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Qantas withdraws from San Francisco, commences 4x weekly Dallas service. New competitive environment

Qantas CEO, Alan Joyce
Qantas CEO, Alan Joyce

The alliance battle is hotting up in the south Pacific, now that Delta and United are entrenched in the Australian market. Qantas today announced it will commence four times weekly Sydney-Dallas/Fort Worth service from 16-May-2011, using three-class B747-400 aircraft. Operating into American’s dominant US hub makes a lot of sense and gives both carriers a much stronger position to distribute traffic beyond their first gateways.

The announcement pre-empts any decision by the US Department of Transportation on Delta and Virgin Blue’s application to operate in partnership on US-Australia services. The next logical step – in line with what has happened in the US-Japan open skies market – is that applications for full antitrust immunity will follow. Also, that they should be approved, including the Virgin Blue-Delta partnership.

Qantas to request co-ordination approval for operations with AA

In its media release, Qantas stated it would apply to the Australian Competition and Consumer Commission (ACCC) for permission to coordinate its trans-Pacific operations with American Airlines on services to American Airlines’ Texas hub at Dallas/Forth Worth International Airport.  

Qantas plans to launch four times weekly B747-400 services from Sydney to Dallas/Fort Worth from 16-May-2011. Meanwhile, the carrier’s Sydney-San Francisco service will be discontinued on 14-May-2011, although San Francisco will “remain part of Qantas’ network as a codeshare destination” (via Los Angeles adding around four hours of travel time). Qantas will also increase the frequency of its Los Angeles-New York service from six times weekly to daily from Jun-2011.  

According to Qantas, the two carriers would “soon seek to expand their commercial relationship” with CEO Alan Joyce stating: “Flying to DFW is an important step for Qantas as we expand and improve our international services. Alongside our entry into DFW, Qantas and American Airlines intend to deepen their existing relationship and will be seeking regulatory approval from the Australian Competition and Consumer Commission and other relevant authorities for this expanded commercial relationship."

Meanwhile Qantas spokesman Tom Woodward in an interview with Australian Business Traveller stated: "It's pretty much just a commercial decision to provide us with better and more direct access to the American Airlines network in the US, which means Dallas/Fort Worth as their major hub airport, so it makes a lot of sense for us to fly there direct."

Mr Woodward stated the popular direct Sydney-San Francisco service "has not been a failure from a route perspective, but from a strategic growth perspective for Qantas, DFW is the better plan for the future".

Qantas-American Airline codeshare expands to 51 destinations

Thirteen new US destinations (Albuquerque, Boise, Cleveland, Washington DC (Reagan National), El Paso, New York (LaGuardia), Kansas City, Oklahoma, Phoenix, San Antonio, Salt Lake City, Sacramento, Tucson) and three Mexican destinations (Cancun, Guadalajara, and Mexico City) will join the Qantas network through new American Airlines-operated codeshare services, meaning Qantas will codeshare with American Airlines to a total of 51 destinations in the US, Canada and Mexico. Once the new alliance comes into place, it will provide a joint platform for the airlines to increase DFW services to a daily frequency.

Qantas to face competition from Virgin Blue/Delta

The enhanced commercial agreement between American Airlines and Qantas will involve coordination of operations between Australia/New Zealand and the US. Qantas stated the agreement would provide it with a stronger and more balanced network footprint in the US, a key consideration as Virgin Blue ties with Delta.

Delta Air Lines Executive VP of Network and Revenue Management Glen Hauenstein this month stated the airline is confident its proposed trans-Pacific alliance with Virgin Blue will receive final approval from the DoT. Mr Hauenstein stated on 15-Dec-2010 that the carrier expects a “positive announcement” from the DoT “within the next 60 days or so”. The alliance has already been approved by the ACCC. No other airline opposed the application, which was initially tentatively rejected by the DoT.

And now for United and Air New Zealand to respond?

Assuming that the necessary antitrust and competition approvals are forthcoming for Delta and American/Qantas, that leaves the Star Alliance as the standout. Air New Zealand has the authority to operate with full rights out of Australian gateways and indeed did so for some time a decade ago. But it pulled out of direct Sydney-Los Angeles operations because the route did not pay, once Ansett, another Star member, ceased operating.

Today, under a more enlightened and much different regulatory regime, the possibility of Australian non-stops by Air New Zealand, codesharing with United, might well be raised once more. The shortcoming of lack of Australian feed would however still be a competitive handicap for the carriers.

Virgin Blue is not a SkyTeam member – and indeed is well into the process of getting closer to Star Alliance’s Air New Zealand on Australia-New Zealand routes – but its ad hoc combination with Delta on the Pacific gives the US airline valuable behind gateway feed in Australia. This raises the tantalising prospect that Virgin Blue could actually codeshare in Australia with each of the alliances, although that would certainly involve some fancy footwork. It does make sense however from a consumer point of view, in terms of providing a more equal platform for competition between the three alliances.

A win for Dallas/Forth Worth

DFW is the fourth-largest and fastest-growing metropolitan area in the US and an important centre of business and tourism. It welcomed more than 56 million passengers in 2009, making it the world’s eighth busiest airport, with 59% of those passengers continuing onward to other destinations. From DFW, American Airlines and regional airline partner, American Eagle, operate nearly 750 flights to 186 destinations worldwide. DFW is American’s largest hub and offers connections to American’s four other cornerstone markets of Chicago, Miami, New York and Los Angeles.

Dallas/Forth Worth CEO Jeff Fegan stated the decision is a significant one for the airport and estimates an annual economic impact at USD131 million. The airport will rebate Qantas around USD3.1 million over two years to cover landing fees, terminal charges and some marketing contributions. From the airport’s perspective, the addition of Qantas will further enhance cross-connectivity and passenger connections. Mr Fegan added: "We're really excited. The secret is we've been working on this for 10 years."

Also as part of the new commercial arrangement, AAVacations, the wholly owned tour operator of American Airlines, will look to launch a comprehensive range of Australian and Asia Pacific land, air and integrated vacations for the US market, designed to grow US leisure travel to Australia and the region.

Likely to become a B787 route, once the aircraft is delivered

The Sydney-Dallas route is at the limit of the aircraft’s range, probably removing the prospect for freight carriage and, in the westbound direction, flights will return to Brisbane, a shorter distance. This is not a particularly attractive proposition for business travellers, but there is perhaps the prospect of eventually using A380, and/or B787 equipment on the route, each with longer ranges than the B747-400.

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