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Asian Airlines' changing presence at London Pt 2: Emirates' virtual growth, others try Gatwick

13-Feb-2013

This is the final part of a report looking at airlines from greater Asia (including the Middle East) and how they are changing the landscape of London. Latest developments include Emirates' decision to complement its five daily A380 flights between Dubai and London Heathrow with codeshares on Qantas' forthcoming double daily Dubai-London Heathrow services. This will increase frequency with flow-on effects across Emirates' mighty hub, allowing shorter connections and more seats to be filled.

Etihad, which is the smallest of the Middle East network carriers at Heathrow, has received a boost by partnering on Aer Lingus' services.

Meanwhile Air China and Korean Air are complementing their Heathrow services with organic expansion, but to Gatwick, which sees less capacity than their Heathrow flights.

MAS has increased capacity with double daily A380 flights to Heathrow while Thai Airways does not intend to deploy its A380s to Heathrow. Garuda will open a service to Gatwick with 777-300ERs and Philippine Airlines with its 777-300ERs hopes to expand to London too if the Philippines can be removed from the EU blacklist.

Qantas partnership increases Heathrow access for Emirates

While Cathay may be the largest Asian carrier at Heathrow during the northern summer, the largest non-European or North American airline is Emirates, whose five daily A380 services make it Heathrow's eighth largest airline overall with about 2% of total capacity. At the same time as Cathay and SIA grow organically (which Emirates would likely do too if slots were made available), Emirates will receive a virtual expansion boost via its extensive partnership with Qantas.

The Sep-2012 partnership, which is extensive but not a joint venture and does not include revenue-sharing, will see Qantas shift its Australia-London services from having a stopover in Singapore to Dubai. Qantas' London network consists of a daily A380 service from both Melbourne and Sydney. Previous offerings from Melbourne and Sydney via Hong Kong and Bangkok respectively were discontinued in Mar-2012. Reciprocal codesharing means Emirates will place its code on Qantas' two A380 services between Dubai and London, effectively allowing Emirates to sell the flights as its own.

Combined Emirates and Qantas services between Dubai and London Heathrow: 08-Apr-2013 to 14-Apr-2013 as of 11-Feb-2013

Route Carrier Schedule
Dubai-London Heathrow Qantas 01:00-05:30
  Qantas 02:05-06:35
  Emirates 02:30-07:00
  Emirates 07:45-12:15
  Emirates 09:40-14:20
  Emirates 14:15-18:40
  Emirates 15:45-20:15
London Heathrow-Dubai Emirates 08:40-18:45
  Emirates 14:15-00:15+1
  Emirates 17:00-02:50+1
  Emirates 20:40-06:30+1
  Qantas 21:30-07:20+1
  Emirates 22:15-08:05+1
  Qantas 22:30-08:20+1

See related article: Qantas presses ahead with post-Emirates European & Asian restructure as competitors show no leniency

Qantas' Heathrow slots in use (others are temporarily leased to partner British Airways) are particularly valuable to Emirates as Qantas has highly favourable early morning slots at Heathrow with services arriving at 05:30 and 06:35. Emirates' earliest arrival time is 07:00. Departures from London are less critical but Emirates still gains virtual access to Qantas' evening slots at 21:30 and 22:30, giving Emirates and Qantas a heavy presence in the key evening departure block. Emirates will also have access to Qantas' 22:30 service, which departs 15 minutes after its last flight at 22:15.

In addition to more options, the Qantas services enable Emirates to offer shorter connecting times. Various fares now being offered on its website since the partnership launched sales, show many itineraries have shorter connections when using the Qantas codeshare. For example, for Bangkok, the outbound layover is reduced by 15 minutes and the inbound by 90 minutes.

The Qantas codeshares can also help fill incremental seats: whereas previously a London-Cape Town itinerary may have included a flight on Emirates' last London-Dubai service for optimal connections, but because of high demand on that service was priced high and perhaps high enough that a passenger took another carrier.

With additional frequency from the Qantas codeshare, Emirates can now sell a seat on an earlier London-Dubai flight to the Cape Town passenger and also sell the later seat to another, hopefully high-yielding, passenger. This reflects the general beauty and exponential scale of the hubs of the Middle East network carriers: an additional single service, operational or virtual, increases the efficiency across the network, driving down costs and allowing for more expansion.

The Qantas boost also helps Emirates further differentiate itself from peers Etihad and Qatar. Qatar typically has five daily London Heathrow services while Etihad has three. Qatar will gain virtual access at Heathrow as British Airways looks to integrate its network with Qatar following the latter's joining of the oneworld alliance. BA only has a daily service – and via Bahrain – but this will likely change. Etihad's partnerships meanwhile allow it a level of virtual access to Heathrow, notably on Aer Lingus, which holds about the fourth highest number of Heathrow slots after BA, Lufthansa and Virgin Atlantic.

See related article: Etihad Airways gets springboard into Northern Europe with 2.9% stake in Aer Lingus

Restricted by slots, Air China and Korean Air also serve Gatwick

In the absence of additional slots at London Heathrow, Air China and Korean Air have increased their London presence via flights to London Gatwick. They stand out because the only other current intercontinental operators to London Gatwick are Emirates, US Airways and Vietnam Airlines, the latter two of which would have had difficulty securing Heathrow slots.

Besides Air China and Korean Air, Emirates is the only other intercontinental carrier to operate at both Gatwick and Heathrow.

Emirates has seen notable success, with three daily 777-300ERs complementing its five daily A380s at Heathrow. But Air China and Korean have seen less success at Gatwick. Air China has two weekly A330 services to Gatwick from Beijing compared to a daily A330 to Heathrow that rises significantly in capacity in the northern summer with a 777-300ER operation. Gatwick over northern summer sees an increase to four weekly A330 services.

