V Australia reminds Qantas how wrong it was about the 777

[Blair M]

Virgin Blue has really shown how it can punish Qantas for its absurd resistance to acquiring Boeing 777s.

The announced ‘phase two’ expansion of its V Australia fleet which rises to only four of these jets by December is going to be an enormous headache for Qantas.

And especially considering it holds orders or options for up to 13 Boeing 777-300ERs.

Qantas made two incredibly inept decisions concerning its fleet needs in recent years, in choosing to buy a large fleet of Boeing 787 Dreamliners, and not buying Boeing 777s.

In its defence, it was as easy a sell for the ‘plastic fantastic’ 787 sales pitch from Boeing as many other carriers, just more so considering the order peaked at 65 units and was recently trimmed to 50.

But when Geoff Dixon, then CEO, and Peter Gregg, then CFO, gloated over the wisdom of that deal in December 2005, their major competitors, Singapore Airlines, Cathay Pacific and Emirates, saw clearly the merits of the latest versions of the 777 and swooped.

The 777 is a product of a Boeing that knew how to design airliners and deliver on its promises, not the latter day Boeing that spread a truly promising concept in the 787 far and wide among sub contractors and risk sharing partners, some of them unequal to a task that the new management of Boeing wasn’t effectively supervising anyhow.

Hobbled with an aging fleet that Qantas for a period neglected to even maintain in a clean and reliable manner, it p*ssed more than a billion dollars in excess fuel consumption into the wind by not having 777s in its fleet. Money it will never get back. The 777-300ER is the most fuel efficient 300-400 seat sized longer range airliner available until at least 2014 and perhaps well beyond.

Qantas lost. Singapore Airlines, Cathay Pacific and Emirates gained. And now V Australia is gaining too, even by using the 777s on routes that are really too short in some cases, such as to Phuket or Nadi, to deliver the best economics of the jet.

These short routes give V Australia the chance to play havoc against the likes of Jetstar or Air Pacific at times when the 777s would otherwise be idle between long haul flights, racking up parking fees at the major Australian airports.

Much the same way that Emirates punts its A380s and 777s across the Tasman daily to take advantage of the big cargo container market that Qantas and Air NZ neglect with their smaller single aisle jets, plus passengers as a bit more cream on top, rather than do nothing while waiting for the right time to fly back to Dubai.

Being optimised for long haul, the 777s also have much better economy class amenity than shorter haul jets (despite Emirates going for 10 across seating).

Anyone who is familiar with the crammed condition of economy class on a Qantas 747 to Johannesburg is going to be pleasantly surprised by a V Australia 777. The difference will be very noticeable over the 12-13 hour long flights.

Using 777s, V Australia will be able to offer very attractive alternatives over a range of shorter as well as longer haul flights, cutting across the territory of both Jetstar and the Qantas full service offerings.

This takes the Virgin Blue subsidiary out of its until now total exposure to the cut throat environment of the trans Pacific routes where the A380 does give Qantas a cost per seat per kilometre advantage, as well as an even nicer airliner. And it allows V Australia to diversify into markets where the giant Airbus is some years away from being a force, which it won’t become until sustained growth returns to international aviation.

And the Qantas answer to the 777, the slightly smaller 787, isn’t coming any day soon, maybe never. Qantas can use A330s very effectively over medium distances where that Airbus is the efficiency leader, but as it turns out, those who use the 777 against it in Asia, Singapore Airlines, Cathay Pacific and Emirates, also have large A330 fleets for just that reason. They have the long and medium haul routes covered with A330/777 strategies that eluded Qantas, to its costly disadvantage.

In fact out of its better equipped major competitors, Emirates is the largest A380, 777 and A330 operator in the world, with Singapore Airlines also flying large numbers of all three types.

On Wednesday Qantas has allowed extra time for its always important financial year results announcement and briefings.

There are whispers. Some say it has cancelled the 787. Others that it has come to an agreement with Boeing to replace some or all 787s with 777s.

