Is the Boeing Max ready to fly?

Courtesy Boeing

Airlines looking forward to fly their fleet of Boeing B737 Max 8 aircraft have just got their planned schedules jiggered up by the Federal Aviation Administration (FAA)’s announcement that it may take up to a year before the jet is cleared again for commercial flights.

According to the BBC, FAA chief Daniel Elwell said: “If it takes a year to find everything we need to give us the confidence to lift the (grounding) order so be it.”

It may be read that underlying this is the FAA’s understanding that time is needed to regain the world’s trust – in both the aircraft and the FAA as regulator. While Boeing seems ready to sign off the improved jet, saying it has finished updating the pertinent flight-control software, FAA in an apparent redeeming move following censure of its lax oversight is assuming control as the final authority to certify the jet’s safety.

According to Bloomberg, Mr Elwell added at a meeting with representation from across the globe, “If there is a crisis in confidence, we hope this will help to show the world that the world still talks together about aviation safety issues.”

In Boeing’s favour, some airlines have voiced their support of the Max. Understandably so, particularly if the airline owns a sizeable fleet of the jet. American Airlines (AA) for one is confident of an “absolute fix” but CEO Doug Parker was also quick to add, “But…it’s not for us to decide whether or not the aircraft flies. It needs to be safe for everyone.” The airline, which has a fleet of 24 Max jets, has cancelled thousands of flights and has now cancelled Max schedules through mid-August.

Another airline which has pledged its commitment to Boeing is Singapore Airlines (SIA). The airline is pledging its commitment to purchase 39 Dreamliner jets and its re-commitment for a previous order of 30 planes. Although this is not related to the Max aircraft of which its subsidiary SilkAir has six of them, it gives Boeing a boost of confidence after reports of shoddy production and poor oversight at the Boeing plant in North Charleston surfaced, and following grounding of some Dreamliner jets because of problems with the Rolls Royce Trent engine fitted to the aircraft.

Read also:

https://www.todayonline.com/commentary/grounding-boeing-max-and-dreamliner-planes-how-can-singapores-airlines-reassure-customers

It’s good to have friends, indeed. But while it’s not yet known if airlines such as AA and SIA have sought or will seek compensation from Boeing, others which have made known their intention include Norwegian Air Shuttle, Ryanair and the big three Chinese carriers of Air China, China Eastern Airlines and China Southern Airlines. A strongly worded report from the Chinese Global Times newspaper said: “We must use punishment and tell the Americans their practice of using concealment and fraud to extract benefits from others, while benefiting themselves, is unfair.”

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Never say never: Cathay Pacific enters budget market

Courtesy AFP

In 2015, Cathay Pacific together with Hong Kong Airlines opposed Qantas’ application to set up Jetstar Hong Kong Airways – co-owned with China Eastern Airlines and billionaire Stanley Ho’s Shun Tak Holdings Ltd. Cathay was particularly vehement about there being no room or need for budget travel in Hong Kong. The authorities were convinced and Jetstar HKG never took off.

Today, Cathay announced its decision to buy Hong Kong’s only budget carrier, Hong Kong Express Airways, for HK$4.93 billion (US$628 million). This expands Cathay’s stable of airlines to three, which includes regional carrier Cathay Dragon. It will boost Cathay’s market share to 50 per cent in Hong Kong.

A Cathay spokesperson said: “We intend to continue to operate Hong Kong Express as a stand-alone airline using the low-cost carrier business model.”

Now what caused Cathay to change its mind?

Cathay is not alone in facing stiff competition in the long-haul and premium market, from not only neighbouring rivals such as Singapore Airlines (SIA) but also Middle east carriers such as Dubai Airlines. Besides, Chinese carriers from mainland China are also fast expanding, flying direct and more services to Europe and North America.

At the same time, Cathay can no longer ignore the encroachment by the flourish of budget carriers in the region, particularly those operating out of mainland China. The Hong Kong authorities too may begin to realise how all this may be reducing Hong Kong International Airport’s hub status, particularly when limited options are resulting in Hong Kong being bypassed.

It could be a matter of timing. In 2017 Cathay reported its first annual net loss in eight years and introduced a three-year transformation program. It was later in that same year that Cathay CEO Rupert Hogg affirmed that Cathay had no plans to start a low-cost carrier. But the debt-ridden HNA Group which owns Hong Kong Express offers a timely opportunity not to be missed even as Cathay posted its first full year profit in 2018 of US$299 million.

