Qantas is changing the game

Courtesy Getty Images

After the successful launch of the non-stop Perth-to-London flight in March, Qantas is now working on plans to introduce a non-stop Sydney-to-London flight, which is expected to take a little more than 20 hours. Boeing and Airbus have been invited to retrofit an aircraft that will fly the distance, and Qantas CEO Alan Joyce expected a launch by 2020.

This is set to be a game changer, continuing the momentum set by the Perth non-stop which, according to the Australian flag carrier, is performing well, and in fact, exceeding expectations. Mr Joyce himself said early signs were positive, and that the new route “is the highest rating service on our network.”

The task now is how to make the ultra-long haul comfortable enough to influence the pattern of travel and get non-believers on board. According to the Independent, a Twitter poll with over 1,200 responses showed that 40 per cent would prefer a non-stop flight, 30 per cent would want a break in the journey, and the remaining 30 per cent said it would depend on the fare.

“We’re challenging ourselves to think outside the box,” said Mr Joyce. “Would you have the space used for other activities – exercise, bar, creche, sleeping areas and berths?”

Maybe think, along the line of a cruise?

One suggestion put forth was converting the plane’s cargo hold into sleeping pods.

With more non-stop ultra-long haul flights from Australia – Perth now, Sydney next and most likely Melbourne to follow suit – to London and possibly other European destinations such as Paris and Athens (and further down the road to key destinations in Africa and the Americas as well), how will this affect the competition?

The Kangaroo Route has been a lucrative route for Qantas and rivals that include Singapore Airlines (SIA) and Middle East carriers, notably Emirates Airlines (despite its alliance with Qantas), Etihad Airways and Qatar Airways, flying via their home airports. Even Cathay Pacific may be counted as a veritable competitor.

However, these airlines are themselves also operating the ultra-long haul, so they are not unaware of how the game may be changing. Take, for example, the Middle East: Emirates, Etihad and Qatar are all operating non-stop to Los Angeles, albeit from their different home airports of Dubai, Abu Dhabi and Doha respectively, in close proximity, and this is besides Saudi Arabian Airlines (Saudia) flying from Jeddah. Both Emirates and Qatar are also flying non-stop to Auckland.

Asian rivals Cathay Pacific and Philippines airlines both fly non-stop from New York to Hong Kong and Manila respectively, and will soon be joined by SIA connecting the Big Apple with Singapore. Cathay and Philippines are also competing on the non-stop option from Toronto, while SIA and United Airlines are taking on each other flying non-stop between San Francisco and Singapore.

Perhaps to the relief of Qantas, British Airways (BA) has expressed no interest in mounting non-stop flights between Australia and the UK. In fact, over the years, BA has reduced its interest in Australia, currently operating only one service from London to Sydney via Singapore.

It seems that the ultra-long haul aims at narrowing the rivalry on key routes where point-to-point traffic is the target, and is perhaps also an attempt to claim native rights, cutting out third parties jumping on the bandwagon. The question is whether there is adequate traffic to justify the operations.

The fortunes of some airlines may shift, so too those of some airports which rely on transit traffic with no real attraction other than being a convenient stop en route. One only needs to look back at how Bahrain Airport quickly lost its status when new technologically advanced aircraft able to fly a longer distance without refuelling emerged on the horizon.

Dubai International and Singapore Changi are two popular hubs on the Kangaroo Route. How will their fortunes change?

Yes, they may lose some traffic with Qantas flying direct from Perth, Sydney and Melbourne, but all is not lost so long as there continues to be up to 70 per cent of travellers who are yet convinced the ultra-long haul is the way to fly. The airlines themselves understand the dynamics, hence the dual strategy, offering the options. Qantas may reduce some flights, but it is unlikely to completely stop flying via Dubai or Singapore. Similarly, SUA will not cease making a stop at an Asian port just because it has introduced non-stop flights to Los Angeles and San Francisco.

Again, if one sees how Dubai International does what Bahrain could not do, reviving the importance of a Middle East hub with convenient connections to Europe and Africa, no less owing to the vast network of Emirates, and how Changi has enticed transit and transfer passengers with being more than just another airport, one can be hopeful of their future. They may even flourish as important regional hubs, feeding traffic from and into the ultra-long haul flights.