If it is a case of the latter, better late than never, but rather sad considering the squandered opportunities.


http://blogs.crikey.com.au/planetalking/2009/08/17/v-australia-reminds-qantas-how-wrong-it-was-about-the-777/

...

I thought it might be a good topic for debate on this forum..the whole 777 vs 787 vs Airbus etc..

[NickN]

It's hard to have a 777 vs 787 arguement as they are not comparable.

The 787 is a short-medium range airliner and the 777 is a medium to long haul airliner. They also have hugely different payload capabilities.

I liked the blog story though.

[Adam P.]

787 vs Airbus
Oh dear, now you've done it.... what next, Canon vs Nikon?? :eek:

My thoughts on the Qantas fleet - the A380 is configured for the 'peaks' of the cycle - a big aeroplane with a LOT of premium seating. At the time the interior was designed, the cycle was indeed at its peak...

...but now it's not. Premium passengers have dried up. People are still travelling (cheap airfares will do that), but the operative word there is 'cheap'. On the Qantas A380 there are not enough cheap seats.

They've taken a big gamble on the untried 787, in the same way they took a gamble on the untried A380. The delays for both have severely disrupted the longer-term fleet plans (eg lengthening the career of the classic 743s). The 777 at least is proven and is a mature product, as well as being superbly efficient - and most importantly it's available now.

Interesting times ahead!

[BernieL]

I am not sure if at this point in the development cycle it would be wise to purchase the 777. Barring QF being the launch customer of a "next-gen" 77L/77W- in a few years time a lot of the major competition will presumably killing them on unit cost per ASK with A350s. This is not to say that a 777 will not generate them a positive return on investment, but without a certain immediacy on delivery- I think they have lost the competitive edge. Then again, QF is not one for selling their aircraft on and tends to use them until they cannot be used any more, so if we factor resale value out of the equation the 777 might actually be a good bet either way.

I would say that Boeing, however, will fight tooth and nail to not lose QF as a customer- if they do leave the 787 program I can't imagine Boeing giving them anything but favorable terms on other currently available aircraft. Part of me wonders if they've been trying to flog the 748i QF's way as well.

The one thing I am unclear of is what variants could QF make good use of. At the moment, there isn't the market for a non-stop (one of the ways) SYD-LHR, but the LR would still be better for many routes ex. MEL. This is a truly fascinating rumor, I'd love to see some 777-338ERs around here.

[Sarah C]

Dixon publicly admitted that it was one of the biggest mistakes they made fleet planning wise. The fact Airbus threw in so many A330's for a cheap price to sweeten the deal was the ultimate decider. So it was really a A330 vs 777 decision.

Even if QF had the 777 in its fleet for the last 5-10 years, they still would have ordered the 787, just not the same numbers.

[Arthur T]

I think their point to decide B787 but not B777 is that B787 is more flexible and efficient than B777s, where A380 will do the long haul, the B787 will suits mid-long haul and small size B787 will do the domestic routes. By all B787 comes to Qantas, they will be benefitted in smaller training costs and maintainance costs and higher profitability.

However, they didn't think of both NG aircrafts delayed, even the B787 is successful is now in question. That's I believe how they got into trouble and stranded with those old, inefficient B767s and B787s never come.

I dobut whether Qantas will have enough funds to change their orders now as even the B737s needs to be delayed. Qantas is not the launch customer for B787s, and their 1st batch of B787s may now need to arrive in 2013 or later.

Rather to suffer and waste time and money to run those inefficient B767s, I suggest Qantas to rip immediately the B787 contract (maybe more efficient to express its anger and urge to Boeing by ripping it off in front of media :P) and order A350XWB instead, with a lease contract of A332s and A333s atm and return to Airbus when A350XWB arrives. This would enable Qantas to retire some of its aging B767 fleet also as order A350XWB right now will deliver about the same time as B787s, such a decision seems more secure, as even A350XWBs delayed, Qantas will still end up with new A330s. I believe with the current delay requests by other airlines for the A330, Qantas can get them within 1 year, possibility 9 months, and have lowest cost (and particularly time) to train pilots and crew etc. That if it order now, we can take them next winter.