The business climate can change fairly quickly, but unfortunately airlines may be slow in catching up with the changes because of the huge investment and lead time to implement many of the changes, apart from a host of other reasons, some of which could be largely circumstantial.

Many legacy airlines pooh-poohed the threat of budget airlines to their traditional market when it was first mooted, and as many of the carriers fell by the wayside before they could assert any impact.

SIA for one came on the scene later than most others, setting up Tigerair jointly with Ryanair, and then Scoot. Its strategy has changed yet again with the merger of Tigerair and Scoot, and now SIA is in the process of assimilating SilkAir into the parent airline.

One wonders if this is the path that Cathay may take should Hong Kong Express and Cathay Dragon find their services overlap as they expand.

Whatever the reading, it would be discreet to never say never. The question is always if so, when?

SIA’s transformation is long overdue

Courtesy Bloomberg

Singapore Airlines (SIA) announced it will be taking “bold radical measures” in a major business transformation plan after the parent airline incurred a fourth-quarter operating loss of S$41 million (US$30 million). SilkAir and Budget Aviation Holdings (Scoot and Tiger Airways) reported lower profits for the same quarter: the former down 19 per cent to S$27 million and the latter more than 50 per cent to S$22 million.

Full-year operating profit for SIA was S$386 million, a decline of S$99 million or 20 per cent year-on-year. For SilkAir it was a fall of 11 per cent and for Scoot and Tiger a combined drop of 60 per cent.

SIA chief executive officer Goh Choon Phong said: “The transformation is not just about how we can cut cost but also how we can generate more revenue for the group, how we can improve our processes more efficiently, …so that we can be lot more competitive going forward.”

If anyone is surprised at all, it is not because it is happening but that it has taken so long coming. The writing has been on the wall since the global financial crisis when the airline suffered a loss of S$38.6 million in FY 2008/09, and from then onward the margin has averaged less than three per cent compared to seven per cent in the five years leading to it.

SIA cited intense competition that is affecting its fortune. Lower fuel costs that contracted by S$780 million (down 17.2 per cent) didn’t help. Capacity reduction trailed the reduction in passenger carriage, and passenger load factor as a result dipped lower to 79.0 per cent.

While details of the transformation are yet to be announced, it will do SIA well to recognise that the aviation landscape has changed dramatically over the years and will continue to shift. Competition in the business is a given, and we cannot help but recall how the fledgling airline from a tiny nation leapfrogged its more experienced rivals in its early days to become the world’s best airline and one of the most profitable in the industry. No doubt the competition has intensified, but the salient point here is that it can never be business as usual.

What then has changed?

Low-cost carriers are growing at a faster rate than full-service airlines and are now competing in the same market, and while SIA may have answered that threat with setting up its own budget subsidiaries, the parent airline is not guaranteed it is spared. Until the merger of Scoot and Tiger under one umbrella, there had been much intra-competition. And while the subsidiaries compete with other low-cost carriers, the concern should be that they are not growing at the expense of the parent airline. That calls for clearly defined product and route differentiation such that they are not substitutes at lower fares.

Low-cost carriers are also venturing into the long-haul, aided by the current low fuel price and technologically advanced and more fuel-efficient aircraft. The launch of Norwegian Air Shuttle’s service between Singapore and London in October at drastically lower fares poses a challenge to SIA on one of its most lucrative routes.

The market is becoming increasingly more price sensitive since the global financial crisis, and that favours the low-cost model of paying for only what a passenger needs. Dwindling may be the days when one is more willing to pay a higher fare for SIA’s reputable in-flight service as other carriers improve their products and services, often the reason cited for the competition laid on by the big three Middle East airlines of Emirates Airlines, Etihad Airways and Qatar Airways.

These rivals are also offering a slew of connections out of their home bases and reduced layover times which are the forte of the SIA network. The growing importance of airports such as Dubai and Hong Kong as regional gateways may disadvantage not only Changi Airport but also SIA in the competition against airlines such as Emirates and Cathay Pacific. In 2013, Qantas shifted its hub on the Kangaroo Route from Singapore to Dubai, and is now planning to build a hub out of Perth for the same route. SIA will have to heed the geographical shift that may affect the air traveller’s preference for an alternative route.

