EasyJet to shake up market

Courtesy EasyJet

EasyJet “will shake up the market,” said the low-cost carrier’s chief commercial officer Peter Duffy. The airline operating out of London Gatwick has entered into an arrangement with Norwegian Air Shuttle and WestJet to allow booking of connecting flights to Singapore and destinations in North America that include New York, Los Angeles, Orlando and Toronto on its website.

This is another indication of how LCCs are no longer content with just the so-called niche market as they enter into the arena of the big boys. Such connections are usually forged among legacy airlines competing with each other, an advantage compared to stand-alone LCCs confined to point-to-point traffic. So EasyJet’s initiative – said to be the first global airline connections service by a European low fares carrier – is set to change the rules of the game.

Already Norwegian, encouraged by the prospect of an increased number of passengers through the partnership that will help it expand its wings, is talking about the possibility of linking up with Ryanair. EasyJet also said the tripartite arrangement will expand to include more airlines.

The agreement is not completely an LCC club as it includes WestJet, Canada’s second largest airline after Air Canada. This is breaking new ground, challenging the advantage enjoyed by legacy airlines which are supported by subsidiary or joint-venture LCCs, among them Lufthansa/Eurowings, British Airways/Level/Vueling, Qantas/JetStar, and Singapore Airlines/Scoot.

It is interesting how the modus operandi of the LCC keeps evolving, and consumers stand to benefit from the increased competition. For now, EasyJet customers connecting partner flights will have to collect their bags in transit, to be handled via the Gatwick Connects desk in the baggage reclaim area. No reason why this will not improve in time.

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Budget and transatlantic competition heat up

Courtesy Vueling Airlines

Courtesy Vueling Airlines

International Airlines Group (IAG) announced plans to commence low-cost transatlantic flights from Barcelona to the United States by budget carrier Vueling. IAG also owns British Airways (BA), Iberia and Aer Lingus.

Legacy airlines (and airline groups) are increasingly recognizing the competition posed by budget carriers, and it is not new that some of them have set up budget operations such as Lufthansa’s Eurowings, Qantas’ Jetstar, and Singapore Airlines’ Scoot. In the US, the Big Three airlines of American, United and Delta are introducing no-frills fares on normal services to compete with low-cost counterparts such as Southwest, JetBlue and Frontier.

Where the competition is most felt is the transatlantic sector, which has seen a surge of cheap fares offered by operators such as Norwegian Air Shuttle and Iceland’s WOW Air, discomforting both US and European counterparts.

WOW Air is well-known for its $99 fare for travel between the US and Europe – destinations such as Copenhagen, Stockholm, Edinburgh and Bristol – with a free stopover in Reykjavik. It has begun enticing US Westcoasters with fares as low as $65.

Norwegian also offers $99 fares with promotional offers as low as $69.

Budget doyen Ryanair has long announced its ambition to also ply the transatlantic routes.

While home-based US airlines are protesting the entry of Norwegian, European airlines are taking a more active approach to compete head-on. IAG will be able to advantage Vueling with the network of partner airlines. Eurowings is already operating nonstop from Cologne and Bonn to the US, and it has plans to add more destinations.

In a price-sensitive market for as long as the current situation holds, budget carriers may be driving the trend. Legacy airlines will be challenged to make their advertised difference in product worth the additional dollars in fares, at the same time keeping their budget rivals at bay in a two-prong approach to the competition.

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.

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.

Qantas is Asia Pacific’s new star performer

Courtesy Getty Images

Courtesy Getty Images

THE new star performer of Asia Pacific is Australian flag carrier Qantas. Move over, Singapore Airlines (SIA) and Cathay Pacific. The flying kangaroo posted a full-year profit of A$557 million (US$400 million), a dramatic turnaround from a loss of A$2.8 billion the previous year and an impressive report card for chief executive Alan Joyce. Critics of Mr Joyce, some of whom had called for his resignation last year, may now sing a different tune. Yet could you blame them then, considering the airline’s record loss with little more than Mr Joyce’s convictions to move forward? But if they had been impatient, does this signal the turning point for Qantas on the road to better performance?

Qantas Domestic, Qantas International and Jetstar Group all reported improved performance. Qantas Domestic posted a profit of A$480 million, far exceeding last year’s A$30 million. Both Qantas International and Jetstar Group sprang back into the black. The long bleeding international arm finally made a profit of A$267 million compared to a loss of A$497 million last year. Budget subsidiary Jetstar made A$230, reversing the loss of A$116 million a year ago.

Interestingly, the achievement came on the back of an improved yield by 1.1% despite a relatively flat growth in passenger numbers of only 0.8% from 46.8 million to 49.2 million. Net passenger revenue grew by 3% from A$13.24 billion to A$13.68 billion. A more apparent contributor is the falling fuel price as consumption fell 13% from last year’s A$4.5 billion to A$3.9 billion. But then Mr Joyce pointed out that every airline had benefitted from lower fuel prices, yet none have been as successful as Qantas in the past year. That suggests the honour is well-earned and unique to Qantas, and, according to him, the fruit of the transformation program he introduced some three years ago.