A330 & A350XWB will have a slightly higher capacity than B767 to run domestic routes, but it is more efficient, what's more is Qantas can try to fit a 2-3-2 Wide Economy Class & 1-2-1 Business Class to get the B763 capacity but substanially improve the cabin product and service quality. By this move, I believe all other airlines will get beated by Qantas.

[Owen H]

Arthur T,

The A350 hasn't flown yet either.

I wouldn't be ripping up a contract for an aircraft that is so late that Boeing will be paying penalties, in favour of an aircraft that equally hasn't shown any sign of flying yet!

Qantas is in the position of holding some of the early slots on an aircraft type that has proved to be rather popular with the airline orders. I'm sure those slots could be traded with other airlines later if necessary.

The original article is one of the most poorly written documents I've ever read.

There is nothing wrong with attacking Qantas for its fleet choice, but to say that V Aus is proving that is just crap. When V Aus show a profit, and show that it truely is the right aircraft (especially considering they still haven't explained how it will be more efficient to JNB given the route restrictions), then we'll have a bit of a fair comparison.

The lastest route announcements from V Aus show how desperate they are becoming. They are very worried that their business plan just isn't working, and so they're targetting a market like MEL - HKT... which has to be thin at best given what will be cheaper alternatives to get there.

[Michael Morrison]

they're targetting a market like MEL - HKT... .

Where else EX MEL would you recommend that they fly to?

[Adam G]

There is nothing wrong with attacking Qantas for its fleet choice, but to say that V Aus is proving that is just crap. When V Aus show a profit, and show that it truely is the right aircraft (especially considering they still haven't explained how it will be more efficient to JNB given the route restrictions), then we'll have a bit of a fair comparison.

The lastest route announcements from V Aus show how desperate they are becoming. They are very worried that their business plan just isn't working, and so they're targetting a market like MEL - HKT... which has to be thin at best given what will be cheaper alternatives to get there.

2 quick points here... firstly as a start-up it was planned not to make a profit for a certain period of time so making a loss at this stage is not unplanned.

Secondly I don't think it's desperate at all - in-fact I think it's the opposite - it's smart business. These changes remove an amount of risk from the business - to date all of the companies resources have been tied up in one destination - if for any reason that route collapased then the business would be in jeapody - now the risk is shared between multiple routes & destinations which are unrelated and as such are all unlikely to collapase at once.

I personally think it would have been a whole lot more desperate to press on with just LAX, just because it was the initial plan for aircraft four and flood an already flooded market with even more capacity just to try and make it work. The business plan is working too - the business plan wasn't to launch 13 777's to LAX, it was to more to launch a new international airline that would be able to stimulate new & existing markets & achieve high levels of customer satisfaction - it would appear this this is all being achieved.

VB group management has a way of making what everyone else thinks are marginal routes work very well (look at BNE/DPS & BNE/NAN for example), I think you may well see the same happen here.

[Andrew M]

Honolulu
Phuket
Fiji

Not a high demand for J class product on these routes.

[Ellis Taylor]

Rather to suffer and waste time and money to run those inefficient B767s, I suggest Qantas to rip immediately the B787 contract (maybe more efficient to express its anger and urge to Boeing by ripping it off in front of media :P) and order A350XWB instead, with a lease contract of A332s and A333s atm and return to Airbus when A350XWB arrives. This would enable Qantas to retire some of its aging B767 fleet also as order A350XWB right now will deliver about the same time as B787s, such a decision seems more secure, as even A350XWBs delayed, Qantas will still end up with new A330s. I believe with the current delay requests by other airlines for the A330, Qantas can get them within 1 year, possibility 9 months, and have lowest cost (and particularly time) to train pilots and crew etc. That if it order now, we can take them next winter.