Along with this is also the increased number of non-stop services between destinations, particularly out of the huge, growing Chinese market. This may eliminate the need for travellers to fly SIA to connect out of Singapore, say from Shanghai to Sydney when there are direct alternatives offered by Qantas and China Eastern Airlines. It has thus become all the more imperative for SIA and Changi to work even closer together.

Well and good that SIA is constantly looking at improving cost efficiency and productivity. But more has to be done. As Mr Goh had said, it calls for a “comprehensive review on whatever we are doing and how we can better position ourselves for growth.”

The key word is “transformation”, in the same way that Qantas chief executive Alan Joyce went about restructuring the Australian flag carrier following the airline’s hefty losses four years ago. Drastic measures were introduced that include the split between international and domestic operations for greater autonomy and accountability, and concrete targets were set over a specific timeline. The continuing programme seems to have worked for Qantas as it bucks the trend reporting record profits while other airlines such as Cathay are hurting.

SIA will have to look beyond its own strengths at the strengths of others. It has thrived on the reputation of its premium product, but that has taken a toll as business travellers downgrade to cheaper options. Although that business segment is slowly recovering, other airlines have moved ahead to introduce innovative options, such as the premium economy which Cathay revitalised as a class of its own and which SIA was slow in embracing, reminiscent of how SIA too did not foresee the increased competition posed by low-cost carriers. It is a pity that SIA, once a leader in innovation, has lost much of that edge.

Timing is everything in this business to cash in on early bird advantages, but this is not made easy by abrupt geopolitical changes and new aviation rules and the long lead time in product innovation and implementation. All said, SIA may begin by looking at what worked for it in the past and ask why it is no longer relevant.

Cathay Pacific losing grip of China card

Courtesy Cathay Pacific

Courtesy Cathay Pacific

Cathay Pacific reported plunging profits of 82 per cent for half-year results up to 30 June. Revenue fell 9.2 per cent to HK$45.68 billion (US$569 million). For an airline that had boasted record margins in previous reports, it demonstrates the volatility of the airline business today in spite of the continuing low fuel prices.

While Cathay chairman John Slosar put the blame on competition and the slowdown of the China economy – what’s new, indeed? – it is worthy of note that Cathay also suffered hedging losses in the spot market. Many airlines are apt to extol their ability to gain from fuel hedging but will remain reticent when the reading goes awry.

Mr Slosar said: “The operating environment in the first half of 2016 was affected by economic fragility and intense competition.” Apparently premium economy, which since its introduction has been Cathay’s pride, and the long hauls were not performing to expectations, confronted by competition from Middle East carriers Emirates Airlines, Qatar Airways and Etihad Airways, and from China carriers such as Air China and China Eastern which are offering direct flights thus doing away with the need for Chinese travellers to fly through Hong Kong.

Competition from foreign carriers in a reciprocally open market is to be expected, and which may be augmented by those carriers offering an improved product. Cathay’s main woe is probably the falling China market on two counts: the reduced demand for premium travel and the diversion away from Hong Kong as the gateway to the region. Cathay and Hong Kong International Airport have benefitted from the growing China market, but while it was able to prevent Qantas from setting up Jetstar Hong Kong, it can do little to stem the growth of China carriers.

Courtesy Singapore Airlines

Courtesy Singapore Airlines

It would be more meaningful to compare Cathay’s performance with its major regional competitors. Singapore Airlines (SIA) reported Q1 (Apr-Jun) profit of S$197 million (US$144 million) (up from S$108 million) while the other carriers in the Group – SilkAir, Scoot and Tigerair – also did better on the back of lower fuel prices. But group revenue declined by 2.1 per cent because of lower contribution by parent airline SIA. In July passenger load was down 1.2 per cent (1.676 million from 1.697 million), and the load factor by 2.2 pts at 82.4 per cent from 84.6 per cent. Except for East Asia (with flat performance), all other regions suffered declining loads.

This may be indicative of the global economic trend. Like Cathay, SIA’s fortune has shifted from the longer haul to the regional routes. Europe suffered the highest decline (4.5 pts) followed by Americas (3.1 pts). The picture will become clearer when it reports Q2 (making up the first half year) results. According to Mr Slosar of Cathay, the business outlook “remains challenging”.

