Australian carrier will no longer fly its own planes to the United Arab Emirates.

VIRGIN Australia has scuttled plans to fly from Perth to Abu Dhabi, saying increased competition has made the route unviable.

Australia’s second biggest airline had planned to start flying three services per week on the route from June using Airbus A330-200 aircraft.

But a slow consumer response and the highly competitive nature of the Kangaroo Route between Australia and Europe, including the decision by Qantas to launch direct Boeing 787 Perth-London services, forced a rethink.

“Subsequent changes in market conditions have made the route no longer viable for Virgin Australia,’’ the airline said on Monday.

“Virgin Australia customers can continue to book travel on alliance partner Etihad Airways’ daily service between Perth and Abu Dhabi and all connecting services as usual.”

The airline said customers booked to travel with it on the Perth-Abu Dhabi route would be accommodated on alliance partner Etihad’s services and would be sent new flight details.

The move means Virgin will no longer fly its own metal to Etihad’s Abu Dhabi base and will now rely on its partner to handle passengers on low-yielding routes to Europe, where fares have hit historic lows in real terms.

Virgin axed its Sydney-Abu Dhabi services this month so that it could concentrate its Boeing 777 services on flights from Melbourne, Brisbane and Sydney to  Los Angeles.

It is also looking towards Asia, particularly China, for international growth and recently announced plans to fly to Hong Kong later this year using A330s, which also service transcontinental routes and Fiji in peak periods.

The airline has asked the Australian Competition and Consumer Commission to grant interim authorisation for an alliance with part-owner HNA Aviation, Hong Kong Airlines and HK Express that will see it able to offer ongoing connections to mainland China.

It is seeking interim authorisation by March 20 so that it can sell tickets ahead of the launch in the middle of the year from an as yet unspecified Australian city, rumoured to Melbourne but almost certainly an east coast capital.

The initial stages of the alliance will see the airlines codeshare on each other’s flights between Australia and Hong Kong as well as between Australia and mainland China and on each other’s domestic networks.

Virgin’s Velocity frequent flyer members and HNA’s Fortune Wings Club members will get reciprocal access to frequent flyer benefits and lounges. The airlines are also proposing to co-operate on route planning, sales, distribution and marketing.

In a submission to the ACCC,   Virgin argues that fares on flights between Hong Kong and Australia have not fallen as much as those on other routes because of the lack of competition on a route dominated by Qantas and codeshare partner Cathay Pacific.

“The result is that there has not been significant downward pressure on prices, with the average for routes between Australia and Hong Kong decreasing less than 10 per cent since financial year 14,’’ it said.

“By expanding the capacity and the services in the Australia-Hong Kong market, the Alliance will not have any adverse impacts on competition but will be pro-competitive.”

– See more at: https://www.airlineratings.com/news/1064/virgin-axes-perthabu-dhabi-route#sthash.LbCHK3Gw.dpuf

ANA moves to take control of Peach in a move aimed at accelerating growth.

Low-cost competition in Japan is set to sharpen with ANA Holdings moving to exert greater control over budget carrier Peach by taking a majority stake in the carrier to better ramp up its growth.

The move comes as Jetstar Japan, part owned by rival Japan Airlines and Australia’s Qantas Group, is also preparing to up the competitive ante in 2017.

ANA Holdings (ANA HD) currently owns 38.7 per cent of Peach but plans to spend $US270m to push this up to 67 per cent.

The deal, which is subject to regulatory approval and would take place in April, would see ANA buy about half the shares held by two other investors: Hong Kong-based Eastern Aviation Holdings and public-private fund Innovation Network.

ANA said the shareholders had decided consolidation as the best way to accelerate the growth of Osaka-based Peach, which will retain its current management.

“Since Peach launched in 2011, it has become a driving force in Japan’s LCC market and we are proud to support the acceleration of its growth across Asia,” ANA chief executive Shinya Katanozaka said in a statement. “Peach is a key component of ANA HD’s strategy, providing customers with greater travel choices, as well as expanding our network and enabling us to better serve the increasing number of international tourists visiting Japan.’’