Arthur, the A330 line is still full, and it seems that those airlines who are delaying are having their slots handed over to other airlines or lessors taking them. Airbus has had a lot of free kicks from the 787 delays with many carrier taking A330s as interim machines. Potentially when the 787 comes out (if it's as good as they say it is - a big if), a number of those operators will start to dump A330s on the market and values would collapse, which is not good for anyone.

Also, I think airlines are really taking a second look at the A350 and seeing it as more of a longhaul specialist than an A330 replacement on medium/shorthaul routes. I did an interview with Azran Osman-Rani for the September issue of AA and he said that they plan to keep their A333s and use the A350s to expand to North America, Europe and New Zealand as the economics on shorter routes (eg to Australia and China) weren't that different. Given there are a number of customers ordering both the 787 and A350, I tend to think that the 787 will be the short/medium hauler while A350s will take on the 777, rather than replacing A330s at least in the short term. If so, I think we could see Qantas order the A350, but it will be as a 744 replacement, rather than a 767/A330 replacement.

[D Chan]

Oh dear, now you've done it.... what next, Canon vs Nikon?? :eek:

My thoughts on the Qantas fleet - the A380 is configured for the 'peaks' of the cycle - a big aeroplane with a LOT of premium seating. At the time the interior was designed, the cycle was indeed at its peak...

...but now it's not. Premium passengers have dried up. People are still travelling (cheap airfares will do that), but the operative word there is 'cheap'. On the Qantas A380 there are not enough cheap seats.

They've taken a big gamble on the untried 787, in the same way they took a gamble on the untried A380. The delays for both have severely disrupted the longer-term fleet plans (eg lengthening the career of the classic 743s). The 777 at least is proven and is a mature product, as well as being superbly efficient - and most importantly it's available now.

Interesting times ahead!

Premium passengers have dried up but they will come back as with all cycles. It's easy to get lost in the midst of the doom and gloom but even in recent months both Qantas and Virgin Blue shares have doubled in value from their lowest points.

Once airlines (ones that survive) emerge from the tunnel profitability will return and perhaps to levels unseen previously during the peak of the next cycle.

[James Smith]

Is Ben Sandilands related to Kyle?

[Ash W]

Dixon publicly admitted that it was one of the biggest mistakes they made fleet planning wise. The fact Airbus threw in so many A330's for a cheap price to sweeten the deal was the ultimate decider. So it was really a A330 vs 777 decision.

Even if QF had the 777 in its fleet for the last 5-10 years, they still would have ordered the 787, just not the same numbers.

How do you work that one out? The 787's are to replace 767's and to expand JQ.

If Qantas had ordered 777's they would have been used more to downgrade/replace (in terms of pax numbers) 747 flights, not upgrade 767 flights to 777's.

As for the orginal post, I think the poster is having himself on. No one will know if Qantas made the wrong choice, indeed they are in profit in difficult times, so their choice could not be all that wrong.

Also interesting he mentions Asian carriers operating 777's, most of whom operate A330's too and of course V Aus flying to HKT. Doesn't Jetstar still do that on behalf parent Qantas, flying the A330?

Don't get me wrong, the 777 is clearly a great aircraft, I just don't think Qantas made that big a mistake going the way they did. The products they have IMO suits our low population density, hugh country and end of the world location with just a few compromises thrown in.

[Mike W]

Don't get me wrong, the 777 is clearly a great aircraft, I just don't think Qantas made that big a mistake going the way they did. The products they have IMO suits our low population density, hugh country and end of the world location with just a few compromises thrown in.

Hmmm, so NZ is not a "low population density, hugh country(?) and end of the world location with just a few compromises thrown in"? While it's not huge, it's major cities are generally remote from one another.

I believe Qantas' challenges pale in comparison to NZs yet NZ [wisely I believe] have gone for the 787/777 double act.

[Ash W]

Ash - Please refrain from quoting the entire post above, thank you - mod

Yeah and Qantas have gone with the A380/747/A330/767/787 as it better suits their needs.

