Australian airlines reorient to China following domestic slump


As domestic travel runs into headwinds, Australia’s leading airlines are seeking to land Chinese customers with new sales channels and new routes to the major Asian market.

Qantas, the country’s flag carrier, is seizing all the opportunities it can to grow in the Asia-Pacific, CEO Alan Joyce said during an earnings conference Friday. He called the region the world’s fastest-growing market for air travel. China is clearly at the heart of this effort: after a roughly seven-year hiatus, the airline in January restored service between Sydney and Beijing. In April 2016, it expanded capacity on its Melbourne-Hong Kong route. The Qantas group’s budget carrier Jetstar will begin service from Melbourne to the Chinese city of Zhengzhou in December.

In early August, Qantas announced a partnership with Chinese e-commerce giant Alibaba Group Holding‘s online travel platform Fliggy. The partnership will let users — including the more than 500 million in China itself — book Qantas flights directly through the site. The companies will team up on promotions as well. The collaboration “forms another part of our growth strategy for China and the broader Asian region,” Qantas International CEO Gareth Evans said.

Qantas CEO Alan Joyce, left, at the airline’s earnings conference on Aug. 25. © AAP

New focus

The expansion comes at the expense of some of Qantas’ European routes. The airline will end service to the U.K. via Dubai in March 2018. By June, the airline hopes to have Asian routes account for 40% of its international capacity — up from 36% currently.

Similarly, Virgin Australia is reorienting its offerings. The carrier has shut down unprofitable routes between Australia and such locations as the Thai resort town of Phuket and Abu Dhabi in the United Arab Emirates. In July, direct service kicked off to Hong Kong, marking “the start of Virgin Australia’s expansion into Greater China,” according to Virgin Australia Group CEO John Borghetti.

The airline has been laying the groundwork for this foray for some time. Virgin Australia in February agreed to team up with HNA Group units Hong Kong Airlines, HK Express and HNA Aviation in the region. In June, the airline launched a code-sharing arrangement with Hong Kong Airlines, simplifying travel between Australia and the Chinese mainland via Hong Kong. Direct flights between Australia and destinations such as Beijing and Shanghai could be on the horizon.

High stakes

Until fairly recently, Australia’s resources boom made domestic routes, rather than international flights, the prime earner for the country’s airlines. But that time has passed, and fewer miners and other industry personnel are now traveling between Australia’s major cities and regional mining towns. Revenues at Qantas’ domestic division have fallen around 10% over the past five years.

The airline has bounced back from a period in the red thanks to restructuring, and on Friday announced 853 million Australian dollars ($677 million) in net profit for the year ended June 30. By abandoning the price-based battle for domestic market share and refocusing ambitions abroad, the company aims to add thrust to its earnings growth.

In 2016, 1.19 million Chinese travelers visited Australia — 17% more than the year before. Australia’s government has named 2017 the “China-Australia Year of Tourism,” and in December reached an agreement with Beijing to remove limits on the number of flights between the two countries. A surge of Chinese industrial and real estate investment in this country, moreover, has spurred travel for business and pleasure.

But competition in this market is no less fierce from Asia than home. Some 21% of Chinese visitors to Australia flew China Southern Airlines in 2016. China Eastern Airlines accounted for 15% of those travelers, while Hong Kong flag carrier Cathay Pacific snagged an 11% share.

Qantas has held its own so far: Airlines in the group together carried 16% of Australia’s Chinese visitors. And the carrier is more profitable than its competitors, Joyce said. But beating out rivals who have had years to develop an intimate knowledge of their customer base will require climbing to a less crowded altitude.

Nikkei Asia


Please enter your comment!
Please enter your name here