Singapore Airlines reduces fuel surcharges

Courtesy Singapore Airlines

Courtesy Singapore Airlines

Good news for Singapore Airlines (SIA) customers. While American carriers are quite adamant about not passing on savings resulting from the fall in oil price to their customers, SIA has become one of the few airlines that have volunteered to share the windfall with their customers.

Both Qantas and Virgin Australia have earlier said they intend to do away with fuel surcharges for some routes but incorporate them in the fare like any other operating cost element, the expectation being that the bottom-line should be lower in light of lower fuel costs. (See Is Qantas robbing Peter to pay Paul, Jan 26 2015)

However, SIA is retaining its current fare structure, reducing fare surcharges from February 26, 2015. The decrease ranges from US$5 to US$83 per sector, depending on the distance and class of travel. It will also apply to SilkAir flights.

Another airline that is said to reviewing its fuel surcharges is Qatar Airways.

But the number remains small. Sure, no airline is in the business for charity, but there’s such a thing as fair practice, the very reason why authorities such as the Australian Competition and Consumer Commission exist. (See A conscionable call as oil price plummets: Will airlines reduce airfares? January 26, 2015) Well done, SIA!

Advertisements

Qantas-China Eastern partnership: Dressing up an old arrangement

qf logocea logoQantas and China Eastern Airlines announced a new agreement that the airlines said will enlarge their existing codeshare arrangement signed in 2008 for a deeper level of commercial cooperation on flights between Australia and China. A statement issued by Qantas referred to the new relationship as a “joint venture”. In the application to the Australian Competition & Consumer Commission (ACCC), it was referenced as a “Joint Coordination Agreement”. Whatever the terminology, one wonders if this agreement is any different from the usual run-of-the-mill alliances that are not much more than a formal handshake.

There is the standard co-ordination and sharing of facilities such as airport lounges. A key feature is the co-location of both carriers’ operations within the same terminal at Shanghai International Airport. This reduces transit times by about an hour to facilitate a wider range of onward connections. Qantas CEO Alan Joyce said: “Coordination means the opportunity to improve schedules and connection times, and to deliver improved products such as a joint lounge and streamlined check-in facilities in Shanghai.” The Australian flag carrier is banking on more of its customers opting to fly to not only Shanghai but also beyond from there, in a region where it is much weaker compared to Asian carriers such as Cathay Pacific and Singapore Airlines (SIA).

Many codeshare partners are already making similar arrangements. Star Alliance airlines, for example, operate out of a dedicated terminal at London Heathrow. So what’s the big deal about the Qantas-China Eastern agreement which, subject to regulatory approval, will commence in the middle of next year and be effective for five years?

According to Qantas, the agreement is designed to complement the Qantas-Emirates partnership for Europe, Middle East and North Africa, and the Qantas-American partnership for the United States. That covers almost the whole world and makes Qantas truly a global airline. But to what avail? Interestingly, Qantas itself has limited operations to some of the regions. It operates to only London in Europe, Dubai in the Middle East, Johannesburg in Africa and Santiago in South America. The airline’s presence in North America is limited to Dallas/Fort Worth, New York, Los Angeles and Honolulu.aa logo

The Qantas-American agreement signed in 2011 is a codeshare arrangement for transpacific flights between the US and Australia to also include New Zealand. It does little more than what the global alliances, in this case OneWorld of which Qantas and American are members, have been set up to achieve. American does not operate to Australia.

emiratesThe Qantas-Emirates alliance caused a stir when it was announced in 2013 because of changes made to the traditional kangaroo route when Qantas shifted its operations hub from Singapore to Dubai. While Qantas is leveraging on Emirates’ extensive networks in Europe, the Middle East and Africa, it looked like the move was aimed at checking the competition posed by SIA. However, the real winner is not Qantas but Emirates, which is aggressively making inroads into the Asia-Pacific market. More than a year after, Qantas continues to make losses. It posted the biggest loss in its history of A$2.84 billion (US$2.66 billion) for the last financial year ending June 30.

How different from these other agreements is the new partnership between Qantas and China Eastern, and how will it play out for Qantas?cathay2

The flying kangaroo has long eyed the growing China market as a way to improve its bottom line. A partnership with a Chinese carrier makes sense for a quick and easy penetration into the large market in addition to its current daily service between Sydney and Shanghai. The agreement is also supposed to complement Qantas’ existing services to mainland China via Hong Kong, competing with Cathay Pacific and Dragonair. In its application to the ACCC, Qantas says it “does not consider the Hong Kong and Shanghai gateways to be mutually exclusive” the way that Dubai has replaced Singapore as the hub for its European flights. Quite clearly, Cathay which has a stake in Air China Cargo is a veritable rival to reckon. The rivalry has heightened in the Jetstar Hong Kong saga. China Eastern’s participation as partner in the budget joint venture does not seem to be able to do much to facilitate its application for approval to fly. After two years of its launch, approval is still pending.

siaThen there is SIA, the other competitor with a strong presence in the region, mentioned in the Qantas-China Eastern application to ACCC. Qantas notes how SIA’s subsidiaries Tigerair and Scoot are flying from Australia to Singapore with onward connections to China. As if pre-emptory to the new agreement, the existing Qantas-China Eastern codeshare already covers flights out of Singapore.