Specificaly to destinations to the north west it is better for them to hub through Singapore. Ie they Fly large aircraft from the larger cities and smaller a/c from the smaller cities. The 777 would be too small for Sydney/Melbourne to Singapore but too big for say Adelaide.

Now to the US, the only three cities that can be served direct are Brisbane, Sydney and Melbourne. With the 777 it is only recently that a model capable of direct flights has come on the market. But again the idea of flying larger aircraft, and hubbing destinations futher west in Australia through (Sydney in particular) seems to be the best way.

As for the 787, that will be the game changer. It does have the range and has less seats than the 777 so will be ideal for the smaller cities. Also the cities outside Aust it will fly to will also be the smaller ones where before it hasn't been worth while flying to.

With NZ, the population of their major cities is smaller and of course they are closer to the US in particular. So of course the 777 then becomes more viable.

[StuartC]

Yeah and Qantas have gone with the A380/747/A330/767/787 as it better suits their needs.

Specificaly to destinations to the north west it is better for them to hub through Singapore. Ie they Fly large aircraft from the larger cities and smaller a/c from the smaller cities. The 777 would be too small for Sydney/Melbourne to Singapore but too big for say Adelaide.



MH and up until recently SQ operated the 777 on a daily basis to Adelaide, whilst SQ and CX now operate A330-300 on a daily basis. Qantas can only manage 3 international flights a week on the SYD-ADL-SIN run.

[Arthur T]

Alright, about A350 I actually do have a question as A350 is too big, they may not be able to replace A330 but only A340 and B777 at all. So I would understand the demand of B787 and hope Airbus can develop models such as A330NG to compete with B787.

Provided the B787 delay, can Qantas try to use Boeing 737-900ER or 737-800 to replace their B767s? It looks more efficient and flexible. For long haul B767 flights, I think Qantas can try to replace them with Boeing 737-700ER and operate in higher frequencies. Although B737-700ER can only carry about 110 - 120 passengers at a time (with flat bed business and A380 style Econ Class seats), freqencies on services such as ADL - SIN/BKK, SYD - MNL etc can boost up to 3x daily, then it could able to comepte against Singapore Airlines and Thai/Malaysia in terms of frequency. Think it might work? If it works, then I think the Boeing 737-700ER fleet can further expand to more services such as Hong Kong and launch Kuala Lumpur, Taipei, Seoul etc, provided its long range of 10000km?

[Jarden S]

MH and up until recently SQ operated the 777 on a daily basis to Adelaide, whilst SQ and CX now operate A330-300 on a daily basis. Qantas can only manage 3 international flights a week on the SYD-ADL-SIN run.
Its a shame ADL is always getting let down. Maybe the airport charges way to much in landing fees if they could address that problem they may get more airlines. Thai should be serving ADL with A330's. Also V Australia could start longhaul flights 1 a week to NRT and 1 a week to BKK

[Ash W]

MH and up until recently SQ operated the 777 on a daily basis to Adelaide, whilst SQ and CX now operate A330-300 on a daily basis. Qantas can only manage 3 international flights a week on the SYD-ADL-SIN run.

The difference is when Qantas gets to Singapore they only have a limited number of destinations to go to. So Qantas can only carry passengers bound for Singapore, London or Frankfurt.

With the other airlines you mention once you get to their home ports you have their whole network available. So using SQ as an example, once you get to Singapore you have access to their whole network, so clearly their flights will be better utilised, thus the justification of the slightly larger aircraft. If Qantas was part of Star it might be able to carry more passengers bound for points on the Thai or Singapore routes, but being One World it doesn't get this chance.

Indeed I think this is one of many reasons Qantas doesn't take on the likes of Emirates in Dubai.

Also the Asian airlines are able to offer higher frequency using smaller aircraft, Qantas as they need the larger capacity a/c to carry all the hub passengers need the extra capacity of the 747 or the A380. Read this months AA the interview with the boss of CX and see the reason why they are not going to larger a/c, it is a perfect example of what I am saying.

