What we know about RedQ

Background

Last year, Qantas declared that the future of its international business lay in setting up “a new premium, full service carrier based in Asia under a new brand”. Unfortunately, six months on, critical details such as where the carrier is to be based and what type of aircraft it will fly have not yet been settled on. Some strategy…

The aim of this post is to summarise what Qantas has announced and what the media has reported are the likely forms of the future operation. From this, the likely options for how Qantas’ Asia operations will look can be developed.

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What we know

Putting together Qantas ASX releases and various media reports we know that the new carrier (which might be called RedQ – they haven’t decided yet) will have the following characteristics:

• Full service – Alan Joyce has described the on-board product as “better than A380”, but this should be taken with a grain of salt given that A320s are likely.
• Hub based – Singapore and Kuala Lumpur have been flagged as likely cities
• Same day connections from Australia to Asia – given that Qantas does not plan to increase widebody capacity, the  mention of “increased frequencies from Australian ports” means that RedQ will be flying to Australia
• Malaysia Airlines is joining Oneworld – this is likely to have some bearing on the decision, particularly as Qantas plans to codeshare on MH’s services to Europe (Amsterdam, Paris, Rome and Turkey)

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How it might look

Option 1 – grow the Singapore hub

Singapore is a cornerstone of Qantas’ international network, operating as the ‘scissor-hub’ through which Qantas’ UK/Europe/India flights are funnelled. Essentially, Qantas flights from the major Australian cities arrive into Singapore simultaneously, and passengers can then connect onto Qantas services to London, Frankfurt and India. Additionally, Singapore is the base of Jetstar Asia, a Qantas controlled low-cost carrier operating to cities within Asia using a fleet of 16 A320 narrowbodies.

Singapore is a logical choice as a RedQ hub, as the addition of Singapore to Asia flights would bolster loads on the Qantas services from Singapore to Australia and UK/Europe. Put another way, operating RedQ out of Singapore would strengthen existing Qantas International routes. With additional connection opportunities, existing services (such as Adelaide to Singapore) could be lifted to a daily frequency whilst major cities such as Melbourne could (re)gain multiple daily frequencies.

Qantas has flagged that it would initially require up to 11 A320 narrowbodies for the operation. In the longer term, it is likely that Qantas will be outsourcing some of their 787 flying to RedQ, probably operating some secondary frequencies into Australia.

Strengths

• Bolsters QF services from Singapore to Australia and Europe by improving connectivity options
• Connections to/from Asia could improve the changes of Qantas re-establishing a second daily flight bank out of Singapore (a future post will deal with this)
• Potential for Qantas to re-establish a second flight bank out of Singapore
• Feed from RedQ could potentially allow some EU destinations to be reopened (eg Paris, Rome) either by Qantas or RedQ

Weaknesses

• Requires additional capital (although they did defer some A380s to pay for this new venture)
• Directly competing against Singapore Airlines, which offer more comfortable widebodies and multiple daily frequencies. A small fleet of small A320s just won’t cut it in the intra-Asia market (although it might suffice for connecting traffic from Australia/UK)
• Does not compliment Malaysia Airlines’ entry into Oneworld

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Option 2 – A330s out of Kuala Lumpur

Qantas is reportedly examining the option of using 15 soon-to-be delivered Malaysia Airlines A330s widebodies to base its new operation out of Kuala Lumpur. Qantas is planning to codeshare on Malaysia Airlines services to Amsterdam, Paris and Turkey, so the notion of developing a secondary hub at Kuala Lumpur needs to be explored.

The major drawback of the Kuala Lumpur strategy is that it will result in a “dual-hub” network structure. Qantas has long-complained that they do not have sufficient feed through Singapore to justify services other than London and Frankfurt; this, in turn, means that they lack feed for more than one plane a day to cities like Melbourne and Brisbane (and three a week to Adelaide!). Constructing a secondary RedQ hub at Kuala Lumpur will mean that Qantas has two small hubs rather than one big hub – not a great way to build the kind of momentum that Singapore Airlines or Emirates have achieved.

Another issue is that the new codeshares to Europe do not gel well with potential RedQ flight timings to and from Australia. Unless RedQ do multiple daily frequencies to Australia (unlikely), they will have to choose between connecting Australian cities to Asia or connecting them to the new Europe destinations. This probably means that Qantas will handball end up Australia – Europe passengers over to Malaysia Airlines for the entire trip.

Ultimately, the “capital-light” Kuala Lumpur option will likely see Malaysia Airlines flying a large number of Qantas passengers from their Australian capital city all the way to their destinations. Just to further muddy the waters, Malaysia Airlines is currently in the process of setting up a 737-based premium carrier (possibly called ‘Sapphire’) to serve Asian destinations.

Strengths

• Requires less capital (according to SMH)
• Gels with Malaysia Airlines’ entry into Oneworld

Weaknesses

• Splits Qantas operations between two hubs, fundamentally weakening the route structure
• Adds nothing to existing Qantas International route structure
• Kuala Lumpur’s premium demand is weaker than Singapore’s – neither BA nor Qantas have bothered flying there for over a decade
• Malaysia Airlines’ existing hub in K.L. seems to render the whole RedQ exercise redundant
• Little scope to feed Malaysia Airlines services to Europe (on the Australia – KL leg) without jeopardising Australia to Asia connectivity

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Option 3 – the Hong Kong/China wildcard

Every so often, you hear ramblings about Qantas operating services out of China. It is interesting that Alan Joyce makes such comments, given that over the past few years, the company has:

• Axed Beijing altogether
• Axed Melbourne – Shanghai services
• Axed Hong Kong – London services (through poor network planning), which could have potentially fed an operation out of Hong Kong

In light of Qantas’ recent decisions regarding the PRC, I’d argue that their rhetoric regarding services out of China should not be taken very seriously.

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Conclusion

There are clearly a variety of route structure, fleet and airline partnership decisions that Qantas can make in developing their revised Asian route structure – these decisions must be made in a manner that complements the UK/Europe flights. If done correctly, the RedQ strategy has the potential to improve Qantas International loads and yields; if this venture is poorly planned, Qantas will end up with a nasty ‘dual-hub’ network split between K.L. and Singapore with a limited schedules out of both.

Ultimately, Singapore offers the greatest potential as a RedQ hub. With Qantas services to Australia and the UK/Europe, and RedQ connections all throughout Asia, the Qantas Group will be able to build up the critical-mass necessary to open up new destinations and provide sorely needed frequency upgrades to cities like Melbourne and Adelaide. The cynic in me says that, instead, Qantas will just outsource the bulk of their flying to Malaysia Airlines, live with a “split-hub” and blame the workers.