Trans-pacific market becoming crowded?

A fares war is on the horizon for airlines flying the trans-Pacific following the introduction of American Airline’s daily Los Angeles-Sydney service this month and daily Los Angeles–Auckland flights from June.

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

December 1st 2015

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Analysts expect the arrival of the world’s biggest carrier, American Airlines (AA), in the Australian market, after an absence of more than two decades, will trigger fierce discounting as carriers already flying across the Pacific defend their market share against the newcomer. Read More »

To exploit Christmas holiday demand, Dallas/Fort Worth-based AA will commence a daily B777-300ER service between Los Angeles and Sydney on December 19, as part of its expanded alliance with Qantas Airways. At the same time, Qantas will begin B747-400 flights between Sydney and San Francisco, a route monopolized by United Airlines (UA).

Asian routes have been the biggest contributors to international revenue growth in the current year

Qantas Group CEO, Alan Joyce, speaking last month at a joint briefing in Sydney with AA chairman and chief executive, Doug Parker, said there would be significant growth across the Pacific from Australia to the U.S. and that the low fares available on the route would continue. Carriers serving Australia-U.S. include Delta Air Lines, Hawaiian Airlines, United Airlines and Virgin Australia.

Joyce also suggested Qantas’ purchase of B787-9s, scheduled for delivery in the next two years, will allow the airline to increase flights to the U.S. Possible routes are Melbourne-Dallas/Fort Worth and Sydney-Chicago, he said.

To add to passenger options, AA announced earlier in November that it planned a non-stop service between Auckland and Los Angeles from June next year. At present, Air New Zealand is the only carrier to fly between the two cities.

Parker said New Zealanders would benefit from more flight options and convenient connections to the world’s top financial centers and cities in the U.S., Mexico, the Caribbean and Central and South America when flying into AA’s long-standing Los Angeles hub.

Parker and Joyce presented a detailed briefing on the route to New Zealand’s prime minister, John Key, last month. It now awaits regulatory approval.

 “Auckland is a thriving destination for business and leisure travelers and it adds to the growing strength of our global network across the Pacific,” said Parker. “We know tourism is an important industry for New Zealand. Our new route will provide greater access for more American travelers to visit and appreciate all the country has to offer.”

Joyce said the Auckland-Los Angeles service, which will be a codeshare with Qantas, would combine networks on two continents. “Customers can fly to more than 150 U.S. destinations with American Airlines and more than 70 destinations across Australia and New Zealand with the Qantas Group. We are very pleased to be adding this new route to the list,” he said.

Joyce is well aware of the dangers of a trans-Pacific capacity war that could damage everyone involved. When he addressed the November UBS Australasian Conference, he said Qantas would cut its growth so that overall Australia-U.S. seat capacity for all airlines would expand by 6% from April, revised down from 9%.

Instead, Qantas will put more capacity into Asia by moving a B747 it has been flying from Sydney to Los Angeles to the Melbourne-Hong Kong route. Qantas says its Asian routes have been the biggest contributors to its international revenue growth so far in the current financial year. “This growth is all about responding to the strong demand we’re seeing in a wide range of Asian markets, said Joyce.

From April, Qantas will reduce its Sydney-Los Angeles frequency to daily, down from 10 weekly flights, and introduce A380s on the Sydney to Dallas/Fort Worth, in combination with A330s.

Joyce said U.S. routes are performing strongly, despite the declining Australian dollar. “The lower dollar seems to have more of a positive effect on demand into Australia than a dampening effect on travel demand out of the country,” he said.

“Australians tend to compensate for a weaker currency by spending less when they are away, rather than changing their destination altogether.”

Qantas deploys 31% of its international capacity to North America, compared with 23% to Southeast Asia and 20% to North Asia.