Courtesy APP

Courtesy APP

However, it is good news downunder as Qantas reported record profit of A$1.53 billion (US$1.15 billion) for the year ending June 2016, up 57 per cent – the best result in its 95-year history. Qantas Domestic, Qantas International and the Jetstar Group all reported record results: the domestic market chalked up a record A$820 million, up A$191 million, and the international division A$722 million, up A$374 million. The Qantas Transformation program seemed to have continued working its magic to “reshape the Group’s base and ability to generate revenue” according to its report. CEO Alan Joyce said: “Transformation has made us a more agile business.” And, unlike Cathay, effective fuel hedging saw the Group secure an A$664 million benefit from lower global fuel prices, leaving us to wonder what Cathay would say to that.

It is once again a feather in Mr Joyce’s cap. He added: “The Qantas Group expects to continue its strong financial performance in the first half of financial year 2017, in a more competitive revenue environment. We are focused on preserving high operating margins through the delivery of the Qantas Transformation program, careful capacity management, and the benefit of low fuel prices locked in through our hedging.” He believed the long-term outlook for the Group to be positive.

The contrasting fortunes of airlines may prompt one to ask how in the end that as much attribution of an airline’s performance is attributed to global influences, so too as much is balanced by its self-discipline in adjusting to the vicissitudes of the times, its astuteness in seizing shifting opportunities and, of course, its ability to read global and regional trends as unpredictable as they are.

Which Asian airlines might be interested to buy into Virgin America?

Photo courtesy Virgin America

Photo courtesy Virgin America

UP for sale, Virgin America has some suitors lining up. It has received takeover bids from JetBlue Airways Corp and Alaska Air Group Inc. In this era of the mega carriers (consider the mergers of United Airlines and Continental Airlines, Delta Air Lines and Northwest Airlines, and American Airlines and USAir), a tie-up with another carrier strengthen Virgin’s competitive ability. And while it is almost certain that the merger would be with another American carrier, with analysts placing bets on JetBlue as the best fit, apparently some unidentified Asian carriers have also expressed interest. Still, be that as a remote possibility, one cannot help but be curious and speculate who the likely candidates might be.

Two big names come to mind immediately because of their successes, networks and financial capability, namely Cathay Pacific Airways and Singapore Airlines. Both airlines are keen on expanding their US market. Cathay flies to Boston, Chicago, Los Angeles, New York and San Francisco while Singapore Airlines (SIA) operates to Houston, Los Angeles, New York and San Francisco. Both airlines have codeshare access to several other destinations. Cathay’s codeshare partners include Alaska Airlines and American Airlines while SIA already codeshares with Virgin and with JetBlue.

So it looks like SIA more than Cathay would be favoured on relationships alone. Since foreign ownership rules governing US airlines require the bid to be submitted jointly with a US partner. It would be convenient for SIA to join hands with JetBlue. Of course, Cathay may partner Alaska Airways, but historically Cathay is not quite interested in equity participation. Although it has a 20.3% stake in Air China and 49% in Air China Cargo, that could be a matter of expedience to secure its market in the growing China mainland market.

SIA on the other hand, limited by a hinterland market, tried in its early years to grow through acquisitions. In 1999, it bought 49% of Virgin Atlantic and subsequently 25% of Air New Zealand. Although both buys subsequently proved to be lemons, resulting in heavy losses, the misstep might be less strategic than circumstantial. Unfortunately that has hurt SIA deeply more psychologically than financially as the airline became more cautious about such moves. In subsequent years it failed in its seemingly reluctant bid for a stake in China Eastern Airlines, and the SIA Group was plagued by the poor decisions of its budget subsidiary Tigerair in joint ventures in Indonesia and the Philippines. In Oct 2012 SIA bought a 10% stake in Virgin Australia, joining tow other foreign partners namely Air New Zealand and Etihad Airways. In much the same way that Cathay needed to secure its market in China partnering with Air China, SIA needed to secure its Australian market against the competition by Qantas. Six months after, SIA increased its stake to 19.9%.

But is SIA even interested in a stake in Virgin when its codeshare partnership with JetBlue already places it in an advantageous position to benefit from a JetBlue takeover of Virgin? Would a bid jointly with an Asian partner jeopardise JetBlue’s chances if the powers that be preferred an all-American merger a la the big three of United, Delta and American?