Korean Air at Heathrow has a daily Seoul Incheon service, with the 777-300ER operating four days a week and 777-200ER three days a week. Over northern summer this rises to a daily 777-300ER operation. Korean Air had also offered a three-weekly 777-200ER service to London Gatwick but suspended it from Jan-2013 through Apr-2013.

Heathrow slot prices increased following the UK-US open skies arrangement as all US carriers were granted access if they could secure slots. Slot prices are understood to have since come down but are still expensive.

Heathrow clearly remains the London airport of choice from a connection and city access perspective, but the rise of Asia could offer an alternative view. Western markets have long associated the city of London with flying into Heathrow, but Asian markets may be less exposed to that view, and with the extensive marketing and effort Gatwick has shown of late, could change that perspective in the growing Asian air market. Then again, when China Southern commenced London Heathrow services in 2012, it noted the years it had to wait for Heathrow slots, preferring to forgo Gatwick for Heathrow. Likewise Cathay Pacific and SIA waited for Heathrow slots rather than put a service into Gatwick.

The capacity decreases over the slower winter period as well as significant disparity with the capacity Air China and Korean Air put into Gatwick versus Heathrow show this story is dynamic and growing and, as long as UK politicians continue to fail to realise the need to expand Heathrow, will be to Gatwick's benefit. Indeed, for Garuda Indonesia's resumption of London services, the carrier will fly into Gatwick.

Looking at various Asian airline failures at Gatwick – AirAsia X, Hong Kong Airlines, Oasis Hong Kong – it would be tempting to suggest the airlines are not a match for Gatwick. But case-by-case considerations are needed. AirAsia X launched its European network with the objective of breaking-even to permit the AirAsia brand to be extended in Europe and cause some pain to deep rival Malaysia Airlines, an equation that changed in early 2012. AirAsia X served Gatwick only briefly before pulling out of Europe; it previously went into London Stansted.

Oasis Hong Kong is understood to have been operationally profitable between Hong Kong and London Gatwick at the time of its collapse, fuelled by losses to North America and an internal shareholder dispute. HNA subsidiary Hong Kong Airlines operated to Gatwick with an all-premium A330 configuration that was clearly the wrong product for the market. There is support for the carrier to re-enter Hong Kong-London Gatwick with an economy and business two-class product (growing after the Air New Zealand-Cathay Pacific partnership).

See related articles:

Garuda and MAS expand London while Thai Airways is conservative

Garuda's re-introduction of London services, suspended in 2003, will occur on a date to be determined in 4Q2013 with six-weekly services on Garuda's forthcoming 777-300ERs. Garuda's only other European point, Amsterdam, is served four-weekly with A330-200s via Abu Dhabi. Garuda and Etihad have formed a partnership. While Garuda will cater to the local market, it will also target connections across its Southeast Asian and Australian network. Philippine Airlines is also targeting a London service for the end of 2013 if the Philippines can come off the EU blacklist, a very uncertain outcome.

While Malaysia Airlines has been in London Heathrow for some time, it is significantly increasing capacity to Heathrow via the up-gauging of both daily services to A380s. Previously they were operated with a 747-400 and 777-200/747-400.

As CAPA previously wrote:

The A380 is a key component of MAS’ premium-focused strategy and the carrier has noticed a “halo effect” on London as interest in the super jumbo drums up demand and a new segment of traffic, which MAS is confident it can retain given its strong product. MAS expects a similar impact in Paris, leaving to an overall boost in European sales despite the weak European market, with oneworld membership providing a further boost.

...

Offering a standard product on both London flights, particularly for premium passengers, was one of the main drivers in deciding to upgrade both frequencies to the A380. Mr Dunleavy also pointed out that Heathrow is a oneworld hub. MAS is slated to formally enter oneworld on 01-Feb-2013.

See related articles:

Thai Airways in Nov-2012 was less bullish on the regional Asian capacity being put into Heathrow.

As CAPA previously wrote:

Thai Airways EVP commercial Pandit Chanapai told CAPA at the Association of Asia Pacific Airlines Assembly of Presidents in Kuala Lumpur on 09-Nov-2012 that placing the A380 on Bangkok-London would represent too big a jump in capacity. He pointed out that the carrier currently serves the route with Airbus A340-600s, which Thai configures with only 267 seats, and that the carrier prefers to maintain two daily frequencies on the route with relatively small capacity aircraft.

In northern summer 2013 Thai will operate its 747-400s on both daily sectors.The 747-400 is configured with 375 seats (it features fewer first and business class seats than on the A340-600). Thai's A380 seats 507.

See related article: Malaysia Airlines and Thai Airways focus on Europe rather than Australia with A380s

London has global attraction – but mixed profitability

The public may still look at London as some vestige of the golden days of flying, but from an airline perspective, London is a challenge to yields and can be unprofitable, except for a handful of larger carriers.

And so those that are smart are increasing capacity, organically or virtually. Others are turning to Gatwick, more often out of necessity. Thanks to the shortage of Heathrow slots - and successive governments sitting on their hands instead of finding solutions - Gatwick is increasingly an option for smaller airlines seeking London expansion. As time passes, it may also by default become a more common solution for larger airlines seeking expanded influence at Europe's financial and business capital. British Airways itself is setting the benchmark; its nearly 60% of peak time aircraft movements at Heathrow is complemented by operating 25% of Gatwick's peak time movements too (although in BA's case the flight profiles are somewhat different at the two).


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