Jarden S
5th October 2009, 03:28 AM
Airlines bleed in Tasman route scrap
By DENISE MCNABB - The Independent
Consumers flying across the Tasman are continuing to benefit from recession-induced desperation, with airlines vying for market share to counter languishing yields.
Excess capacity on the route has forced fares down. But you don't have to have a business degree to recognise the lower airline load factors can't be sustained for ever.
The question is who will be first to yield?
Emirates has flown into strife with its new double-decker A380 jet between Sydney and Auckland. Last month, the plane flew with as few as 80 economy passengers on some days, and often no business class passengers.
The A380 provided a big jump in capacity 399 economy class seats, 76 in business and 14 in first class. To date, Emirates is the only carrier flying an A380 to New Zealand and it has been trying to charge a premium for what it views as a superior option for travellers.
But the higher fares don't seem to be working for the airline.
Richard Jewsbury, the carrier's senior vice-president commercial operations Far East and Australasia, says the loads on the route have averaged 79 per cent for the year but he concedes August was the worst month so far.
He says Emirates is committed to the ''big bird'' on the Tasman for the long-haul. However, he says there is no contract with Auckland Airport forcing the airline to keep that plane on the route, even though the airport built the new air bridge for the double decks at a cost of $50 million.
Low-cost carrier Pacific Blue launched its services out of Hamilton to Sydney and Brisbane last month.
Passenger numbers obtained by The Independent for its first three weeks of operation show the September 1 launch to Sydney had 132 passengers (73 per cent loading) on board. However, eight days later the numbers on its 180-seat Boeing 737-800 aircraft were down to 63.
The load average from September 1 to September 18 was only 49.6 per cent on the route and that includes a lot of cheap and next-to-nothing fares, and media and client freebies on the inaugural flight.
The Hamilton-to-Brisbane route has done only a little better, with a loading average over the same period of 61 per cent. The lowest load (44 per cent, or 80 passengers) was on September 13.
What does that mean?
The low-cost airline model works by charging low fares and having high capacity. So load factors at that level could be disastrous for the airline.
Industry observers say most of the airlines are struggling to make sufficient money on the trans-Tasman route, even when load factors are in the high 70 per cent range. That's because they have to leave planes they own on the ground in favour of smaller aircraft.
Brett Godfrey, chief executive of Pacific Blue parent Virgin Blue, admits loads have not been up to expectation on the Hamilton route, but he says it takes time for people to gear up to Hamilton being back in operation.
Ad Feedback Air New Zealand pulled out of Hamilton progressively last year and this year. It found it couldn't make the route pay using either its now-defunct no-frills subsidiary Freedom Air or other Air NZ aircraft.
To add to the competition on the Tasman, Qantas last week launched a new Boeing 737-800, New Zealand-registered plane on the route, after turning the domestic routes over to its low-cost subsidiary Jetstar in June.
The full-service aircraft, with 12 business-class and 156 economy seats, will be joined by another two by the middle of next month and a further three next year, replacing ageing Boeing 737-300 aircraft.
Qantas chief executive Alan Joyce had earlier said Qantas came close last year to exiting the New Zealand domestic market because it was haemorrhaging money and upgrading its old Boeing fleet was too costly in the present economic climate.
The company revealed in August, when reporting a loss for the group of A$77 million (NZ$94m) in the year to to June 2009, that it had lost A$39m on its domestic New Zealand operations in the same period.
That loss, said Joyce, largely resulted from transition costs from Qantas transferring its New Zealand operations to its low-cost carrier Jetstar and changing Qantas, through its New Zealand Jetconnect company, to a service only for the Tasman.
Joyce said the company made the decision to move to Jetstar on domestic routes, where it uses Airbus A320 aircraft, because the business case to replace aircraft with 737-800s was not solid enough.
"The business wasn't going as well as we wanted. It was really hard to justify rolling over the fleet.'' Qantas' new planes on the Tasman will initially fly the Melbourne and Sydney routes.
Qantas also recently introduced a Boeing 767 freighter aircraft on the Tasman and Joyce said there would be more investment in this area because freight was performing better than passenger revenue.
To further convolute the picture, Emirates and Virgin Blue's V Australia announced a code-share on the Tasman and across the Pacific to the United States from Sydney from October 25. It got good press coverage, particularly as it promised fares for Kiwi travellers up to 40 per cent cheaper than existing fares between New Zealand the US.
But travellers won't be able to make this comparison themselves until mid-October, when the code-share is launched, as neither airline intends putting fares on its internet booking sites until then.
Emirates' flights to Los Angeles are still listed on its site as flying via Dubai at a cost of $4400 return economy.
Any passengers wanting to travel the longer route to Los Angeles via Sydney using Virgin services have been able to do it anyway using its subsidiaries Pacific Blue and V Australia.