Besides Cathay and SIA, one should not ignore the voracious appetite of the China carriers in the national trend to acquire foreign assets. And why must it be premised on full-service carriers that are already serving destinations in the US? What about a budget carrier with dreams of new frontiers? Maverick AirAsia chief Tony Fernandes who models himself after Virgin guru Richard Branson and who had been where others were hesitant, even afraid, to go may yet surprise with an expression of interest even if it is no more than just that. He is one of the few airline chiefs who, like Ryanair’s Michael O’Leary and Qantas’ Alan Joyce, understood what an opportune good dose of publicity could do.

All this, of course, is speculative. Asian carriers are likely to be less concerned this time than when the mergers of the American big three took place. Together with Southwest Airlines, the big three control 80% of the American market. Virgin and its alleged interested parties JetBlue and Alaska are all largely domestic carriers. Even if Southwest throws in a bid (but for its size that may not pass the antitrust law as easily), it is still the same scenario. SIA’s connections with JetBlue and Virgin will continue to stand it in good stead, but if it’s Alaska that carries the day, then it is Cathay that stands to benefit from the new, extended connection. Or does it really matter when there are already subset agreements across partnership lines that allow you to fly an airline of one alliance and connect on another in a rival group? That’s how complex today’s aviation has become.

Optimism and more good news

IT’s been a long time coming, the optimism and good news that the industry badly misses as more airlines report better, even record, performances as fuel prices show no certainty of bottoming out. From Chicago to London, Singapore and Sydney, the mood is celebratory.

American carriers were the first to celebrate. The US big three– American Airlines, United Airlines and Delta Air Lines – all reported record recovery last year, and are reintroducing snacks on domestic services (instead of lowering the fuel surcharge) as a way of giving back to their customers. (As the price of crude oil plummets, fuel surcharge holds sway, Jan 23 2016)

This article takes a look at four major airlines in three other different regions (Australia, Europe and Asia) that recently posted their report cards, and see how they measure up to the mood.

Courtesy Bloomberg

Courtesy Bloomberg

Qantas

The good run continues with Australian flag carrier Qantas’ record performance for the first half of its current financial year (Jun-Dec 2015). The airline reported an underlying profit before tax of A$921 million (US$685 million), which is A$554 million more than last year’s first half. Revenue was up 5 per cent. Chief executive officer Alan Joyce announced that every part of the Qantas Group contributed strongly to the result, with record profits reported by Qantas Domestic and the Jetstar Group.

Qantas Domestic reported earnings of A$387 million, compared to A$227 million last year, maintaining a strong market share of 80 per cent. The Jetstar Group’s earnings were A$262 million, compared to A$81 million last year. Revenue for the Australian market went up 10 per cent, and for the first time, Jetstar Japan contributed positively to the profit of the Asian network since its start-up in 2012.

Qantas International which used to be the bleeding arm of the Qantas Group reported earnings of A$279 million, compared to $59 million last year. This was its best performance since before the global financial crisis. The airline has benefitted from the weak Australian dollar which has helped boost inbound tourism for Australia. Qantas’ cornerstone alliance partnership with Emirates, American Airlines and China Eastern has strategically strengthened its global network, overcoming an apparent geographical disadvantage of its home base in a far corner of the world.

All this, Mr Joyce would be the first to tell anyone, is not a matter of luck or necessarily a given in today’s more favourable economic climate. He said: “This record result reflects a stronger, leaner, more agile Qantas. Without a focus on revenue, costs and balance sheet strength, today’s result would not have been possible. Both globally and domestically, the aviation industry is intensely competitive. That’s why it’s so important that we maintain our cost discipline, invest to grow revenue, and continue innovating with new ventures and technology.”

Give credit where it’s due. Sceptics may finally admit that Mr Joyce’s “transformation program” is not only bearing fruit but producing a good crop and reshaping Qantas into a more agile and innovative business. “Our transformation program has allowed us to save significant costs,” said Mr Joyce. “It’s never been a simple cost cutting agenda.”

Qantas expects to increase domestic capacity by 2 per cent, international by 9 per cent and Jetstar International by 12 per cent in the second half, averaging 5 per cent for the full year for the Group.

Courtesy Bloomberg

Courtesy Bloomberg

International Airlines Group

At the other end of the Kangaroo route is the unmatched success of the International Airlines Group (IAG) of which British Airways is a partner along with Iberia, Vueling and, more recently, Aer Lingus. IAG’s profits increased by almost 65 per cent to €1.8bn (US$1.98 billion) in 2015, which IAG chief Willie Walsh said had “undoubtedly been a good year”. The Group carried 88.3 million passengers last year, an increase of 14 per cent, overtaking Lufthansa to become second only to Air France-KLM in Europe.

