Fiji Airways to return to Singapore, with services passengers connecting to onward Etihad services.

Will a middle eastern carrier serve the South Pacific? Definitely. It’s now just a matter of how and when than if.

Aug
28

Game on as Virgin Australia’s profit soars.

Year two of its three-year game change programme, and a transformed Virgin Australia has shown it is the antithesis of Qantas. The airline today posted an after tax profit of $22.8 million, and a full year underlying profit before tax of $82.5 million, an improvement of $149.1 million from the last financial year.

Virgin’s results are admirable given a continued tough operating environment, a loss from fuel hedging and the need to absorb costs associated with the transformation.

The airline has experienced strong revenue growth over the year up 19.8% to a total of $3.9 billion.

Two years into its game change programme and a year ahead of schedule Virgin Australia has achieved a 20 per cent share of the Australian corporate and government market. High yield revenue is up 113 per cent and John Borghetti believes the airline has achieved the “tipping point in realising a new competitive norm in Australia”.

CEO John Borghetti attributes the result to the “tireless dedication of our people, their drive to make a real difference for customers, and their unwavering determination to deliver on strategy”.

The Game Change transformation may be complete, but the game is only just starting for Virgin.

Starting October, Virgin will roll out its WiFi streaming IFE product. The system developed by Lufthansa Systems’ will stream content directly to Samsung Android tablets. From early 2013, the airline will implement a new Sabre reservations system allowing the airline to use a single VA airline designator for all services.

Virgin is reaping the benefits of being the world’s largest virtual network carrier. International operations are now extremely profitable, “the best part is we did this without buying one aircraft” says Borghetti. Codeshare and interline revenue from its international partners is up 158 per cent. New international destinations and virtual network partners are also on the horizon as Virgin targets an additional $150 million in revenue from its virtual networks by 2015.

The Airbus A330-200 fleet will also see international services sooner rather than later. Given the benefits of its virtual network, Virgin’s own international network will continue grow in an extensive but complementary fashion.

One aircraft will be delivered in 2013 and by June 2016 the airline will have eight of the type. Its widebody transcontinental services require five aircraft, and the remaining three will likely be used to complement Etihad’s eventual Perth to Abu Dhabi services, and launch services from the east coast to new destinations in Asia.

Virgin Australia is currently evaluating both the Airbus A350 or Boeing 787 and will place an order for unspecified number by June 2013 for delivery from 2017. Borghetti noting “its a holistic view of our long-haul and medium-haul operations” as the 777s will need to be replaced around that time. It also provides Virgin the opportunity to mature its own international network and presence to better leverage the capability of its next generation narrowbody Boeing 737 MAX 8 and widebody aircraft for expansion post 2017.

Closing his press conference, John Borghetti took a jab at the competition, “I’ve been around a long time, probably a lot longer than some would like”. With everything at Virgin looking up, he’s going to be around a lot longer yet.

Virgin Australia’s full results presentation to the ASX can be found here and breakdown here.

Aug
24

Perth Airport, best in airport design? Unlikely.

Part 1

Who remembers the glamour era of air travel when travel was fabulous and happened on a 747 or Concorde? People living, visiting and doing business in Perth are reminded everyday as they travel through Perth Airport’s International Terminal, circa 1984.

Undertaking its first substantial redevelopment since 1984, the Airport has now made available artists’ impressions, of the expected interior of the completed international terminal and Virgin Australia’s new domestic pier at the airport. Some analysts have even labelled the redevelopment as providing Western Australia with the ‘best in airport design’.

Original plans promised a “world-class” 3 pier, 40-gate redevelopment that would be “one of the best in Asia” akin to Hong Kong or Seoul’s Incheon. These were subsequently reduced to:

  • a new domestic pier;
  • the construction of Terminal WA for intrastate services;
  • one upgraded and one new international gate;
  • expanded international customs and security facilities;

All built to unexceptional IATA service C standard as extensions to the substandard circa 1984 terminal. Best in Airport design indeed.

Overview of T1 redevelopment. International terminal left, domestic pier centre, terminal WA right. Image: Perth Airport

Virgin Australia’s domestic pier does look snazzy and it will be the first airport terminal in Australia specially designed for the airline. The terminal will feature definitive Virgin elements passengers including a signature lounge “which will be the best that Western Australia has seen” says John Borghetti.

Virgin Australia’s new domestic pier. Image: Perth Airport

Gate 51 will become Perth Airport’s first Airbus A380 capable gate. Image: Perth Airport

From March 2013, Emirates will fly 3 times daily to Perth. Images of the redeveloped Gate 51 are heavy with Emirates branding. Will this become a dedicated Emirates gate given the location adjacent to the Emirates lounge? Quite possibly. WAC redevelopment priorities see the redevelopment of Gate 51 to an A380 capable stand expediting for completion in 2013 to meet Emirates requirements. Perth will likely become Emirates third Australian A380 destination.

These developments aside passengers travelling internationally will still be required to go from the ground floor up to the level three departure lounge, before walking down stairs to aerobridges on level two. In addition, our measurements on the scale plans put the unaided walking distance between check-in and the furthest international gate beyond both 265m or 300m, industry guidelines for an airport serving 20 mppa or 25 mppa respectively. Figures Perth Airport may surpass by the end of the decade if growth continues at current rates.

CEO Brad Geatches says “our vision is to ensure all customers and visitors…enjoy a superior customer experience”. I doubt that. At an airport with exponential traffic growth, superior service in a facility designed for ‘good service’, does not deliver the ‘best in airport design’.

A further supplement to this article can be found here.

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.

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