FLUG REVUE October 2004: Qantas portrait

QUANTAS AIRWAYS

By Andreas Spaeth

Australia is far away from the major business and cultural centres of the world. The journey from New York to Sydney via Los Angeles takes over 21 hours, from Frankfurt or London it takes the Qantas jumbo jets with the distinctive kangaroo on their tail fins up to 23 hours via Singapore or Bangkok to return to their homeland.

Up to now, Australia is the only continent to which there are no non-stop connections from Europe or America, despite the advent of ultra-long-range jets. With the future Boeing 777-200LR it should be possible for the first time to fly non-stop from London to Sydney in about 19 hours, while the Airbus A340-500 could manage the journey from London to Perth without any intermediate stops already today.

“But neither of these options would be economical,” said Paul Edwards, Executive General Manager Fleet, Network and Alliance at Qantas, in an interview with FLUG REVUE in Sydney, “since, with about 300 seats, the costs per seat in both types would be around 15 percent higher than today in the 747-400. It would mean customers having to pay a ten percent surcharge, as on Singapore Airlines, but very few people are prepared to do that.” The pressure of competition is too high and the fares on connections to Australia with an intermediate stop are too low. “Technically it would be possible, but financially it is not feasible,” Edwards concludes.

Despite its isolated geographical situation, the air travel market on the Fifth Continent has been hotly contested for years. “Australia is one of the most heavily deregulated markets in the world – we are competing with no fewer than 44 international airlines which all come to Australia,” Edwards explains. Qantas only narrowly recently succeeded by lobbying in preventing Singapore Airlines and Cathy Pacific from being granted fifth freedom rights for traffic between Australia and the USA. On the other hand, Australian politicians complain that the duopoly thus secured between Qantas and United Airlines, under which they alone are allowed to fly non-stop, is preventing tourists from coming to Australia.

Qantas's history dates back 84 years to 16 November 1920, when Queensland and Northern Territory Aerial Services Ltd, subsequently shortened to Qantas, was founded. As such, it is the second oldest airline in the world and also one of the financially and operationally most successful airlines of the world. Having been privatised over nine years ago, the airline consistently makes profits, and this is in an environment that, if anything, is even more difficult than in other parts of the world.

Shortly after 11 September 2001, the second-largest carrier of the country, Ansett Australia, collapsed, plunging Australian air transport temporarily into chaos. As the sole remaining competitor, Qantas had to overnight lease extra aircraft and put on hundreds of special flights to avoid still greater damage to the economy, tourism and public life. Over 50,000 passengers with Ansett bookings were transported free of charge and a further 65,000 at heavily discounted fares. Overnight, Qantas took charge of a huge volume of domestic traffic which would otherwise have corresponded to seven years' growth. Having transported 11.2 million domestic passengers in 2001, the number shot up to 15 million in 2002 and in 2003 it rose again to 16.8 million.

Qantas consistently undercuts Virgin Blue, founded in 2000 by Richard Branson, on Internet fares. The kangaroo airline's one-way fares between Sydney and the metropolises of Melbourne, Canberra, Brisbane and Adelaide are between A$54 and A$97 (€32 to €57).

Its new strength at home, where Qantas's market share has settled at around 70 percent, with 4,500 flights per week to 58 destinations, was an auspicious stroke of fate at a time when international flights came under pressure. The terrorist attack in Bali in October 2002, which claimed many Australian lives, was a major setback, and then in 2003 the Iraq War arrived almost at the same time as SARS took a grip on the most important Asian destination areas. As a result, international traffic slipped back to 8.3 million passengers in the 2002/2003 financial year. Since then, the situation has recovered.

“The international markets are strong again, and our most important routes are running at or close to record levels,” said Qantas-CEO Geoff Dixon in June. There is no doubt about it, Qantas is on the expansion trail. To start with, it is introducing new services to China and India: since September Qantas has been flying three times a week with an A330-300 to Mumbai/Bombay, and from the beginning of December it will also fly three times a week to Shanghai.

As far as Qantas is concerned, offering new services from Sydney to London via Hong Kong is extremely important from a strategic point of view, and from November it will offer three flights per week with a Boeing 747-400. The reason why this route is so important to Qantas is apparently that many of the passengers who fly between the United Kingdom and Australia also have business to carry out in Hong Kong. Up to now, the “kangaroo route” to London, which has been on the schedule since 1947, has taken passengers via Singapore or Bangkok. By April 2006, the frequency of the additional service via Hong Kong will have been stepped up to once a day.