While Qantas will gain wider access across China, so will China Eastern within Australia. Passenger air services between Australia and China have been growing at an average rate of 11% for the four years to April 2014. In the past 12 months to June 2014, passenger numbers grew by 8%. In the application to ACCC, Qantas expresses fear of being “marginalised”. On its own, it says it “will not be able to keep pace with the capacity growth being driven by carriers such as China Southern and Sichuan Airlines.” ACCC will have to decide whether the case is about Qantas or Australia, notwithstanding the former`s status as the country`s flag carrier. Yet Qantas has argued that the proposed agreement is far from being anti-competitive, though clearly that fear has been exacerbated by the growing importance of Chinese carriers if only the competition could be limited to a single but partner airline, other strong regional carriers, and rival Virgin Australia’s reciprocity with Delta, Air New Zealand, Etihad and SIA in the wider network.

As with the American and Emirates alliances, the agreement with China Eastern once again is a case of Qantas needing its partner more than the other way round. The partners continue to retain their distinct identity vis-à-vis brand, product and pricing differences. Qantas runs the risk of its customers switching loyalty to its partner by the lure of lower fare, better facilities and services. Emirates, for example, may offer more than just a convenient hop from Dubai to other destinations for Qantas customers when it also competes on the kangaroo route. Before Emirates, there was speculation that Qantas might form the alliance with Cathay instead. That would make a formidable force, but Qantas would have faced the same risk. Besides, a partnership between giants is apt to be paved with problems unless the advantages to one partner are worth its compliance, if not silence.

Will China Eastern similarly flip the game for Qantas? The China carrier has much to gain. Qantas desperately seeking to check competition and new growth may find its prowess neutralized, dressing up an old arrangement.

This article was first published in Aspire Aviation.

Merger blocked: Do American and US Airways have a case?

Courtesy Associated Press

Courtesy Associated Press

The long awaited merger between American Airlines and US Airways has been blocked by the US Justice Department – after sanctions by a federal judge early in the year and by the European Union.

Head of the Justice Department Bill Baer said the merger would “eliminate competition between US Airways and put consumers at risk of higher prices and reduced service.” He added: “Both airlines have stated they can succeed on a standalone basis, and consumers deserve the benefit of that continuing competitive dynamic.”

In refuting Mr Baer’s concerns, US Airways CEO Doug Parker said the airlines would “fight them. We are confident that by combing American and US Airways we are enhancing competition, providing better service to our customers and improving the industry as a whole.”

The US$11-billion merger would have made the American and US Airways the largest airline alliance in the world.

The irony is that American initially snubbed the merger proposal by US Airways, and insisted it could emerge from bankruptcy without help from the latter. So, Mr Baer had been listening, but his concern is one of protecting the consumer. The timing is unfortunate for American and US Airways, coming after the other compatriot airlines have done their deals that saw Delta Air Lines acquiring Northwest Airlines in 2008, United Airlines merging with Continental Airlines in 2010, and Southwest Airlines acquiring AirTran Airways.

So too has Mr Baer learnt a lesson, it would appear. He said: “We learned what happened to competition in prior acquisitions.” While that may seem unfair to American and US Airways, allowing the merger would mean aggravating the problem, instead of reducing it. Two wrongs do not make a right.

US Airways – more than American – may feel targeted by the Justice Department. In 2001, its proposed alliance with United Airlines was shot down. It had to also abandon a proposal to merge with Delta under circumstances. But the Justice Department approved its acquisition of America West Airlines in 2005, which but only demonstrates the Department’s concern about how consolidation of large entities can be bad for the consumer even though it had sanctioned the mergers between the other big names.

Mr Baer’s concerns are real. Merged airlines will find it easier to push up prices in the context of absent or limited alternatives for the consumer. Reeling from years of losses, they have shown that by cutting capacity in the present far-from-being-exciting times, coupled with higher fares, they have managed to turn their performances round. The greater fear is not confined to the merger of American and US Airways, but that with only three big blocs left in the market, it would be easier for all of them to collude, in an environment that prefers “tacit coordination over full-throated competition.”

In response, American/US Airways may make out a case for survivorship; Mr Parker said the merger was necessary to build a global network. It is a valid argument since this has become a global trend across the industry, and American carriers cannot stay out of the loop to effectively compete with foreign carriers in the international arena. However, for now and within the US at least, Mr Baer is convinced that both American and US Airways would thrive financially and that neither needs the merger in order to succeed.

