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Jan 17, 2012

China Southern and Virgin Australia keen to take what Qantas doesn’t want or can’t keep

This is today's occasional column from the Crikey Daily Mail Qantas took a lot of flak from financial analysts over its faltering Asia initiatives last week, makin

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

This is today’s occasional column from the Crikey Daily Mail

Qantas took a lot of flak from financial analysts over its faltering Asia initiatives last week, making this week’s aggressive business travel initiatives by Virgin Australia and a left of field grab for its shrinking UK and Europe market from China Southern even more stressful for a brand that can be seen as having lost its way.

At home, Virgin Australia confirmed what is only the first substantial addition of wide bodied A330 capacity to key interstate markets  that it will make in the nearer term.

By mid May there will be daily double Virgin Australia A330-200s between Melbourne and Perth, and an initial morning peak hour rotation of the large Airbus between Melbourne and Sydney.

Less widely known is the ambush the Virgins will spring on the Canberra routes next month, with a new business class on all of the Embraer E-jet services to the national capital, as well as to Hobart, which Qantas neglects in favor of Jetstar, and on important Adelaide and Perth routes among others.

This is not a matter of gratuitous Qantas bashing but a simple matter of geometry and cabin amenity.  The Qantas domestic configured A330s and aged 767s are in terms of space and style, inferior in internal specs to the Virgin jets, whether up front or in the main cabins.

The head scratcher for Qantas observers, and quite a few insiders, is why Qantas allowed this to happen, since it knows anything material that is decided within Virgin Australia faster than most of those working for it.

The not so funny joke within Virgin Australia and before it, Virgin Blue, was that Qantas knew more about how its challenger was tracking than it did, because it invested more in the analysis of its operations than Brett Godfrey or Richard Branson could afford.

Yet the result is Qantas conceding a superior configuration for business travellers that it has taken no steps to counter,  and in Canberra,  the use by Virgin Australia of a truly spacious small jet with no middle seats that makes Qantaslink turbo-props seem like riding hard class.

Maybe Qantas kept believing the hype about the 787 Dreamliner, which turns out to be late and heavy and for some of the purposes it originally had in mind for it, close to useless.  Compared to the very young fleet of jets flown by Virgin Australia, through a policy of churning leases, Qantas is burdened with aged 747s and 767s that drag back the gains it has made with A380s, A330s, and some recently delivered and much improved 737-800s.

Most of the emphasis in Qantas in recent years has been on the development of the Jetstar low cost franchise, a product that Qantas full service customers despise,  giving ex Qantas executive GM, John Borghetti,  rich pickings in his new role as CEO of Virgin Australia.

On Sunday night, at the Sydney Festival for which it has become a major sponsor, China Southern’s ruling cadre, in the form of  president and CEO, Tan Wangeng and  executive Vice President He Zongkai rocked up to declare open season on what’s left of the Qantas kangaroo route services to London and Europe, declaring that a ‘Canton route’ would provide additional frequent capacity to London, Amsterdam and Paris, via their shiny modern airport at Guangzhou, which they intend to make even larger than Singapore, Bangkok and Dubai.

It is China Southern’s policy to eclipse the size of today’s stake in the Australian international market held by Emirates by the end of 2015, an ambition that is already provided for in the Australia-China air traffic agreement and the mind-boggling consequences for air travel demand of 1.2 billion people making a new long march to their place in the sun in the Asian century.

This comes amid persistent rumors that Qantas will quit its services to Frankfurt, its last destination in Europe, following its decision last year to slash London flights in half in order to invest in a single aisle carrier somewhere in Asia that would make so much money that it in five years time it could start reinvesting in the long haul Qantas brand CEO Alan Joyce says the airline can no longer afford to support.

The obvious logical disconnections in this policy have recently started to alarm finance sector analysts, especially as there is no sign of such an airline in that form taking shape, and the shareholders are in their third year without dividends and wearing a pathetic share price.