With waiting time in Sydney for a connection, it adds up to another four to five hours on the route compared with Air NZ's direct flights from Auckland.
But it is cheaper via Sydney, especially because V Australia has been offering ludicrously low fares to try to get more market share on the fiercely competitive route.
V Australia's February launch on the Pacific in a recessionary climate was the prime contributor to Virgin running up a A$160m loss this year to June. It has been struggling to lift yields, though July operating statistics showed the load factor had improved to 75.7 per cent from 67 per cent in June.
Virgin's code-share with Emirates is more a case of continuity of full service, as Pacific Blue is a budget carrier compared to V Australia's full service. Another reason for V Australia opting for Emirates and not its own Pacific Blue for code-sharing on the Tasman, is likely to be the fact it has applied to regulators in the US and Australia for a joint venture alliance with US carrier Delta Air Lines.
Both carriers want to extend the alliance on the Pacific to New Zealand, using Pacific Blue, not only on the Tasman but for domestic services in New Zealand.
Air New Zealand has made submissions to US and Australian regulatory watchdogs opposing the joint venture.
Air New Zealand was blocked in January by the Australian Competition and Consumer Commission from a similar revenue-sharing deal with Air Canada.
Like other carriers, Air New Zealand is struggling to lift yields on the Tasman so it has had to be clever about managing capacity.
The airline says its group-wide yields for August were down 11.1 per cent on the same month last year but it does not give dollar figures because of commercial sensitivity.
It does break down load factors though.
They were holding up in August only because of a sizeable reduction in plane capacity because of falling passenger demand on routes, particularly long haul, in the wake of the global meltdown.
Domestic demand was up 4.2 per cent on last year for the month, with the load factor rising to 76.3 per cent, albeit on 3.8 per cent less capacity.
Tough times forced the carrier to reduce capacity on the Tasman by 14.5 per cent through the use of smaller aircraft and the axing of Tasman flights out of Hamilton and Dunedin.
After a capacity reduction of 24.1 per cent, load factors ended up the same as last year 79.6 per cent.
Air New Zealand is focused on a replacement of aircraft on its New Zealand domestic routes, with Airbus and Boeing fiercely lobbying their aircraft choices.
As one analyst said: ''It's the only airline deal in town in this corner of the world.''
But last week Virgin Blue said it was in talks with Boeing over plans to spend A$4 billion replacing planes coming off lease.
It looks like the competition won't be reducing any time soon
By DENISE MCNABB - The Independent
Consumers flying across the Tasman are continuing to benefit from recession-induced desperation, with airlines vying for market share to counter languishing yields.
Excess capacity on the route has forced fares down. But you don't have to have a business degree to recognise the lower airline load factors can't be sustained for ever.
The question is who will be first to yield?
Emirates has flown into strife with its new double-decker A380 jet between Sydney and Auckland. Last month, the plane flew with as few as 80 economy passengers on some days, and often no business class passengers.
The A380 provided a big jump in capacity 399 economy class seats, 76 in business and 14 in first class. To date, Emirates is the only carrier flying an A380 to New Zealand and it has been trying to charge a premium for what it views as a superior option for travellers.
But the higher fares don't seem to be working for the airline.
Richard Jewsbury, the carrier's senior vice-president commercial operations Far East and Australasia, says the loads on the route have averaged 79 per cent for the year but he concedes August was the worst month so far.
He says Emirates is committed to the ''big bird'' on the Tasman for the long-haul. However, he says there is no contract with Auckland Airport forcing the airline to keep that plane on the route, even though the airport built the new air bridge for the double decks at a cost of $50 million.
Low-cost carrier Pacific Blue launched its services out of Hamilton to Sydney and Brisbane last month.
Passenger numbers obtained by The Independent for its first three weeks of operation show the September 1 launch to Sydney had 132 passengers (73 per cent loading) on board. However, eight days later the numbers on its 180-seat Boeing 737-800 aircraft were down to 63.
The load average from September 1 to September 18 was only 49.6 per cent on the route and that includes a lot of cheap and next-to-nothing fares, and media and client freebies on the inaugural flight.
The Hamilton-to-Brisbane route has done only a little better, with a loading average over the same period of 61 per cent. The lowest load (44 per cent, or 80 passengers) was on September 13.
What does that mean?
The low-cost airline model works by charging low fares and having high capacity. So load factors at that level could be disastrous for the airline.
Industry observers say most of the airlines are struggling to make sufficient money on the trans-Tasman route, even when load factors are in the high 70 per cent range. That's because they have to leave planes they own on the ground in favour of smaller aircraft.
Brett Godfrey, chief executive of Pacific Blue parent Virgin Blue, admits loads have not been up to expectation on the Hamilton route, but he says it takes time for people to gear up to Hamilton being back in operation.