Mr Joyce said: “So every airline gets the benefit, but Qantas is outperforming the market and the rest of the airline groups because of its transformation and it’s only because of the transformation that we have these strong results.”

The transformation program contributed benefits of A$894 million in the past year, exceeding the expected minimum of A$675 million, with all planned initiatives being delivered on or ahead of schedule. The benefits stemmed from non-fuel expenditure reduction, fuel efficiency, and increased utilisation of aircraft on both international and domestic routes. Cumulatively since its introduction, the benefits have reached A$1.1 billion. But the program was not one without pain at its onset, faced with union protests over job cuts and the diffidence of naysayers. Mr Joyce admitted there were some very tough decisions to make. “But because we made the conscious choice to move fast,” he said, “we are delivering one of the biggest turnarounds in Australian corporate history.”

Naturally Mr Joyce would remind his critics that “if it wasn’t for our transformation program, Qantas would not be announcing a profit today.” There are things he could be proud of, among them achieving the Group target of paying down more than $1 billion in debt and turning around the loss-making Qantas International as targeted, the result of restructuring initiatives. However, some critics may still consider Mr Joyce to be blessed by a relatively peaceful year of industrial relations at Qantas, which had in the past been plagued by costly workers’ strikes; the favourable climate of falling fuel prices; and a recovering global economy that boosts the airline’s chances of success.

But give credit where it is due. The transformation program has translated into an aggressive growth spurt for Qantas – seeking partnerships for better network connectivity (WestJet, American Airlines, China Airlines, China Eastern and Bangkok Airways among them), responding to seasonal demands and expanding its reach into lucrative markets, particularly in China and the Americas. Qantas Domestic was able to adjust to shifts in economic conditions and demand, with capacity reductions in mining-intensive Western Australia and Queensland and the introduction of new routes in east coast markets. The running rivalry between Qantas and Virgin Australia that sometimes turned into a bitter spat between Mr Joyce and his counterpart John Borghetti has reasserted Qantas` dominance in the market. Internationally, the excellent results testify to Qantas` shift of the kangaroo route from via Singapore to Dubai in partnership with Emirates Airlines while retaining Singapore as an Asian hub for regional connections.

Few airlines are as successful in branding a budget subsidiary as Qantas, and in complementing its operations. All Jetstar Group airlines reported improved earnings, with the combined losses for Asian operators halved compared to the previous year. While Jetstar Hong Kong’s write-off might have been costly following the disappointing outcome of the Hong Kong Air Transport Licensing Authority’s rejection of the airline’s licence application, it only suggests the local operators’ apprehension of the impending competition.

Qantas was among the early airlines to introduce the new and improved premium economy. New “Business Suites” with lie-flat beds were introduced on reconfigured A330 aircraft on medium haul routes to Asia. In-flight amenities for premium passengers boast high-end brand names, and on the ground, new luxurious airport lounges. The airline will acquire eight Boeing 787-9 aircraft, to be delivered from 2017 to gradually replace five older Boeing 747s. “New aircraft types have always unlocked opportunities for Qantas,” said Mr Joyce. “When our red tail Dreamliners start arriving in two years’ time, their incredible range and fuel-efficiency will create new possibilities for our network.” Fuel efficiency will add to the savings from falling fuel prices if the trend continues.

But what’s really new? SIA and Cathay too have rolled out similar aggressive plans to upgrade and expand (and cost-cut in hard times). Perhaps, more than just the enumerated initiatives per se of the transformation program is the spirit of the program and what the transformation is about. In Mr Joyce’s own words: “Getting our foundations right. Being smarter with our costs; faster with our decisions; more productive with our costs.”

This article was first published in Aspire Aviation.

Scoot to go where others failed

Courtesy AFP

Courtesy AFP

IT will happen, as it must. So it seems, but a matter of time. Scoot, the medium to long-haul low-cost subsidiary of Singapore Airlines (SIA) has made known its intention to extend its network to possibly include a destination as far away as London from Singapore. After all, London is a prime destination for SIA, and one that has helped it flourish in its early days, so it should be an encouraging start for Scoot to test the budget long-haul.

Scoot chief executive Campbell Wilson said: “The West is definitely on our cards.” Lest, you forget by definition it is a medium to long haul low-cost operator and think its fortune is confined to regional flights. It is eyeing the Middle East up to London.

Never mind the failure of others that tried, most memorably Hong Kong’s Oasis Airlines that inaugurated its route from Hong Kong to London in October 2006. The budget airline added Vancouver in June 2007, and won several awards that year including “World’s Leading New Airlines: and “Asia’s Leading Budget Airline” at the Annual world Travel Awards. But barely into its third year, it folded its wings in April 2008.