Peach became profitable in fiscal 2013 and recorded an operating profit of 6.1 billion yen ($US53.5m)  in 2015. It expanded to last year operate 18 Airbus A320 aircraft on 13 international and domestic routes.

Japan’s budget carriers are gaining a stronger foothold in the market and could account for 20 per cent of capacity by the end of 2017, according to scheduling expert OAG. That would be up from 16 per cent at the start of the year.

However, overall capacity growth in Japan moderated last year and OAG has questioned the ability of LCCs to stimulate travel in the mature Japanese market.

OAG rated Peach as Japan’s third-biggest LCC in terms of capacity in 2016 after industry leader Skymark Airlines and Jetstar Japan.

Three other LCCs — Solaseed, Vanilla Air and Spring Airlines Japan — also operate in the market and account for 22 per cent of capacity across Japan’s top 10 airports, with Jetstar dominating Tokyo’s Narita airport and Peach leading at Osaka’s Kansai.

ANA is Japan’s biggest domestic carrier and also owns 100 per cent of Vanilla Air as well as stakes in Solaseed and Skymark, prompting one Japanese analyst to float the possibility of a merger between Peach and Vanilla.

“We take the move by ANA management as a positive step to bring a second major LLC under its wings, which would give it more leverage and flexibility in the future, including a possible Peach merger with Vanilla,” SMBC Nikko Securities analyst Hiroshi Hasegawa said ina note obtained by Bloomberg. “That said, we question the price and future return on investment.”

Qantas chief executive Alan Joyce said last week that Jetstar Japan had seen a number of years of continuous improvement and had put in a “great performance’’ in the six months ending December 31.

“We’re very focused on where we can get profitable growth out of our business and we think Japan is one that is the case and we’re adding a significant amount of capacity in the Japanese market,’’ he said.

Qantas doesn’t consider Skymark an LCC and Joyce said Jetstar Japan, which is profitable, now had 53 per cent of the domestic low-cost carrier market in Japan.

“It’s got the best brand in Japan for the low-cost carrier, the best customer service so there are so many opportunities for us up there and we just have to pace them and allocate them where we think the right returns are going to come at the right time,’’ he said.

The low-cost long-haul flying revolution is quickening as British Airways parent company IAG vows that its new Barcelona base for services to Asia and the Americas will just be the first of several bases linking Europe to the world.

IAG has been emboldened by the financial success of fast-growing independent low-cost carrier Norwegian Air Shuttle, which is preparing to announce a raft of new transatlantic routes linking Europe and America as early as this week.

At the same time, Air France has given its new long-haul low-cost offshoot the working title Boost and has announced that it may fly brand-new Airbus A350-900s instead of the previously mooted second-hand Airbus A340-300s from the existing Air France fleet.

The flurry of low-cost expansion by European full service carriers — including Lufthansa’s low-cost arm, Eurowings, which is cautiously adding intercontinental destinations – has been a long time coming as they have waited more than a decade to follow Australian national carrier Qantas’s foray into budget flying long-haul with subsidiary Jetstar (created in 2004) and Singapore Airlines’ successful Scoot, launched in 2012.

IAG group chief executive Willie Walsh revealed earlier this year  that his as-yet-unnamed long-haul low-cost subsidiary would be launched in June with an inaugural fleet of two Airbus A330-300s, which can squeeze in up to 436 people in configurations using by other low-cost carriers.

The new carrier would initially operate from Barcelona, Spain, the headquarters of IAG short-haul low-cost subsidiary Vueling, which will act as the feeder service for the intercontinental flights.

However, Walsh now says  “without question, in due course” IAG will begin long-haul, low-cost operations at other locations in Europe.

“You’ve got to start somewhere and we think Barcelona is the right place to start," he says. He predicts the new carrier will become a significant part of IAG, which includes British Airways, Spanish flag carrier, Vueling and Irish national carrier Aer Lingus.