Ad Feedback Air New Zealand pulled out of Hamilton progressively last year and this year. It found it couldn't make the route pay using either its now-defunct no-frills subsidiary Freedom Air or other Air NZ aircraft.
To add to the competition on the Tasman, Qantas last week launched a new Boeing 737-800, New Zealand-registered plane on the route, after turning the domestic routes over to its low-cost subsidiary Jetstar in June.
The full-service aircraft, with 12 business-class and 156 economy seats, will be joined by another two by the middle of next month and a further three next year, replacing ageing Boeing 737-300 aircraft.
Qantas chief executive Alan Joyce had earlier said Qantas came close last year to exiting the New Zealand domestic market because it was haemorrhaging money and upgrading its old Boeing fleet was too costly in the present economic climate.
The company revealed in August, when reporting a loss for the group of A$77 million (NZ$94m) in the year to to June 2009, that it had lost A$39m on its domestic New Zealand operations in the same period.
That loss, said Joyce, largely resulted from transition costs from Qantas transferring its New Zealand operations to its low-cost carrier Jetstar and changing Qantas, through its New Zealand Jetconnect company, to a service only for the Tasman.
Joyce said the company made the decision to move to Jetstar on domestic routes, where it uses Airbus A320 aircraft, because the business case to replace aircraft with 737-800s was not solid enough.
"The business wasn't going as well as we wanted. It was really hard to justify rolling over the fleet.'' Qantas' new planes on the Tasman will initially fly the Melbourne and Sydney routes.
Qantas also recently introduced a Boeing 767 freighter aircraft on the Tasman and Joyce said there would be more investment in this area because freight was performing better than passenger revenue.
To further convolute the picture, Emirates and Virgin Blue's V Australia announced a code-share on the Tasman and across the Pacific to the United States from Sydney from October 25. It got good press coverage, particularly as it promised fares for Kiwi travellers up to 40 per cent cheaper than existing fares between New Zealand the US.
But travellers won't be able to make this comparison themselves until mid-October, when the code-share is launched, as neither airline intends putting fares on its internet booking sites until then.
Emirates' flights to Los Angeles are still listed on its site as flying via Dubai at a cost of $4400 return economy.
Any passengers wanting to travel the longer route to Los Angeles via Sydney using Virgin services have been able to do it anyway using its subsidiaries Pacific Blue and V Australia.
With waiting time in Sydney for a connection, it adds up to another four to five hours on the route compared with Air NZ's direct flights from Auckland.
But it is cheaper via Sydney, especially because V Australia has been offering ludicrously low fares to try to get more market share on the fiercely competitive route.
V Australia's February launch on the Pacific in a recessionary climate was the prime contributor to Virgin running up a A$160m loss this year to June. It has been struggling to lift yields, though July operating statistics showed the load factor had improved to 75.7 per cent from 67 per cent in June.
Virgin's code-share with Emirates is more a case of continuity of full service, as Pacific Blue is a budget carrier compared to V Australia's full service. Another reason for V Australia opting for Emirates and not its own Pacific Blue for code-sharing on the Tasman, is likely to be the fact it has applied to regulators in the US and Australia for a joint venture alliance with US carrier Delta Air Lines.
Both carriers want to extend the alliance on the Pacific to New Zealand, using Pacific Blue, not only on the Tasman but for domestic services in New Zealand.
Air New Zealand has made submissions to US and Australian regulatory watchdogs opposing the joint venture.
Air New Zealand was blocked in January by the Australian Competition and Consumer Commission from a similar revenue-sharing deal with Air Canada.
Like other carriers, Air New Zealand is struggling to lift yields on the Tasman so it has had to be clever about managing capacity.
The airline says its group-wide yields for August were down 11.1 per cent on the same month last year but it does not give dollar figures because of commercial sensitivity.
It does break down load factors though.
They were holding up in August only because of a sizeable reduction in plane capacity because of falling passenger demand on routes, particularly long haul, in the wake of the global meltdown.
Domestic demand was up 4.2 per cent on last year for the month, with the load factor rising to 76.3 per cent, albeit on 3.8 per cent less capacity.
Tough times forced the carrier to reduce capacity on the Tasman by 14.5 per cent through the use of smaller aircraft and the axing of Tasman flights out of Hamilton and Dunedin.
After a capacity reduction of 24.1 per cent, load factors ended up the same as last year 79.6 per cent.
Air New Zealand is focused on a replacement of aircraft on its New Zealand domestic routes, with Airbus and Boeing fiercely lobbying their aircraft choices.
As one analyst said: ''It's the only airline deal in town in this corner of the world.''
But last week Virgin Blue said it was in talks with Boeing over plans to spend A$4 billion replacing planes coming off lease.
It looks like the competition won't be reducing any time soon