In Australia, when Virgin Australia applied to acquire a 60-per-cent stake in Tigerair Australia, the Australian Competition and Consumer Commission granted its approval on the ground that objecting might result in the exit of Tigerair and that would mean reduced competition and therefore not a desirable outcome for the consumer.

A case of the lesser evil?

While American and US Airways hold out the hope that the Justice Department will eventually allow the merger, it is unlikely that any final decision will come before the year is out. That will give the Department more time to determine if indeed there is an even stronger basis to its fear, and for the two airlines to offer reassurances and convince it otherwise. This is an industry that is constantly in a state of flux – more so in present times than ever = and things can change.

SIA ups stake in Virgin Australia: No big deal

Courtesy Reuters

Courtesy Reuters

Singapore Airlines (SIA) is upping its stake in Virgin Australia from 10 to 19.9 per cent, at a cost of A$122.6 million (US$125.8 million). Underlying the growing cooperation with the Australian carrier, SIA chief executive officer Goh Choon Phong said: “Increasing our stake in Virgin Australia is another example of Singapore Airlines’ deep commitment to the important Australian market. It also demonstrates our support for the ongoing transformation of Virgin Australia, which has created a more competitive aviation market in Australia.

This is no big deal compared to the 49-per-cent stake in Virgin Atlantic that SIA acquired more than a decade ago. While it turned out to be a lacklustre buy, it made big news then. The stake was only recently sold to Delta Airlines at a loss. The graduated acquisition reflects a cautious approach that is markedly tame compared to the strides it made in better days. Until Virgin Australia made a larger global presence, the dollar benefits to SIA are likely to be localised.

Interestingly, SIA’s decision to increase its stake in Virgin Australia followed on the heel of the Australian authorities’ approval of the sale of a 60-per-cent stake in loss-making Tiger Australia to Virgin Australia. The Australian Competition and Consumer Commission (ACCC) said Tiger Australia was “highly unlikely to remain in the local market if the proposed acquisition didn’t proceed.”

While it is in ACCC’s interest to maintain a competitive environment within Australia, so too in SIA’s interest to combine forces with Virgin Australia lest the scene is dominated by Qantas. Aviation analysts are quick to point out that the Tiger Australia divestment would allow parent Tiger Airways to focus on markets elsewhere in Asia, where there is heightened competition from other budget carriers such as AirAsia, Jetstar and Lion Air. There is comfort in the reasoning, but to ascribe it as the reason is belittling Tiger’s capability to compete, making it sound more like the cry of the vanquished than that of a victor.

A stronger Virgin/Tiger better for the competition

Courtesy Australian Aviation

Courtesy Australian Aviation

THE Australian Competition and Consumer Commission (ACCC) has expressed concerns that Virgin Australia’s acquisition of a 60% stake in Tiger Australia may lead to a duopoly as a result of the reduced competition from three to two players, with Qantas/Jeststar as the other and dominant player. (See SIA releases Tiger into Virgin’s lair, Oct 31, 2012)

But that is likely to be at best a considered part of the due diligence before ACCC endorses the deal. Better a duopoly that includes Tiger in the game, albeit a partner of Virgin, than the exit of the loss-making Tiger which after six years of operations manages to capture only 5% of the Australian domestic market. It will not be a surprise if under the circumstances Singapore Airlines (SIA) which owns a third of Tiger’s Singapore parent calls it quits.

ACCC’s concerns may be valid. Its chairman Rod Sims said there were risks from the increased ability of Qantas and Virgin “to coordinate their activities once Tiger Australia is no longer operating as an independent low cost carrier.” But it can also be argued that a stronger Virgin/Tiger partnership will enhance the competition against rivals Qantas/Jetstar. Virgin is committed to strengthen and expand Tiger, with plans to increase the budget carrier’s fleet from 11 to 35 aircraft by 2018.

Count on it that ACCC is already convinced of its necessary support of the merger, when Mr Sims said:  “If the ACCC were to conclude that Tiger Australia would exit the market in the absence of the proposed acquisition, this would be highly relevant to our assessment.” A decision is expected on March 14.

Full-fare disclosure gains momentum

JUST as the United States kicks in a new regulation on January 24 requiring airlines to publish the full fare including taxes and surcharges in their sale pitch, Australia is taking Malaysian budget carrier AirAsia to court for misleading advertisements.

According to the Australian Competition and Consumer Commission, AirAsia’s website did not show the full disclosure fares for some routes out of Melbourne, Perth and the Gold Coast. The commission said: “Businesses that choose to advertise a part of the price of a particular product or service must also prominently specify a single total price.” As a consequence, AirAsia may be fined.