Walsh makes no secret of the fact that it’s a direct response to the emergence of Norwegian Air Shuttle, which has a network of European feeder services supporting its long-haul services to the Americas and Asia using a fleet of Boeing 787-8 and 787-9 Dreamliners seating 291 to 344 people – considerably fewer seats than other low-cost carriers like Jetstar and Scoot.

IAG has previously disclosed that “we would respond in a competitive way to what Norwegian has done”, Walsh says.

Norwegian is the new star performer in the airline world, remaining profitable while growing fast. Last year the airline increased revenue by 16 per cent, adding more than 20 planes to its fleet. This year, it will increase the size of the fleet by another one-third, with 32 new planes.

Norwegian has become a world leader in deploying what used to be considered short-haul narrowbody planes to transatlantic routes linking Europe and America.

In the next few months, Boeing will begin deliveries of the first of Norwegian’s 108 new 737 MAX 8s, seating 186 people, which will be used this year to fly mainly from Ireland to new US destinations, including Providence, Rhode Island, and Stewart International Airport, about 100 kilometres north of New York City, where the airline will base flight crews for the transatlantic hop.

Like LaGuardia, JFK and Newark Liberty airports, Stewart is operated by the New York Port Authority, but until now has hosted only a small sprinkling of US domestic services, even though it has a 3000-metre runway suitable for planes as big as the A380 super jumbo.

Just 75 minutes by road from downtown New York, its lower costs will enable Norwegian to offer transatlantic crossings for as little as $US69 one way, the airline says.

In 2019, Norwegian will begin deploying a fleet of Airbus A321s, that can fly ever further than the 737s and will seat around 220 passengers.

Kjos says he doesn’t think there will be passenger resistance to flying long-haul on single-aisle aircraft as the airline already operates routes of around 6500 kilometres from Scandinavia to Dubai “and that's not a problem".

Fears that the airline’s growth will be impeded by US government opposition have also receded after an endorsement of the airline from the new Trump White House.

Executives of America’s major airlines and airline unions have been attempting to capitalise on the Trump administration’s protectionist threats against other countries by asking for action against Norwegian Air Shuttle and the big three Arabian Gulf carriers who they allege are receiving unfair economic aid from their government owners.

However, before a meeting between Trump and US airline chiefs this month, White House spokesman Shaun Spicer said the US had “a huge economic interest” in Norwegian’s growth because of the number of Americans it was employing – 500 flight attendants at its existing crew bases in New York and Fort Lauderdale, Florida, and a further 200 people to be employed at the new bases at Providence and Stewart International.

Air France, meanwhile, is forging ahead with plans to get its new Boost subsidiary into the air this year and is considering using new-tech A350 jets, instead of older A340s, in spite of the higher cost of ownership.

Air France-KLM chief executive Jean-Marc Janaillac he has assured the airline’s customers they won’t see a reduction in customer service standards – just a reduction in back-office costs to return long-haul services to profitability.

Indeed, the new subsidiary simply aims only to compete better with full-service competitors, not low-cost carriers like Norwegian.

The new low-cost arm would aim to cut Air France’s long-haul flying costs by 20 per cent, which, according to an analysis by the London Financial Times in 2015, would mean its per-seat unit costs are still higher than those of British Airways and more than double those of low-cost competitors like Ryanair.
 

A robust Qantas says it is well-placed to weather the competitive aviation environment after posting a 25 per cent fall in half-yearly net profit due mainly to a one-off gain the previous year.

The Australian carrier followed a record 2015-16 with a $515m net profit for the half year ending December 31, down from $688m the previous year.

Qantas said the fall in statutory profit largely reflected the inclusion in last year’s result of the $A201m gain from the sale of its Sydney Airport terminal.

The decrease in net profit was mirrored on the other side of the Tasman with rival Air New Zealand recording a 24.25 per cent drop in interim net profit to $NZ256m from $NZ338m  the previous year.

The flying kangaroo posted an underlying pretax profit of $A852m,  7.5 per cent lower than the $A922m it posted in the same half the previous year but still the third best first half in its history.  The result was also slightly above the guidance the airline posted in October.

