Airlines continue to add capacity in Asia
A fresh boost to capacity for Asian destinations will spur continued competition for international routes.
A fresh boost to capacity for Asian destinations will spur continued competition for international routes, with Qantas chief executive Alan Joyce saying pockets of “big growth” remain.
Qantas last week said that competitor capacity had moderated in the second half of 2017, easing a squeeze on airfares, although it expected aggressively expanding airlines to continue to add capacity.
“It has moderated, but there are pockets where there is still big growth, which is China in particular. We have a lot of growth happening in Hong Kong with the entry of Virgin” Mr Joyce told The Australian. “But generally the picture is a lot better.”
China’s Hainan Airlines will start direct flights between Shenzhen and Brisbane from this month, while China Southern Airlines will operate three flights a week direct from Guangzhou to Cairns.
Japan Airlines will begin direct flights between Melbourne and Tokyo from tomorrow.
The comments come after Air New Zealand boss Christopher Luxon last week said that airlines were planning capacity in a “more rational” fashion after being hit by fierce competition that saw its full-year earnings down 21 per cent.
Mr Joyce said he agreed with this. “We are seeing a lot more moderation. And that’s because, probably no surprise, that a lot of our peers are losing money ... It was always going to be the case that when people went into losses they were going to moderate and that’s what we’re seeing happening.”
The executive chairman of CAPA-Centre for Aviation, Peter Harbison, said international competition “will relax a bit”, but legacy carriers such as Qantas would need strong partnerships to make the most of China.
“China is going to grow, it’s going to grow with Chinese airlines,” Mr Harbison said. “It’s an incredibly difficult market to serve from here because, first of all, the key points like Shanghai, Beijing, Guangzhou are all at capacity and in any case, you’ve got to have a strong partnership to get behind those gateways.”
In the longer term, the competition for the major carriers would come from low-cost, long-haul players, Mr Harbison said.
“The big growth in the future is going to be with long-haul, low-cost carriers coming in, and that’s where they’re going to be challenged. They are mostly going to be picking the Chinese market.”
Yesterday, as it looks to tap the fast-growing Asian market, Qantas announced it would re-route Sydney-London to go via Singapore instead of Dubai.
The impact of cut-throat competition has been a theme during airline profit reporting. Last month, Hong Kong’s Cathay Pacific Airways posted its biggest first-half loss in decades, of $HK2.05 billion ($323 million) as it faces competition from mainland and Middle East airlines.
Earlier this year, Singapore Airlines, viewed as the bellwether for Asia’s carriers, reported that its net profit for the year to March 31 was down by 55.2 per cent to $S360 million ($335m). In a recent interview, Singapore Airlines chief executive Goh Choon Phong said there was overcapacity in the market, with growing competition from low-cost carriers, Gulf carriers and Chinese carriers.
Goldman Sachs said in a note to clients on Qantas that internationally, “the overcapacity across the region remains”.
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout