Qantas/Emirates tie-up: the initial results are in

Introduction

The first data since the Qantas/Emirates tie-up has been released and we can start to examine the performance of the respective players under the new state of affairs. In short, the new Qantas/Emirates tie-up has resulted in:

1. Qantas and Emirates extensively code-sharing on each other’s flights between Australia, Dubai and Europe (but no revenue-sharing);
2. Qantas ditching its joint business venture with British Airways on the Australia to UK/Europe routes;
3. Qantas routing its Melbourne to London and Sydney to London services via Dubai instead of Singapore; and
4. BA replacing its old 747 product on the Sydney route with its newest product, the 777-300ER.

Let’s crunch the limited data we have available. The big disclaimers are that:

1. whilst loads are an indicator of a route’s performance, information on yields (ie fares paid) is also required to assess how profitable a route is; and
2. there is incomplete data on the routes between Asia/Middle East and London and we need to make some assumptions based on scheduling ‘rules of thumb’.

I have not been able to find the time to update this blog over the last 12 months, but hope to do so more regularly. These posts usually require a solid few hours of number-crunching and research (the writing is the easy part). My sincerest thanks to anyone who has stuck around!

Passenger flows on the Kangaroo route services.

The key flows on the Kangaroo route through-services are shown in the diagram below:

The major observations:

1. Virgin Atlantic is primarily an Australia to Asia operator in the Australian market. This reflects Virgin’s shortage of capacity on the London to Hong Kong route and the higher yields available on the Sydney to Hong Kong route (relative to BA’s Sydney to Singapore leg).
2. BA, in contrast, is primarily using their flight as an Australia to UK service.
3. Qantas is carrying some traffic to Dubai (presumably connecting to Emirates’ small 3AM European departure bank) but London is the main-game for these flagship flights.

Although there is no data on the Asia/Middle East to London sectors, we can assume that:

1. BA is doing well on the Singapore to London route given the recent reduction in capacity on that route, Singapore Airlines’ recent addition of a fourth daily service and BA’s mentions of Singapore getting an A380;
2. Virgin Atlantic are filling up their planes between Hong Kong and London given that they offer so little capacity on that route; and
3. Qantas, by virtue of their status as a ‘fifth freedom’ carrier between Dubai and London, attracts less profitable traffic (BA and VS both have heavy customer bases in the UK).

Questionable future for Melbourne – London

When you operate an A380 from Australia-midpoint-London, you need passengers getting on at the midpoint to replace those passengers that flew from Australia-midpoint. When Singapore was the intermediate stopover, passengers from Brisbane, Perth, Adelaide and Auckland would replace the passengers who got off at Singapore.

Many passengers are getting off the Qantas planes at Dubai rather than carrying onto London. It is therefore unclear how Qantas is filling up its twice daily A380s between Dubai and London given that:

1. Emirates is more likely to put their passengers on their own planes than give them to Qantas (because, unlike the QF/BA relationship, the QF/EK tie-up is not a revenue sharing joint venture);
2. Qantas has little marketing presence in Dubai and little local recognition; and
3. airlines operating between two foreign countries generally struggle to fill up those planes with anything other than cheap, unprofitable fares.

To add two data points, I recently enjoyed a row to myself between Dubai and London on Qantas.

There are two factors counting in favour of Qantas retaining QF9 beyond Dubai:

1. Qantas justified its Emirates alliance to the ACCC partially on the grounds that Melbourne would lose its London flight if the alliance was not approved (Qantas submission to ACCC, part 7.6, para 6).  Cutting the route after the ACCC approved the alliance would discredit Qantas.
2. Qantas’ premium 5:30 and 6:30 arrival times into Heathrow are of value to Emirates passengers and Emirates may be directing flows onto the Qantas services. Qantas’  early AM Heathrow slots are the scheduling equivalent of the top end of Collins Street and Emirates has no slots until 7AM.

Singapore struggles

It turns out that Qantas’ Singapore services were being largely propped-up by people wanting to visit UK/Europe and that Singapore is struggling as a destination in its own right. One disadvantage that Qantas has on its Australia to Singapore routes is that it is heavily dependent on origin-destination traffic (ie people who want to go to Singapore itself) as it lacks an extensive full-service partner at Singapore Airport.

The above screenshot (prices in Singaporean dollars) shows Qantas is relying on heavy discounting and that the twice daily Sydney services are struggling the most.

BA giving Sydney a red-hot go

British Airways’ core business is operating a monorail between the UK and the US (ie trans-Atlantic flying) and its parent company claims that the “future” lays in increasing a presence in Asia. In short, Australia is (sadly) not a core part of their business.

This made it all the more surprising when BA, in response to being dropped by Qantas, decided to:

1. replace its 747 on the London-Singapore-Sydney route with the 777-300ER to both increase fuel efficiency and provide a more desirable product;
2. start marketing within Australia (it had traditionally relied on Qantas to sell its seats) including emphasising that its services continue to stop in Singapore;
3. operate the flight to/from Heathrow Terminal 5 (which is nicer than the previous Terminal 3);
4. take on Cathay as an Asia-Australia codeshare partner, undoubtedly on terms quite favourable to Cathay; and
5. roll out a lower cost cabin crew to reduce the route’s costs.

The flows indicate that BA is focuses on the Australia to UK market whilst its counterpart Virgin Atlantic focuses on the Australia to Asia market. Given that the Sydney to Singapore route is hard-going in terms of yields, there may be an argument for BA to swap its intermediate stopover to another location (it might be worth giving Qatar a call) where it can perform better on the leg into Sydney.

Qantas – fewer flights, less choice to London

Introduction

Last week saw Qantas scrap two of their four services on the Kangaroo Route between Australia and London with the removal of QF1 Bangkok to London and QF29 Hong Kong to London. This move will reduce the attractiveness of Qantas on the route, as the airline now offers fewer departure time choices than their major competitors. Additionally, Qantas’ competitive advantage of being able to provide multiple stopover destinations has now been removed.

	Before	After
Flight time choices (Aus-UK)	Daytime departure Late night departure	Daytime departure
Flight time choices (UK-Aus)	Daytime departure Late night departure	Late night departure
Stopover locations	Singapore Hong Kong Bangkok	Singapore(others require BA)

It is very interesting that, despite being the largest player in the Australia to UK market, Qantas and BA collectively offer such a narrow choice of flights.

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‘Fly when you like’ vs ‘Fly when we tell you to’

One acute weakness of the new Qantas schedule is that it actually provides fewer departure options than its key competitors. From Australia, the major competitors offer two choices of departure times; Qantas only offers one as it lacks a night-time departure option:

Out of Sydney, the three daily Qantas/BA services to Singapore (two continue to London) all leave within twenty-five minutes of each other:

It is a similar story leaving London. Starting this week, Qantas/BA will distinguish themselves from their competitors by being the only major player to NOT offer a daylight flight to Australia:

Passengers like having a choice of flight-times. It is interesting that, despite collectively being the largest carrier on the Kangaroo route, Qantas and BA can’t scrape together more than one flight-time option for their customers on a Flagship route.

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One potential solution

Constructing an Australia to UK schedule involves reconciling multiple factors, including:

• Ensuring an appropriate level of capacity is provided
• Commercially attractive flight times (ordinarily, these involve late-night departures or early morning arrivals in order to minimise passengers’ ‘days off’)
• Working around curfews (at both London and Sydney)
• Fleet utilisation
• Coordinating connections at hubs (particularly at Singapore)

One option to improve Qantas’ Kangaroo route offering would be to re-jig the Hong Kong schedules; this would enable a night-time departure out of Australia towards the UK and a daytime departure out of London towards Australia.

Currently, flights from Sydney, Melbourne, Brisbane and Perth all fly up to Hong Kong during the daytime, have a short layover in Hong Kong, and return to Australia as overnight flights that land back in Australia the following morning. Qantas could change these flights to depart Australia at night – they would arrive into Hong Kong in the following morning and allow passengers to connect to a BA service to London; that flight to London would arrive into Heathrow in the early afternoon. The Qantas aircraft would return from Hong Kong to Australia in the morning (maintaining today’s turnaround times), but be fed by a BA arrival from London. This arrival from London would have left Heathrow at around midday, thereby restoring the daytime departure that had been removed.

A concept schedule is shown below:

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This schedule would see the Hong Kong to London flight be fed by all the major Australian cities. This avoids the mistake they made last time of “starving” their old Hong Hong to London service of feeder flights, thereby contributing to its demise.

Alan Joyce has stated that Qantas is looking to increase capacity into London in a few years’ time; Qantas could therefore extend their Sydney – Hong Kong A380 service to London to provide the Hong Kong to London link discussed above. Qantas A380s currently sit around at London for fifteen hours each day, so operating these legs would allow the A380 fleet to be used a bit more efficiently.

Thanks for reading