It is all converging on Qantas. Unhappy shareholders, unhappy customers, shrinking services, and sharp competitors, at home and abroad, who are making much smarter moves in terms of fleet, product and network without resorting to hiring a lingerie model to lift (!) brand perceptions.

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11 thoughts on “China Southern and Virgin Australia keen to take what Qantas doesn’t want or can’t keep

  1. Merve

    Alan Joyce is earning a lot more than most writers of fiction these days.

  2. David Lloyd

    It just keeps coming, i.e. all this obvious stuff that Qantas management is stuffing up. A key factor is growing the new fleet and then capitalisation. If they have a war chest to buy Dreamliners which appear NOT to be delivering promises then is there an out clause? I love Boeings but a negotiated future needs to happen and soon if Qantas is going to survive.

  3. Grant Butler

    To briefly put what could be a novel-length diatribe, if the Kangaroo route is stuffed, why is it so hard to get a QF seat much of the time? And this week (holidays ending I know) – forget it entirely. I don’t understand the service reduction idea.

  4. patrick kilby

    To be fair QF flies Q400s to Sydney and 737s to Brisbane while Virgin flies ATRs to Sydney and E-Jets to Brisbane. So not a lot of ‘ambush’ there as they are much the same really and I note QF is moving 737-800s with seat back videos into some Canberra flights so relatively easy to trump Virgin there.

  5. Rufus

    Agree, Grant. Likewise the continued rumours about Frankfurt – yields mightn’t be great, but the flight always seems very full.

  6. thebozeian

    Joyce and basically the entire board of directors need to be sacked immediately for the good of ALL (not just the self absorbed institutional investors) shareholders, the paying public, the staff and the country. With the world teetering on the edge of economic collapse, this is clearly not the time to have obvious incompetent corporate pirate raiders acting in a reckless, self absorbed and incompetent manner.

    There is really nothing left to be said.

  7. ltfisher

    The message for frequent flyers seems to becoming clearer each day: use your QF points now.

  8. TT

    Not too sure how serious Virgin is on Adelaide routes. I think the majority of ADL-MEL routes (4th busiest route within Australia, mind you!) are now carried by E190 rather than B737 a few years ago. E190 is not a bad aircraft, except in Virgin configuration there isn’t much entertainment options (no TV screen whatsoever, nor you can rent a $5 portable player).

    The other issue specific to ADL is Virgin lounge is tiny! My guess is their lounge is no bigger than 200 sq.m, and my recent encounters is that there’s quite a fair few flyers who uses the lounge even during no-peak hours. There was one occasion where there’s about 20-person group entered the lounge and it becomes a standing room only … (Déjà vu to old Qantas Club lounge in CBR on a Friday afternoon back in a few years ago…)

  9. Cat on a PC©

    Rufus and Grant; MEL-ROM was always full but it was dumped. Perhaps Frankfurt will go as the rumours suggest? At this rate, it’s looking like Qantas international is aiming to serve only the Pacific route and a few Asian destinations. Who knows? Maybe London will be dropped?

    FF to Karachi anyone?

  10. julius grafton

    I still don’t understand the Red Q Asian Premium Airline announcement in August, where obviously nothing was in place. All very well for QF to refocus away from long haul, but why announce something that puts them at a disadvantage in negotiations with the Malaysians? Clearly there is a management problem at Qantas.

  11. Allan Moyes

    [FF to Karachi anyone?]

    No thanks, but if I am not mistaken, there is still a OneWorld deal which for 140k FF points economy or 240k business class you can fly a maximum of 36k miles, 5 stopovers (can’t use the same one twice), have only to fly one leg QF and at least 2 other OneWorld airlines.

    I used it a couple of years ago to go to Chicago via Asia and Europe, returning the same way, stopovers in London, Chicago, Paris, Amsterdam and Singapore. I actually spent nights in Narita and Perth as well but they were not counted as stopovers because less than 24 hours. Perhaps, unless QF itself goes belly-up, there is still a use for FF points. I hope so anyway because I’m 96% of the way to a similar Business Class trip again.