The other point I made before which is illustrated here is with Australia being at the END of the earth, we cannot be used as a hub point, except to NZ or the Pacific which are not high volume markets. Look at all the other carriers in Asia they are hub points, thus all the fights and differing equipment needs.

The 787 will be the true hub buster once Jetstar gets their hands on them, then we will see more destinations not suited to the mainline Qantas operation opening up.

[Ash W]

Provided the B787 delay, can Qantas try to use Boeing 737-900ER or 737-800 to replace their B767s? It looks more efficient and flexible. For long haul B767 flights, I think Qantas can try to replace them with Boeing 737-700ER and operate in higher frequencies. Although B737-700ER can only carry about 110 - 120 passengers at a time (with flat bed business and A380 style Econ Class seats), freqencies on services such as ADL - SIN/BKK, SYD - MNL etc can boost up to 3x daily, then it could able to comepte against Singapore Airlines and Thai/Malaysia in terms of frequency.

What benifit would they get from higher frequencies in these markets? Also doubt you would see a bed on them either, these types of flights would be ideal for a regional product, not a long haul product.

As for the 767 I think Qantas can afford to wait until the 787 is mature before worrying too much about their replacements. The 767 is still a very econimical a/c especially considering that their book value would be quite low. Why waste money buying new a/c, in a nice configuration as an interim measure when they can wait?

As I said in the post above this one, airlines like Singapore and Thai need the frequency to deliver their hub passengers without much delay, Qantas (or any Aust operator for that matter) don't really need the frequency as they need to fill their higher capacity a/c that they use for Europe flights in particular.

[Anthony T]

The difference is when Qantas gets to Singapore they only have a limited number of destinations to go to. So Qantas can only carry passengers bound for Singapore, London or Frankfurt.

Since when? QANTAS can operate to just about anywhere beyond Singapore if they wanted to.


The other point I made before which is illustrated here is with Australia being at the END of the earth, we cannot be used as a hub point, except to NZ or the Pacific which are not high volume markets.

Last time i looked at a globe, the Earth was round. QANTAS used to fly to Europe via both Asia & the America's.

Anthony T

[StuartC]

Its a shame ADL is always getting let down. Maybe the airport charges way to much in landing fees if they could address that problem they may get more airlines. Thai should be serving ADL with A330's. Also V Australia could start longhaul flights 1 a week to NRT and 1 a week to BKK

Maybe if they finally change the airport curfew that may open up things. Also I'm surprised more airlines don't use ADL and PER as an interim stop either to or from either MEL, SYD or BNE like CX does on the HKG/ADL/MEL/HKG route. Maybe an alternative for TG or even NZ.

[Ash W]

Since when? QANTAS can operate to just about anywhere beyond Singapore if they wanted to.

Yeah they could, but they would be flying empty or un-profitable planes. When Jetstar get the 787 you will see more destinations, where they can turn a profit, but Qantas is not able to. Also stop and think why Qantas is investing so much in it's Asian Jetstar operations? Think you will find it has a lot to do with getting access to other ports in Asia that it can then use and connect passengers with.

Also the point I was making though is in Singapore you have SQ that has 100 odd destinations, Qantas cannot compete with that. Same too with TG in Bangkok, MH in KL, CX in Hong Kong, EK in Dubai etc.

So all Qantas can hope to carry are pax for Singapore or for Qantas destinations beyond. Singapore and the others though can carry Australian pax to their home port and beyond and pax from those destinations to Australia via their home port.

Last time i looked at a globe, the Earth was round. QANTAS used to fly to Europe via both Asia & the America's.
Anthony T

Yeah it is round, but have a look at where Australia is relation to the rest of the land mass? Do you see we are in the middle of nowhere? So you are not going to get passengers hubbing through Australia because they will have to fly for hours OUT of the way to get here only to continue on. Japan, HK, Korea etc are much more viavle as hub points for passengers wanting to fly from the Asian Sub continent and SE ASIA to the US or vice versa. So why would people fly to Sydney, Brisbane or Melbourne to go to the US or beyond?