Another low-cost carrier that faced a similar fate was Canada’s Harmony Airways that ventured beyond North America from Vancouver to Manchester (UK) and planned to expand into Asia, eyeing in particular the China market. That was not to be, when the airline collapsed in 2007, three years after it repositioned itself for the long-haul.

More recent and closer to home is AirAsia’s subsidiary AirAsia X in yet another attempt to keep budget pioneer Freddie Laker’s dream alive. In fact, its first aircraft was named “Semangat Sir Freddie” (“Spirit of Sir Freddie”). The budget carrier operated from Kuala Lumpur to two European destinations – London and Paris, connecting traffic from other destinations such as Melbourne – which it has since suspended, together with others, but it continues to operate some shorter hauls. Parent airline AirAsia is unlikely to admit to its offshoot’s failure as being final as its chief Tony Fernandes had said it planned to return some day.

So is Scoot going where angels fear to tread or where the brave dare not go to prove it is not an impossible dream after all?

On a more optimistic note, it is certainly a welcome breath of the erstwhile spirit and vigor that characterised the success of SIA when as a new airline it quickly became the world’s most envied operator that could do things that others were reluctant or afraid to consider. Indeed, it is difficult to think of Scoot without parent SIA – a quiet overshadowing that sibling SilkAir has for years tried and still does to dispel, and into which increasingly 55-per-cent owned Tigerair is moving. While pedigree connections cannot guarantee success, experiential wisdom is not something to be scoffed at. The issue is also one of relevance. SIA is very much a premium carrier that has been pushed into venturing into the lower end by increased competition from low-cost carriers and by peer rivals that have sprouted budget subsidiaries, a good example being Qantas and its budget subsidiary Jetstar.

There are questions: Is the SIA stable getting a little crowded with intra competition even as Scoot and Tigerair now claim they are performing better with cooperation? Scoot and Tigerair will soon be combining their reservations systems. Can SIA define the market such that they do not overlap and that it merely shifts the business from one pocket to the other? The move seems to be towards more commonality. SIA’s Krisflyer perks are now open to customers of subsidiary carriers.

And the big question: Is it Scoot in its own right flying to London or is the operation under the SIA banner, the way it is so difficult to tell AirAsia X from parent AirAsia? But then, AirAsia is itself a budget carrier. Nevertheless, the bet is likely to favour the probability of SIA (driving Scoot) succeeding if anyone should finally succeed in the budget long-haul.

This is not forgetting that SIA itself has not had lemons in its basket – its failed stake in Air New Zealand, its lacklustre investment in Virgin Atlantic, and the premature termination of its all-business class flights. While its slow entry (or re-entry if you consider the short-lived non-stop Los Angeles and New York runs) into the premium economy (PEY) market may have been the result of an over-cautious retreat, its performance thus far may have also emboldened it to take a more adventurous approach. Additionally, the PEY is doing well on the Vistara joint-venture in India, even as Cathay Pacific, a forerunner of the new PEY, has decided to take it off Indian routes.

Besides, the climate for expansion is encouraging. Mr Wilson said: “We are on an upward slope towards profitability. We see yield maturity building over time and we are observing that across our routes.” The SIA Group has just announced Q1 (Apr-Jun) profit of S$111 million (US$81 million), an increase of S$72 million. Parent SIA made a profit of S$108 million compared to S$45 a year ago. Tigerair broke even. And Scoot recorded an operating loss of S$20 million, an improvement of S$5 million over last year. Passenger load factor for Scoot increased 2.9 percentage points to 81.4% on the back of increased passenger carriage by 11.0%, far exceeding the 6.9% capacity injection. And, of course, the industry is blessed with the continuing low costs of jet fuel.

What about the competition? Without any indication of AirAsia X’s resumption of the long haul services, Scoot has a pretty much open field although Norwegian Air Shuttle operates from Oslo and Stockholm to Bangkok. In fact, with airlines such as Garuda Indonesia offering low fares to London in the attempt to retain direct traffic between Indonesia and the UK, Scoot may become the alternative SIA in the competition. Mr Wilson said: “We might be a bit more niche when it comes to long-haul operations.” Generally, the budget market is driven by the dollar, and the niche factor, whatever Mr Wilson meant by it, may make the difference. But note how many a budget operator that came and went had always maintained that they were not like the others, and that too may be predicated on the expectations of long-haul travellers.

Nevertheless, it is invigorating news although Mr Wilson said the plan “is not immediate but it is not something we are closed to.” It has been almost 50 years since Sir Freddie founded Laker Airways in 1966, and it is still a field where few dare venture. We wish Scoot good luck when it finally happens, and hope it succeeds.

This article was first published in Aspire Aviation.