In very much the same way that Mr Joyce was able to turn round the loss-making international division of Qantas, Mr Walsh could pride himself as the man who steered Iberia into profitability following its merger with BA in 2011. The Spanish carrier underwent a painful restructuring but it has paid off. . Unlike Qantas which prefers commercial alliances, IAG adopts a more aggressive strategy of acquisitions. The consortium of BA, Iberia and Aer Lingus stands the Group in good stead to grow trans-Atlantic traffic which forms the largest part of its business.

IAG expects similar growth next year, targeting an operating profit of €3.2bn

Courtesy Airbus

Courtesy Airbus

Singapore Airlines

In Asia
, Singapore Airlines (SIA) Group reported a third quarter (Oct-Dec 2015) profit of S$275 million (US$200 million), 35 per cent higher than that of last year’s third quarter. However Group revenue declined by 4 per cent to S3.9 billion because of lower passenger yields and the continuing lacklustre performance of its cargo operations. Parent airline SIA faces stiff competition from Middle East carriers, and its subsidiaries SilkAir, Scoot and Tigerair are not spared the rivalry from regional budget carriers. Still it is good news that falling oil prices had resulted in a reduction of the fuel costs by S$354 million, a drop of more than 40 per cent.

Characteristically diffident and not as confident as either Qantas or BA, SIA said it expects travel demand to remain volatile, citing the increased competition and the pressure that it will continue to exert on yields and loads. But all three airline groups have experienced increased loads, driven by discounted fares as a result of of intense competition and made possible by the lower fuel costs. According to International Air Transport Association (IATA), breakeven load factors are highest in Europe because of low yields from the open competition and high regulatory costs, yet the region is achieving the second highest load factor after North America and generating solid growth.

It is going to be a rosier 2016. IATA forecast air travel to grow 6.9 per cent, the best since 2010 and well above the 5.5 per cent of the past 20 years. Demand is fueled by stronger economic growth and made attractive by lower fares. It is unlikely that the oil price will rise and airlines may even expect smaller fuel bills, making up 20 per cent of an airline’s total operating costs compared to what it used to be at 40 per cent. This will be further enhanced by the acquisition of new aircraft that are more fuel efficient.

In this connection, SIA has something to crow about as it took delivery last week of the first of 63 Airbus A350 firm orders after a long wait of 10 years. The first tranche of ten aircraft which it hopes to take complete delivery by the end of the year have a seat configuration of 42 business, 24 premium economy and 187 economy. An ultra-long range version of the model will be used to resume SIA’s non-stop services from Singapore to Los Angeles and New York in 2017. The modified A350 is said to be more fuel efficient than the A340 previously used. It will be configured premium-bias.

SIA chief executive officer Goh Choon Phong said: “The A350 will be a game-changer for us, allowing for flights to more long-haul destinations on a non-stop basis, which will help us boost our network competitiveness and further develop the important Singapore hub.”

Opinions are divided as to whether SIA has moved a little too slowly and as a result is playing catch up when once it used to lead the field. By all indications of the good times finally rolling back for the industry, it is not too late to leapfrog the competition to make up for lost time. SIA is banking on the rejuvenation of the demand for premium travel, the product it has always been reputed for.

The IATA forecast points to weak markets in South America and Africa – two regions that are of little interest to SIA – but continuing robust growth for North America which has been a key market for SIA since it commenced operations thereBut the competition will be tough, particularly from Middle East carriers tapping traffic in Asia-Pacific and redirecting it through their Gulf hubs. Already United Airlines has announced its launch of a non-stop flight between San Francisco and Singapore in June this year, ahead of SIA. (United Airliens steals a march on Singapore Airlines, Feb 15 2016)

According to IATA, consumers will see a substantial increase in the value they derive from air transport this year. Indeed, air travellers will benefit from the optimism as airlines become more inclined to improve their product, and the increased competition will likely see the airlines introducing more creature comforts beyond the snacks and peanuts. Qantas for one is upgrading its airport lounge at London Heathrow as part of a program to create a flagship global lounge at important destinations started three years ago. Hong Kong, Singapore and Los Angeles are already enjoying the new facility. Qantas is also developing across its domestic network an industry-leading wi-fi service that has the ability to deliver the same speeds in flight that people expect on the ground.