And don’t forget, non-stop flights cost more. People spend their dollar in different ways.

A hub airport needs a strong home-base carrier – but does it really?

Courtesy Cathay Pacific

Courtesy Cathay Pacific

INCOMING Cathay Pacific Chief Operating Officer Rupert Hogg who will be taking up his new position in March loses no time in marking his presence as one with a voice and views to be heard. At a recent meeting in Vancouver, Canada with officials from Vancouver International Airport (VIA), he offered a piece of advice that might not sit too well with his host but certainly something that Air Canada in its battle to check VIA’s enthusiasm to open its doors to foreign carriers willy-nilly might use to support its case.

Mr Hogg emphasized the need of a strong home-base airline to anchor an airport’s hub operations. He said: “Only a home-base carrier has the wherewithal to create the banks of incoming flights and make them connect to the banks of outgoing flights.”

There is much truth in Mr Hogg’s statement. No one, including Mr Hogg, can resist citing the opposing fate of Dubai and Bahrain as an example. Both airports are quite on par in terms of an advantageous geographical location and the capability to provide good facilities, but Bahrain today is unable to achieve the kind of success that Dubai is enjoying because it lacks a strong home-base carrier like Dubai’s Emirates Airlines. Gulf Air, once the leading airline of the Middle East and which was expanding rapidly in the ‘80s and becoming the first airline from the region to fly to Australia, has succumbed to the competition posed largely by rival Emirates and by other younger airlines such as Etihad Airways (Abu Dhabi) and Qatar Airways (Doha). Gulf Air has since ceased operations to major airports such as Singapore, Hong Kong and Sydney. So too spelt the decline of Bahrain as a major Middle East hub.

There is more to the story of the decline of Bahrain, which did enjoy brisk business in its early days when Dubai and Emirates were relatively little known; it became badly affected when new jets plying the kangaroo and east-west routes no longer needed a technical stop in a city that offered little else and their operators preferred airports in Asian cities such as Bangkok and Singapore. Bangkok offered the shortest route from Sydney to European cities and the additional attraction as a touristy stopover, and Singapore topped the efficiency table for best connectivity and the lowest probability of a costly disruption.

Courtesy Cathay Pacific

Courtesy Cathay Pacific

But Mr Hogg’s advice to VIA, as it appeared to be intended, might be incidental. He was actually talking about Cathay Pacific and Hong Kong International Airport (HKIA), and their symbiotic relationship. Mr Hogg cited the synonymous growth of both Cathay and HKIA in support of his argument. Similarly, as another example, we can look at the relationship between Singapore Airlines (SIA) and Singapore Changi Airport. In fact, in many of the recent surveys such as those conducted by Skytrax, the awards for the best airline and for the best airport seem to go hand-in-hand: SIA/Changi, Cathay/HKIA, Asiana/Incheon and Emirates/Dubai amongst them. Indeed, it is difficult to imagine London Heathrow without British Airways, Frankfurt without Lufthansa, Sydney without Qantas, Tokyo Narita without Japan Airlines or All Nippon Airways, and major American hubs without the spoke patterns of resident American airlines.

Mr Hogg’s argument may therefore come across as being self-serving in the interest of Cathay, which has protested Qantas setting up Jetstar Hong Kong jointly with China Eastern Airlines and a local company. In that respect, his view is one-sided, to think that it is the airline that grows the airport (and not the other way round) although one definitely cannot deny the airline’s contribution to an airport’s success. The question is: Does an airport similarly contribute to the success of its home-base airline (or for that matter a visiting airline)? More specifically, how much of Cathay’s success can be attributed to HKIA’s positioning (and for the sake of comparison that of SIA to Changi’s)?

Mr Hogg said: “As you can see in the case of Dubai, you need geographical location, but if you don’t have a successful home-base carrier, you have nothing,”

Those were strong words, which led us to the next question: Can an airport and its home-base airline succeed independently or one without the other?

While geography is not everything, it cannot be denied that it is an important factor. Mr Hogg would not refute that, as he did say that airports and airlines must leverage their geographical advantages. But as the world shrinks with technological advances, this importance can shift, as when Bahrain lost its geographical advantage with the introduction of modern jets that allows airlines to overfly it. In the same way, Mr Hogg did not think that SIA poses a threat to Cathay in the North American market. He reasoned: “If you look at the Great Circle Route, Hong Kong is directly on the route. The reality is, with current technology, Singapore is too far south to effectively serve North America. If you are travelling to India, you are not going to go all the way south, then come back up north to Delhi.”

Changi has often been cited for its geographical advantage over its regional rivals, and no doubt this advantage has contributed to SIA’s success. But the lesson of Bahrain continues to hold true, in yet another example when Qantas decided to move its hub for European flights from Changi to Dubai. So Mr Hogg was right here to think that geography is not everything but a starter’s advantage. Qantas’ exit from Changi has more to do with a shift in marketing strategy. So in the same way, hypothetically, can SIA do a Qantas on Cathay in the case of Indian traffic, even though logically the shorter flight distance favours Hong Kong but not that much more considering the close proximity of HKIA and Changi to each other?

Indeed, Cathay should be grateful for HKIA’s growing popularity as an Asian gateway, advantaged by its location at the doorstep of the huge Chinese market. That, while not denying Cathay’s contribution, Mr Hogg might accede, has to do with geography too.

We have come round a full circle to recognizing that Mr Hogg’s view cannot be viewed as the definitive scenario of things to come. At best, it was pre-emptive. In spite of the setback caused by the Qantas rerouting of its kangaroo runs, Changi continues to register higher passenger volumes. In 2013, it handled a record 53.7 million passengers, an increase of 5.0% attributed to growth in regional travel, fuelled particularly by the burgeoning budget business. As a hub airport, it is confronted by growth issues of the airport per se vis-à-vis the interest of its home-base carrier. So it is with HKIA and VIA. Changi boasts an open skies policy that may intensify the competition for SIA. HKIA will face the pressure of allowing more airlines to call at its port in view of its proximity to the growing market of the Chinese hinterland and its promotion as an alternative Asian gateway, but this has disturbed Cathay somewhat. VIA sees its future in connecting with more Asian carriers across the Pacific, positioning itself as the western gateway to the rest of North America, the initiative meeting with objection from Air Canada. How then will the airlines figure in their growth plans?

Although it was in Vancouver that Mr Hogg spoke, his message to HKIA on Cathay’s position is clear. His view was hardly a new one, but it was a timely reminder of how as the competition among hub airports and that among airlines begin to move divergently, the concerned parties may increasingly lock horns over whose interests are more important.

Changi Airport expands to check competition

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons

Singapore Changi Airport will begin construction work on Terminal 5 in 2014, even as Terminal 4 which is presently being built is not targeted to be ready by then. The addition of the fifth terminal, which will extend from Terminal 1 into its current car park, will double Changi’s capacity by the mid-2020s.

The announcement by Singapore’s Prime Minister Lee Hsien Loong should not surprise. Changi is consistently upgrading and expanding. When plans were made to shift the nation’s hub airport from Paya Lebar to Changi – which was inaugurated in 1981 – the master-plan already made provisions for at least three terminals. The second terminal was added in 1990, and the third in 2008. The budget terminal, which operated from 2006 to 2012 and added to meet the growth of low-cost operators in the region, has made way for a new Terminal 4 which is expected to be ready in 2017.

Changi’s present capacity of 66 million passengers already surpasses Kuala Lumpur International Airport (KLIA)’s 40 million passengers and Bangkok’s Suvarnabhumi Airport’s 45 million passengers. Mr Lee cited these two regional rivals as being geographically better placed than Changi to be Southeast Asia’s major air hub. The exhortation in itself tells the Changi success story thus far – that in spite it, the airport is able to attract and retain customers, offering superior infrastructure, competitive rates and extensive connections, and above all, operating on the back of a very liberal air policy.

Can this change? In the bigger arena, Qantas’ tie-up with Emirates Airlines resulting in the shift of its hub for the kangaroo route from Changi to Dubai International shows that it can. The next question then is whether KLIA and Suvarnabhumi, within Southeast Asia, can be as good a Dubai alternative to Changi. The challenge arose a few times in the past – when Qantas considered routing their flights through Bangkok instead of Singapore that would cut down on flight time, when some airlines considered transiting at KLIA’s predecessor Subang Airport because of cheaper rates, and of course when both Bangkok and Kuala Lumpur opened Suvarnabhumi and KLIA respectively. But Changi held out. It is a constant catch-up game, and therefore imperative that Changi continues to maintain its lead over its rivals by moving ahead of them.