Qantas chief executive Alan Joyce said the work done on the airline’s transformation program meant that it was it was delivering much better margins than many of its main competitors. For Qantas International, this meant a margin of 7.3 per cent compared to 4 per cent or less on the other big premium carriers in the region.

“Everybody in the region is having bigger drops — 50 to 80 per cent —in their profitability,’’ he said. “The resilience of Qantas in this space is absolutely amazing because of the structure of our business and what we’ve done in transformation has given us that big advantage.”

All parts of the Qantas group were profitable in the first half but earnings at the Qantas domestic and international operations were both down.

Qantas domestic reported underlying earnings of $A371m, down $A16m, while the international arm posted earnings of $A208m, down $A62m. Revenue from the once vibrant resources sector was down $A50m, a fall that is expected to decrease to $30m in the second half and possibly flatten out in 2019.

Earnings at the Jetstar group were up $A13m to a record $A275m while Qantas Loyalty recorded a result of $A181m, up$A5m.

Revenue at the Australian carrier was down just 3.3 per cent to $A8.2 billion and Joyce described it as one of the best-performing airline groups in the world.

“Our transformation program has built a strong, sustainable business that generates returns throughout the economic cycle,’’ he said.

“Qantas and Jetstar’s domestic operations produced an outstanding result and Qantas Loyalty continued to thrive. It’s a combination that keeps delivering and sets us apart from our competitors.’

“The international market is tough because of capacity growth and lower fares and Qantas International is not immune from those pressures. But the work we’ve done on removing costs and making the business more efficient means Qantas International is outperforming its peers in the region.

“Our focus is to stay disciplined on capacity, keep downward pressure on costs and introduce game-changing improvements like the Dreamliner and high-speed wi-fi.’’

The airline plans to boost group capacity by a modest 1-2 per cent in the second half and cut capacity on the domestic market by 2 per cent.

But Joyce was optimistic about the prospects in both the domestic and international markets

He said the resources sector was bottoming out and the buoyancy of the East Coast market in sectors such as financial services and construction had come through in the airline’s numbers.

Group international capacity will rise 3 per cent due to previously announced changes, including services to Beijing and Japan, using the existing fleet to target the Asian market.

While a spike in capacity on the kangaroo route between Australia and London had depressed yields, Joyce noted there was growth on markets such as Japan, the US and China.

“But again, we’re happy and very comfortable with the Chinese growth because what’s happening in China is that there’s huge influx of Chinese tourists to Australia,’’ he said. “They’re travelling everywhere and our domestic business gets huge benefits associated with that.’’

The efficiency drive will also continue with management targeting an annual average of $A400m in cost and revenue benefits from areas such as new aircraft and technology to keep the business sustainable.

However, the group deferred the delivery of fuel-efficient Airbus A320 neos until fiscal 2019, saying it had other more immediate priorities for capital expenditure.  Officials denied this was in response to a similar move by Virgin Australia to delay delivery of Boeing 737 MAX aircraft.

Qantas did not give any profit guidance but said underlying fuel costs were expected to be no more than $A3.2 billion.

The airline will pay a dividend of $A7 cents per share and is still undertaking a share buyback.

QANTAS boss Alan Joyce says he is confident a renewed push to get the Australian carrier’s alliance with American Airlines approved by US authorities will be successful.

The US Department of Transportation surprised the carriers when it last year rejected an application to grant anti-trust immunity to an expanded business alliance similar to the one Qantas operates with Gulf juggernaut Emirates.

This would have allowed them to operate “metal neutral’’ joint flights alongside each other and to coordinate functions such as scheduling, network planning, sales, customer services and capacity decisions.

The carriers argued the alliance would allow them to better compete and expand services across the Pacific and competition regulators in Australia and New Zealand had given the deal a green light.

However, the DoT found it would harm competition due to the 60 per cent market share the partners would command.  

Approval from all three regulators was needed to allow the airlines to commercially co-operate in all markets and the airlines initially said they were reviewing their trans-Pacific options.

