Budget carriers target long-haul

Qantas Airways’ share of passenger traffic flying into and out of Australia fell significantly in the past decade.

The amount of international passengers

Qantas Airways’ share of passenger traffic flying into and out of Australia fell significantly in the past decade, fuelling expectations that the long-haul, no-frills airline model will continue its ascent.

New government airline statistics show that Australia’s flag carrier has lost 12.5 percentage points of international market share compared to 2006. In 2016, Qantas had 15.6 per cent of the market for passengers in and out of Australia, compared to the 28.1 per cent a decade earlier.

Nevertheless, the Flying Kangaroo still has the biggest share of the market, while more and more people are flying into and out of Australia.

Underscoring the rise of low-cost carriers, Qantas subsidiary Jetstar — the first long-haul, low-cost airline launched by a full-service carrier — increased its share by 7.6 percentage points over this time.

Overall the Qantas Group has lost just 5.5 percentage points market share of international passengers over the decade, with it carrying 25 per cent of such passengers in 2016.

Industry veteran Peter Harbison, the executive chairman of CAPA-Centre for Aviation, said there had been a structural change in the market and that this would only continue.

“The structural change that has occurred has been the arrival of long-haul, low-cost carriers,” Mr Harbison said. “That’s the big thing. Most of this is widebody aircraft, low cost. It’s not the classic short haul, low cost.”

Highlighting this, the new figures from the Bureau of Infrastructure, Transport and Regional Economics show that low-cost carriers Jetstar, Jetstar Asia, Singapore Airlines subsidiary Scoot, AirAsia X, Cebu Pacific Air, Indonesia AirAsia, Indonesia and AirAsia Extra had 18.2 per cent of international traffic, compared to 16.4 per cent the year before.

Mr Harbison said the trend appeared to be stimulating international passenger numbers, rather than just encroaching on the legacy carriers.

“I’m not sure it’s diverted a lot of traffic,” Mr Harbison said. “It’s stimulated quite a lot. It’s not zero sum. It’s only just started.”

Echoing this, Aviation Projects managing director Keith Tonkin said low-cost carriers’ offerings had evolved. “It is encouraging those who wouldn’t normally fly to fly,” Mr Tonkin said.

In line with this, the report showed international passenger numbers rose 7.9 per cent in 2016.

However, Mr Harbison said the rise of the low-cost carriers would put pressure on full-service operators.

“There are just more and more of them coming into the market,” he said.

“Long-haul, low-cost airlines are starting to proliferate now. And it’s going to intensify over the next five-plus years with the arrival of the narrow-bodied long-haul aircraft as well.

“That’s going to be really interesting because they can service much smaller markets.”

He pointed to recent comments by Emirates president Tim Clark that he was bracing for a “gathering storm” as low-cost carriers encroach on long-haul markets.

Other legacy carriers, such as Air France-KLM, are also announcing plans for low-cost airlines.

Strategic Aviation chairman Neil Hansford said that “I don’t think you could view in any way any negativity” about Qantas losing market share. He said other carriers could be squeezed “to bring tourists to Australia to fill Australian hotels and provide Australian employment”.

He noted that legacy carriers needed to focus on high-yielding business and premium economy customers because of the higher overheads.

Qantas has concentrated more on high-yielding international routes, leaving Jetstar to focus on the leisure destinations.

Infrastructure and Transport Minister Darren Chester pointed to the growth in international passengers in the report, saying that if the rate continued, the number of passengers could double in less than a decade.

Qantas chief executive of international, Grant Evans, said at a recent investor day that China presented a “huge opportunity” for Qantas, which would look at serving the key business hubs of Hong Kong, Shanghai and Beijing, and having partnerships behind those hubs

Mr Evans said the international business was in a “very difficult” environment as capacity growth into Australia from international rivals would be 8 per cent to 9 per cent, “well above demand”.

He said the strategy at Qantas had been to deliver a return on invested capital of more than 10 per cent, which had been achieved over the past three years.

Mr Evans told investors that Qantas had a higher margin than Cathay Pacific and Singapore Airlines. “That’s a very different place from where we’ve come from,” he said.

A new flight-planning system would optimise the routes planes took, which makes a “huge difference” on ultra-long haul sectors.