The new rule introduced by the US Department of Transportation (DOT) has already been in force within the European Union (EU) although there, it applies only to EU carriers. Now Canada is working on a similar implementation which Canadian carriers have argued is unfair because foreign carriers are excluded. Quite rightly so, why should any airline targeting the same market be exempt?

More disturbing is how all these arguments actually lend weight to the new rule to protect the right of the consumer. Indeed, are there no ethical considerations in the business of making money?

After the EU, North America and Australia, it should be expected that the rule should gain momentum in other regions, especially if it applies to all carriers. The absence of universal applications is apt to raise concerns about unfair competition. So, recalling all that fuss about not leaving the carbon emissions issue to the International Civil Aviation Organization (ICAO) to come up with a global procedure (instead of the EU going ahead on its own to introduce the carbon emissions trading scheme in this specific case), this may be an opportunity for international aviation agencies to not later regret being sidelined.

Qantas repairs image, but problem remains

FOR Qantas, it is time to work on repairing its image, after the strikes and subsequent lockout that resulted in a cancellation of some 450 flights affecting 70,000 passengers in 22 cities around the world and costing the airline A$68 million.

All the more urgently so, when barely two weeks after the resumption of scheduled flights, a flight from Singapore to London last week was diverted to Dubai because of an engine malfunction – adding to its woes and compounding the reliability issue. It may appear that Qantas has not completely plugged a recurring problem concerning the Rolls-Royce powered A380 aircraft that only last year led to a grounding of the entire A380 fleet for security checks.

Qantas had already offered to refund all “reasonable losses” incurred by passengers affected by the industrial dispute, following the recommendation of the Australian Competition and Consumer Commission (ACCC) to act on the matter. ACCC chairman Bob Sims said: “If you (the passenger) have incurred additional expenses as a result of the grounding, the ACCC is of the view that Qantas should compensate you for all your reasonable losses.”

Lest it be seen to be complying only because it had been compelled by an external body to do so, Qantas quickly followed up with a statement to take the initiative under its wings. Qantas said it “agrees to, and accepts, the ACCC’s request that it compensate passengers for all reasonable losses incurred as a direct result of the grounding.” But it added that “Qantas has always intended to ensure that disrupted customers incur no financial loss.”

Additionally, Qantas has announced that it will also offer passengers within Australia and New Zealand free tickets for a flight within the two countries – the compensation likely to cost the airline A$20 million. Further announcements would follow on offers for affected passengers outside Australia and New Zealand and frequent flyer customers.

Qantas CEO Alan Joyce said: “This ticket offer is one of a range of initiatives we will be launching as a way of saying sorry as we move forward into this period of stability.”

Indeed, image repair can be a costly affair. But it would be penny-wise pound-foolish if Qantas chose to pretend that it would be business as usual without a slew of timely PR initiatives. Qantas must be conscious of the alternatives offered by the competition, particularly if the rivals are seizing the opportunity to make attractive “switch” offers.

However, Qantas can rest be comforted that the public is generally more forgiving than it professes to be at the onset of a problem, and how much more so is often measured by how soon after an airline expresses its humility and offers a sweetener. Admit it, compensations do appease, especially in situations when the affected passengers understand full well there is little else they can do but to make good their “losses”, whether pecuniary or otherwise; the adequacy of the offer is a different matter.

In light of the extent of the damage, Qantas knows it may have to over-compensate to restore goodwill and retain loyalty. Recovery with impact in times of adversity has the magic of turning an unhappy passenger around to singing praises of the culprit airline. The nature of the air travel business is such that there is no crystal ball gazing into the future to help with passenger bookings made in advance; while passengers may try to avoid airlines with a bad record of strikes, this factor may not carry sufficient weight to swing the decision on choice of carrier to fly, so the comfort lies in the excellence of the aftercare service in the event that expectations are not met.

Many corporations – not just airlines – have clawed back after a disastrous streak, better placed. Ironically, the embattled airline can ride on the high profile thrust upon it to dose up publicity stints on new products and customer programs for the very simple reason that time heals and a passenger’s memory is short-lived and overridden by the most recent recalls. Unfortunately in present times of an uncertain global economy, most airlines are more concerned about keeping their nose above water than expend energy on trying to spark new excitement to maintain or enlarge their customer base.

Can Qantas prove to be the exception?

Delivering the promised compensation may be the easy part, and will repair Qantas image somewhat. The real question is, What next? Mr Joyce spoke about moving back into a “period of stability”, but if “stability” means the status quo, Qantas may find itself back to square one as it continues to struggle to resuscitate its loss-making international operations arm while its workers and the unions persist in thwarting Qantas’ plan to restructure its operations (which includes shifting operations to Asia which Qantas has identified as the elixir to lift it out of its doldrums) and outsource some of the services.

It looks like it’s going to be a long, if not difficult, hop for the flying kangaroo.