Already KLIA and Suvarnabhumi are making plans to accommodate 100 million passengers annually. It is a hard truth of the airport business and competition. Forward planning is key, and often on a very long term fraught with uncertainties in a fast changing environment. In 2012 Changi handled 51 million passengers, well over 20 per cent below capacity. When Terminal 4 becomes operational in 2017, it will still be – happily, we hope – over-capacity. The rule of thumb is: Capacity creates demand.

There will be a lot more air movements when Asean Open Skies is implemented in 2015. Many regional airlines, in particular low-cost carriers such as AirAsia and Lion Air, are stepping up efforts to carve out a bigger slice of the growing pie. Secondary airports will enjoy some prominence and primary airports will compete to be the gateway to those secondary destinations. The competition within the region will intensify, hence understandably Changi`s focus closer home to being the hub in Southeast Asia.

Like Dubai, Changi is a major transit hub, with transit passengers making up about 30 per cent of its traffic. In principle, through transit may be handled at any port so long as it meets the minimum standards or requirements of the user airline whose concern in present times may be largely influenced by cost. Bahrain Airport was a jewel in the Middle East during the `70s, but bypassed by many airlines today. Consider how as Bahrain lost its shine, Dubai became the new shining star. Attractive physical features aside, Dubai is well-connected and has become a gateway to the Middle East, Africa, Europe, even the United States offering a wide array of transfer options. In the same way, Changi has relied on its extensive network connections to attract passengers to want to pass through Changi. Of course, its facilities have impressed almost every passenger who passes through the spacious and comprehensively endowed airport.

Hub airports, particularly east of Europe, have employed the “airport city” concept to enhance their attraction not only as a transit stop but also as a destination in itself. That is why Changi has been consistently voted by transit passengers – especially those with long layover time – as one of the world’s best airports, where you can sample a variety of food, drink beer to your heart’s content, have a shower or a massage, watch a movie, keep updated with global news, swim or bask in the sun, listen to birdsong or relax in one of its gardens and even catch a nap in some specially dedicated private area for that purpose. Besides Changi, you think also of Hong Kong International Airport with its array of passenger facilities, range of shops and restaurants.

Certainly other hub airports can replicate several of those facilities, thus levelling the playing field. Dubai for one backed by the country’s national wealth has created a very opulent airport aimed at attracting premium travellers. But interestingly, Bahrain and Dubai located within the same Middle East region have shown how an airport’s fortune can rise and fall. It may be a little overcautious to think that many airports within the same Southeast Asia region could easily challenge Changi on its success, but Singapore has always been known to guard itself against resting on its laurels. The sentiment aside, what else can Changi do to reaffirm its leading airport status?

Prime Minister Lee said his government aimed to continue making Singapore a vibrant hub city in Southeast Asia. To encourage more airlines to call at Changi, Singapore has to be an attractive destination in itself that will bring in more visitors than just travellers passing through the airport. It must aim to be the Heathrow of not just Southeast Asia but the bigger Asia, a challenge that it will face increasingly as more airlines operate end-to-end traffic within the region and across long distances with improved technology. A case in point may be the shift of the Qantas’ kangaroo hub from Changi to Dubai; Qantas has allayed local concerns that this would be compensated by more flights from Australia to Singapore and that Changi would be its regional hub instead for hops to other Asian destinations.

Just making a hop without visiting (and this may not necessarily be confined by Singapore’s physical boundary) even for a short stay may risk a Dubai replay especially when it is said that KLIA and Suvarnabhumi are better placed geographically, however remote the chances of that happening in the foreseeable term may be. With superior infrastructure, exemplary service and extensive connections, Changi has enjoyed a competitive edge over regional airports for transit traffic. But Changi too can be more than a Dubai, benefitting from Singapore’s attraction as a destination in itself – both as a tourist getaway, the kind of allure that Bangkok has, and as a significant business hub that it already is today.