There has since been the change in administration in the US with the election of President Donald Trump and in the US and the appointment of new Transportation Secretary Elaine Chao.

 “We said that we will be refiling and we’ve been going through that process,’’ Joyce said at the airline's interim results presentation on Thursday. “Obviously, there’s been a change in administration in the US and we want to make sure the filing is done at the right time and we make sure we have the case prepared.

Joyce said the airlines in their initial application had not done a good enough job in ensuring that customer benefits associated with the alliance were explained.

“We will be making a lot better case for that and we’re confident, and our partner American Airlines is confident, that the case is very solid,’’ he said. “These processes can take some time so we will be pursuing it as fast as we can but we are confident we’ll have a positive outcome.’’

Meanwhile, Qantas has also taken advantage of a new air services treaty between Australia and Israel to launch a codeshare partnership with EL AL.

The treaty  — the first of its kind between the two nations — was signed on Thursday by Australian Transport Minister Darren Chester and Israel’s Ambassador to Australia, Shmuel Ben-Shmuel, as part of a visit Downunder by Israeli prime minister Benjamin Netanyahu.

The move by the carriers is a step up from their current interline relationship and will allow customers of both airlines to be ticketed on select flights operated by the other as well as earn and redeem frequent flyer points.

It will focus on linking Qantas flights between Asia and Australia to El Al flights between Asia and Tel Aviv.

Qantas International chief executive Gareth Evans said Tel Aviv was a popular destination for Australians with friends and families in Israel.

“The timing’s especially good when you think about the growing number of Australian companies doing business with Israel’s world-class technology and start-up sectors,’’ he said.

Chester said 12,600 Israeli residents visited Australia in 2016 , while 22,000 Australians visited Israel. 
 

Increased international competition slashed Air New Zealand’s  first-half profits but the Kiwi carrier expects the revenue environment to improve in the second half.

Net profit for the six months ending December 31 fell more than 24 per cent to $NZ256m, while pre-tax profit was down 23.6 per cent to $NZ349m. The results included a one-off windfall of $NZ22m from the Kiwi carrier’s sale of its stake in Virgin Australia.

However, the interim result was still the second biggest on record and chairman Tony Carter labelled it an impressive achievement in the face of “unprecedented competitive capacity into the New Zealand market’’.

Air NZ now expects to post pre-tax earnings for the full financial year of between $NZ475m and $NZ525m, compared to $NZ663m in 2015-16.

The airline sees fuel prices averaging $US65 a barrel as a headwind in its second half but Carter said he expected the revenue environment to improve.

Chief executive Christopher Luxon said the interim result was driven by a swift response by airline staff to the increased competition that focused on strong cost discipline and leveraging operational efficiencies,

Luxon said lower fuel prices were also a benefit but were partially offset by adverse changes in foreign exchange.

“We modified our capacity plans, accelerated the exit of older aircraft and made sure we were managing our costs well,’’ he said in a statement. “All these actions and our investments of recent years really made the difference as we adjusted to a different competitive environment in New Zealand.’’

The airline carried 8.1 million passengers over the six months and increased capacity by 7.1 per cent. 

The AirNZ chief said the airline’s strategy of diversifying its network across the Pacific Rim and throughout New Zealand was paying dividends with strong performances from new routes to Houston and Buenos Aires in their first year of operation. 

The airline has also been targeting the Australian market with campaigns to convince travellers to use its Auckland hub for trips to the Americas and Luxon said it had also benefited from alliance partnerships that had helped it build market positions that were more resilient and profitable.

He said the domestic network was benefiting from increased tourism to New Zealand, the continued strength of the economy and the roll-out of a new schedule on jet and regional routes.

The airline expects to spend $NZ1.6 billion on new aircraft through to 2021 and received three additional Boeing 787-9s during the first half to bring its fleet to nine.

It also stopped flying Beech 1900D aircraft and plans to do the same with Boeing 767s in March, supporting future capacity growth with at least one additional leased 787-9 due to join the fleet in fiscal 2019.