This means that by the end of the year 2004, Qantas will be offering 27 flights of its own per week to Heathrow instead of the previous 21. This has been possible through the purchase of additional slots, some of them from Swiss. As a countermove, Virgin Atlantic is to commence daily flights from Heathrow to Sydney via Hong Kong with the A340-600 on 7 December, opening up attractive opportunities for connecting flights within Australia with Virgin Blue. But Qantas is not deterred. “The route between England and Australia is the most fiercely contested in the world, with 30 competing airlines. Virgin is just one more,” says Paul Edwards.

For the time being, Qantas is not planning any other stops between Australia and London. “We need to concentrate on making the Hong Kong-London route profitable.” According to Edwards, Qantas does not have any traffic rights between Shanghai and London, whereas onward flights from Mumbai to Heathrow would be legally possible, but Qantas does not have any plans here at present.

On the other hand, elsewhere in Europe Qantas is throwing in the towel and relying on codeshare agreements. Apart from its hub in London, the only daily service it now offers is to Frankfurt. The Rhine/Main airport has featured in the Qantas flight schedule since January 1953, when an Australian Lockheed Constellation L749 landed there for the first time. Today, Qantas flies with the 747-400 in a two-class configuration with no First Class. “Frankfurt is primarily a market of holiday travellers,” says Paul Edwards, explaining the decision on the two-class cabin. Only eight out of a total of 30 Boeing 747-400's have this configuration, which is also employed on the routes from Brisbane and Auckland to Los Angeles.

“The Frankfurt route is not always profitable,” Edwards confesses, but at the same time he stresses Qantas's commitment to Germany. On the other hand, flights to Rome were suspended a year ago, and the recent announcement that Qantas was withdrawing from its hitherto three times a week service to Paris Charles de Gaulle and would instead be operating a codeshare service with Air France in Singapore, caused quite a stir in the industry. “That was a quite different situation from Frankfurt,” explains Paul Edwards. “We would have been happy to have more traffic rights, but with only three flights a week it is simply not possible to make a profit.”

Taken in conjunction with the extra flights to London, Qantas's approach to Air France was interpreted in the industry as a possible parting of the ways with British Airways. This Qantas vehemently denies. The airline's relationship with BA is cemented three times over. First of all, BA has an 18.3 percent shareholding in Qantas. Then, since 1995 there has been a joint service agreement in place between the two companies, which is in the process of being renewed. This agreement is for full co-operation with cost and profit sharing on the combined total of 42 flights per week operated by the two airlines between Australia and the United Kingdom. And finally, Qantas and BA are partners in the oneworld alliance.

The alliance is particularly beneficial to the Australians because of their isolated location. “We have really close relationships with BA and American Airlines,” says Paul Edwards. “Almost 30 percent of our passengers in London come to Heathrow on BA flights, while in the USA American brings 25% of all Qantas's passengers to Los Angeles. The company also co-operates closely with Lan Chile on the Sydney-Auckland-Santiago route. “Without oneworld we would not have this important and profitable route,” he says.

The situation as regards Cathay Pacific is quite different. Australian competition law limits the opportunities for co-operation here. “Cathay is a competitor,” says Paul Edwards. He has not yet given up hope of a close partnership with Air New Zealand, even though the cartel authorities have forbidden this at present. “On the other hand, we have lodged an appeal which is going on at the moment. We are working on the assumption that we will be able to start at the end 2004.” Qantas wants to buy 22 percent of the shares of Star Alliance partner Air New Zealand and agree on flying operations wherever there is still competition.

With or without a transtasmanian alliance, Qantas will have to turn the cost screw tightly and at the same time pursue an extremely flexible strategy, if it is to remain competitive and profitable. The long-established company, which has a fleet of 190 aircraft and a workforce of about 34,000, is under pressure on several fronts at once. In the domestic and regional markets, it is coming under pressure from low-fare competitors, while national carriers with plenty of resources are making inroads into the most lucrative long-haul flights.