Mr Joyce said: “Our record performance is the platform to keep investing in the experiences that matter to our customers and take Qantas’ service to new levels.”

Courtesy Airbus

Courtesy Airbus

Thai Airways International

Positive signs of the times are best presented by the performance of Thai Airways which posted a quarterly profit of 5.1 billion (US$141.7 million) baht ending Dec 31, 2015 reversing a loss-making trend. This compared to a 6.4 billion baht a year ago, and softened the full year’s loss to 13.05 billion baht, 16 per cent lower than 15.57 billion baht last year, partly attributed to a decrease in fuel costs of 20 per cent. The airline introduced a program “to stop the bleeding” last year aimed at introducing cost-saving measures, cutting unprofitable routes and down-sizing the fleet.

Plagued by political problems at home and safety concerns based on the findings of the International Civil Aviation Organization (ICAO), Thai Airways has been struggling to stay afloat amidst increased competition from regional carriers. It is to be expected that stronger-muscled airlines such as Qantas, British Airways and SIA are likely to rise faster with improved economic conditions, but when things are beginning to look up for the more troubled carriers while noting that in good times as in bad the fortunes of various airlines can be widely diverse, the industry can at last be a little more confidently optimistic.

Qantas’ Asianisation thrust

Courtesy Getty Images

Courtesy Getty Images

Qantas is adding more flights between Australia and Hong Kong as well as Manila. From October 26, there will be four weekly services between Sydney and Hong Kong added to the current daily services from Sydney, Melbourne and Brisbane. Services between Sydney and Manila will increase from four to five weekly services, commencing early December to last until late March next year.

This is nothing quite surprising. It may even be said to be expected in response to increasing demand from travellers. But moving resources across the network to meet demands may not be as simple as it seems; it’s not as if there are spare aircraft sitting on the tarmac waiting to be assigned. But Qantas seems to have found a formula to work round the complications, or so it seems, particularly when it comes to seasonal demands.

Qantas International Gareth Evans said: “We’re pleased to add to the seasonal services we’re set to operate to Asia later this year, with the fifth weekly Manila flight again representing the dynamic nature of our network, which has the flexibility to offer our customers more flights during peak seasons.”

This apparently has been made possible by the airline’s continued focus on more efficient use of aircraft across its fleet. And the agility, one may add, in making adjustment to the schedule. To be not only reactive but also proactive ahead of change and the competition, so as to stay lean and mean

That aside, the operations in the last few years demonstrate Qantas’ increased focus on Asia. The airline has earlier announced an additional 140 services to Singapore, Jakarta (Indonesia), and Wellington and Christchurch (New Zealand) over the summer holiday.

Services between Perth and Singapore will be daily, competing directly with Singapore Airlines (SIA)’s four flights daily. It was only in June this year that Qantas resumed direct services between the two cities, operating five times a week. Mr Evans said: “Our customers told us they missed us.” So that forebodes well for Qantas, which is also looking beyond Singapore with connections on partner airlines to destinations such as Koh Samui and Phuket in Thailand, and even Tokyo in Japan, which testifies to the continuing importance of Singapore as a transfer hub. For travellers arriving from Singapore, Qantas will be offering direct onward services from Perth to Auckland from October to April 2016, the third year in a row that it is doing this.

Qantas executive manager international sales Stephen Thompson said: “A key part of our strategy is listening to and responding to our customers’ needs and developing an agile and flexible network which offers more options during peak periods.”

Good work there, and one then asks: What after that? There is a possibility that a temporary operation may become permanent, subject to regulatory approval, particularly if you believe in the industry wisdom that capacity creates demand or as a way to gain approval when demand justifies the case. Yet when you consider the short duration of the fifth weekly service between Sydney and Jakarta – from 2 December to 10 January 2016 – you may be persuaded to believe that Qantas is unlikely to sit its aircraft idle. Qantas has also announced additional services to Bali, a popular destination for Australian holiday travellers – four additional weekly during December this year and January next year, making a total of 33 return services between Sydney and Bali, adding to 65 services per week by Jetstar from Australia. Operating across the northern and southern hemispheres has given it a geographical advantage; it means catering to different peak seasons.