Above all on the lucrative USA route, Qantas faces a threat from Emirates, which apparently is planning a non-stop service from Auckland to New York commencing in mid-2005. For many Australians, this could be a less stressful alternative to the Qantas services that go via Los Angeles, on which passengers have to endure the long-winded US security checks twice over. Again, Air Tahiti Nui is planning to offer flights from Sydney to New York via Papeete from the beginning of 2005. Whereas Qantas can change little on these fronts, it has in the meantime established a complex web of participations and subsidiaries with the aim of securing market power elsewhere.

The most significant player here is the new low-cost carrier JetStar, which commenced operations on 25 May 2004. “JetStar is an integral part of Qantas,” says Paul Edwards. The Melbourne-based low-cost airline offers flights both from its home base and also from Sydney and Brisbane, currently with 116 flights a day, to the east of Australia. From November it will be flying to other parts of the country as well. By then the conversion from the interim solution with 14 Boeing 717's to its own Airbus A320 fleet will have begun. The aim is to transfer many services previously operated by Qantas to the lower-cost JetStar and together to secure at least 65 percent of the domestic market. However, analysts warn of a “cannibalisation” of Qantas's own connections and of price wars with Virgin Blue. The name Australian Airlines (the original airline merged with Qantas in 1993) was resuscitated in October 2002 for an international single-class airline, which offers tourist flights between Australia and Japan, Hong Kong and Singapore with five Boeing 767-300's. Qantas has a 46 percent stake in Air Pacific of Fiji, an important holiday destination for Australians. The Australians are planning to enter the new low-cost market in Singapore already before the end of 2004 and have acquired a 49.9 percent holding, for an investment of €24 million, in a new, as yet unnamed no-frills airline which will start with four Airbus A320's in Changi with a view to having a fleet of 20 Airbus jets in three years' time.

JetStar A320

But on top of these external chess moves, Qantas CEO Geoff Dixon has to reduce costs at home: in a three-year programme running to 2006, he wants to save A$ 1.5 billion (€0.8 billion).

A first drastic step, which almost provoked a strike by cabin staff, will be to open a crew base in London in 2005 with 400 flight attendants. The plan is to man the base exclusively with staff from Australia, and only if there is sufficient interest will new flight attendants be recruited in England. It is hoped that this measure will result in savings of A$18 million (€10.5 million) per year. “Savings like this are essential if Qantas is to continue to grow and blossom,” says Geoff Dixon. “We can no longer have our people and services based exclusively in Australia.” Qantas has gone against the industry trend over the last few years in not shedding any staff. Instead, it has actually hired extra staff.

Again, its fleet has been steadily modernised and standardised. As the launch customer, Qantas has now received all six Boeing 747-400ER's which it had ordered and whose range has been extended to a comfortable 14,000 km. This will enable a greater payload to be carried on European and transpacific routes. Over the next two years the remaining six out of 13 Airbus A330-200's and A330-300's on order will be delivered. These will be used on the regional routes to Asia. As on all the 747-400's, the Business Class will be fitted with the Skybed reclining seats introduced in September 2003.

The domestic routes will in future be covered exclusively by Boeing 767-300ER's, Boeing 737-400's and 737-800's; the older 737-300's and the three remaining 767-200ER's are to be retired. The six 747-300's purchased in the mid-1980s will continue in service for at least another five years. “They are very good for intermediate distances,” says Paul Edwards. It is not yet clear whether they will be fitted with Skybeds as well. The plans for the first of twelve A380's on order are currently in full swing. These will arrive in Sydney in October 2006. “Initially they will be used on the Los Angeles route, and then by the beginning of 2007 at the latest they will also be deployed to London,” says Edwards. “We won't have any problems in filling that number of seats.”

A four-engined jet of a different kind, a Boeing 737-138 with historical Qantas paintwork, continues to arouse as much excitement in Sydney as the future mega-Airbus. This belongs to the Hollywood star and official Qantas ambassador, John Travolta. The actor loves the contact with Qantas staff and the Australians love him. In the maintenance hangars they are still raving about his last visit in May and a dinner in hangar. “He really feels at home with us aircraft mechanics,” says one engineer proudly.

From page 22 of FLUG REVUE 10/2004

Last updated 13 September 2004

FLUG REVUE, Ubierstr. 83, 53173 Bonn, Germany