The transformation program that Qantas chief executive Alan Joyce said was the reason for the airline’s dramatic turnaround in profitability had identified Asia as its best bet for growth and expansion. (See Qantas is Asia Pacific’s new star performer, 27 Aug 2017). Australian politicians have long debated the toss of aligning their country with Asia (instead of Europe), at least economically. While the proposal to set up an Asia-based premium carrier never took off, that did not stop Qantas from expanding its reach into the Asian hinterland by other means.

No foreign carrier calling at Singapore more than Qantas has taken advantage of Singapore’s strategic location at the crossroads of international routes. For years until 2013, Singapore has been an important hub for Qantas flights. Although the airline has since shifted its hub for the kangaroo route to Dubai, in an alliance with Emirate Airlines, it continues to retain, even growing, the Singapore hub for connections to the rest of Asia, a strategy that Virgin Australia tries to replicate in a three-way tie-up with SIA and Air China.

However, the game continues to shift. In recent years, Qantas has been introducing more direct services between Asian and Australian destinations. This makes sense particularly when these destinations become tourist attractions in their own right and attract more traffic to justify direct routings. China for one has become Australia’s biggest inbound tourism market, projected to contribute up to A$9 billion (US$6.4 billion) annually to the Australian economy by 2020. Chinese carriers too have increased their frequencies to Australia.

In this connection, Qantas has strengthened its alliance with major Chinese carriers such as China Southern and China Eastern Airlines to deliver expanded services, better departure and arrival schedules, shorter transit times, increased frequent flyer benefits and a wider range of onward connections within China and Australia. Commencing April last year, customers on both Qantas and China Southern could travel on each other’s flights to the four destinations of Xiamen, Kunming, Fuzhou and Urumqi within China, connecting at Guangzhou, from Sydney, Melbourne, Brisbane and Perth, and on the Qantas Domestic network as well as on services between Sydney and Auckland.

More recently, a codeshare agreement with China Eastern not only further increases capacity between the two countries but also maximises Qantas’ presence within China. Mr Joyce said:
“We cannot fly to every destination in China. However, our deepened relationship with China Eastern supports our successful strategy to work with key partners around the world to offer the most comprehensive network and world class travel experiences for our customers.”

Being visible helps; Chinese travellers voted Qantas as having the “Best Cabin Crew” in the 2014 iDEAL Shanghai Awards, judged by more than 100,000 people in Shanghai across all categories, and evaluated by a jury of reporters, columnists and lifestyle writers.

Underscoring how partnerships are at the core of the Qantas strategy in Asia, the airline announced in Mar last year a codeshare agreement with Bangkok Airways which will significantly improve travel options for its customers travelling across South East Asia. Customers will be able to fly from Bangkok and Singapore to six new destinations including Ko Samui, Chiang Mai and Phuket. (See Air New Zealand poised for growth, Sep 10, 2015)

Qantas’ Asianisation thrust is not confined to the operations of the parent airline alone. The budget brand of Jetstar adds to its reach across the region, as can be seen in the set up of the Jetstar Group’s ventures in different locations – Jetstar Airways (Australia and New Zealand), Jetstar Asia Airways (Singapore), Jetstar Pacific Airlines (Vietnam), and Jetstar Japan. The only setback it experienced so far was the Hong Kong Air Transport Licensing Authority (ATLA)’s rejection of its application for Jetstar Hong Kong’s low-cost alternative at the doorstep of the large China hinterland, a move that met with strong objection from Hong Kong based carriers led by Cathay Pacific. (See The real battle behind Jetstar HK’s rejection, Jun 30, 2015)

Optimistically, however, Jetstar Hong Kong’s rejection may be compensated by the increased flights by Qantas between Sydney and Hong Kong. While stating the obvious that “customers travelling from Sydney will have the choice of double daily flights to Hong Kong on peak days of the week for business travel,” Mr Evans hinted that “we’ll look at expanding beyond that if the opportunity is available.”

Hong Kong will have more to be concerned about. As in the case of Singapore which has thrived as a transfer hub, more direct flights between Australian and Chinese destinations do not spell good news for it.

For an airline like Qantas based in a far corner of the world, it is blessed that geography has not deprived it of opportunities in other parts of the world. The ATLA’s rejection aside, while Mr Joyce prided himself as the master of a transformation program that has driven the airline’s dramatic recovery, Qantas too has much to be thankful for the largely liberal skies that loom over Asia. Something for Australia to consider when called upon to open its doors to foreign carriers that wish to mount transpacific operations from its ports to the Americas.

This article was first published in Aspire Aviation.