Hong Kong International Airport

The A380 becomes mainstream, with 103 now in service: which airlines, destinations, stage lengths?

There are 103 A380s in service as of early May-2013. Emirates has 33 and Singapore Airlines has 19, so when assessing network scheduling, these two and their hubs predominate: of the 1,048 weekly A380 flights, 402 are from Emirates alone. Dubai and Singapore airport see the most A380 flights.

But there are some less predictable statistics. The airport to see the most A380 operators is Hong Kong followed by Paris and Los Angeles. The largest A380 destination that is not (yet) an A380-hub is London Heathrow. The UK and USA are the most common A380 destinations after Australia, Singapore and the UAE. Asia, not the Middle East, sees the most A380 flights; South America sees none. Guangzhou-Shanghai Pudong is the shortest A380 route at 1,202km while Los Angeles-Melbourne is the longest at 12,751km. Qantas and Lufthansa have the highest average sector length while Thai Airways is placing the most number of cycles – about two – on its aircraft per day. Qantas and Air France are placing the least (just over one).

Cathay Pacific promotes cheap 'Fanfares' as quasi answer to LCCs, but structural change is needed

As Jetstar Hong Kong prepares to launch, Hong Kong Airlines weighs transforming Hong Kong Express into an LCC, Spring Airlines moots a Hong Kong base and other LCCs evaluate Hong Kong as a hub, the market has been left wondering about Cathay Pacific's response. Cathay and its Dragonair subsidiary account for about half of Hong Kong's capacity.

Cathay effectively has no public response. While deep down it is watching the market and undoubtedly weighing possible reactions, from a business perspective it says LCCs will not impact its business while to the general public its push has been to offer a limited number of discounted web-only tickets, "Fanfares", as a reminder that it can offer fares on par with LCCs.

Any airline can cut fares, but few can do so profitably. Fanfares account for less than 1% of seats, relatively isolating Cathay from any pricing detriments, but reminding the carrier this is no response to LCCs either taking existing traffic or creating new demand Cathay will be unable to tap. Structural change is needed.

Australia must negotiate expanded bilateral agreements, particularly with China

Australia needs to urgently negotiate expanded international air capacity which is constraining access to services from some of the country’s most important markets in Asia along with the United Arab Emirates. Capacity for several Asian markets, including China, Hong Kong, Vietnam, Malaysia and the Philippines, is fully utilised by carriers from those countries which are important source markets for both tourism and trade.

The Australian Government is being criticised for not negotiating new bilateral capacity to keep pace with demand. Melbourne Airport CEO Chris Woodruff said at the Australian Airports Association convention in Nov-2012: “These agreements provide the framework in which we can go out to the international market and attract new air services to meet the increasing demand for travel to and from Australia. The Government needs to lead from the front on this issue. Our bilateral agreements need to provide plenty of capacity for future growth in passenger numbers.”

Myanmar’s first LCC Golden Myanmar prepares to enter international market

Golden Myanmar Airlines is planning to launch services to Singapore on 5-Apr-2013, the first phase of the start-up carrier’s plan to build an extensive international network. The expansion at Myanmar’s first home-grown LCC will further drive up growth in Myanmar’s dynamic international market, which has seen a 67% increase in seat capacity over the last year.

Myanmar recorded 33% growth in international passenger traffic in 2012 and 16% growth in domestic passenger traffic. Even faster international growth is expected in 2013 as several new foreign carriers entered the market in 2H2012 and as a number of new routes are added this year from Myanmar’s two international airports, Yangon and Mandalay.

Local carriers also are responding to the favourable market conditions by growing domestically and internationally. Myanmar’s LCC penetration rate, which is the lowest among the largest seven Southeast Asian countries, will continue to rise in 2013 as Golden Myanmar and foreign LCCs expand.

Hong Kong's low-cost airline presence could triple to 15% of seats in 2015

Hong Kong is no Singapore for low-cost carriers – in early 2013 LCCs account for 5% of all seats at Hong Kong, compared with 27% of seats in Singapore. But Hong Kong is on the verge of a possible rapid structural change that could see LCCs account for approximately 15% of seats in Hong Kong in 2015.

The spike in LCC presence is predicated on a number of factors, including the successful launch of Jetstar Hong Kong, the continued expansion of mainland China’s Spring Airlines and the mooted re-launch of Hong Kong Express into an LCC. The fast ascent of LCCs will level off around the middle or latter part of the decade when almost all slots at Hong Kong airport will likely become utilised, leading to the possibility of a period of almost no growth until the completion of a much-needed third runway, which will not open until around the turn of the decade. Singapore in contrast has enjoyed many years of rampant LCC growth.

As the Hong Kong slot shortage comes closer into view, airlines are participating in an effective slot grab, growing routes or maintaining unprofitable capacity in order to secure slots and hope the services will later be sustainable.

Cathay Pacific, posting 84% drop in profits, seeks consistency but offers no brave new strategies

Cathay Pacific has lost its ability to move faster than the changing North Asian market, and this is reflected in an 84% drop in 2012 profits to HKD916 million (USD118 million). Although this is a profit, unlike global peers, it was achieved with a paltry 1.8% operating margin.

Cathay’s solution is to offer consistency in what it has done, rather than focus on what it can do differently. When the market rebounds, it will do so with a new competitive landscape that gives no guarantee past traffic can be regained. Even Cathay management seems unconvinced by its own explanation for why it does not have a low-cost carrier subsidiary. But LCCs are just part of the changing environment: Cathay needs strategic partners and a wider long-haul network, neither of which show signs of eventuating in the short-term.

Cathay is a cautious and conservative airline; it has relied on delivering benchmark quality to distinguish it. While this has advantages, the quickening pace of North Asian aviation will demand that Cathay break out of its shell. At the least, this will let Cathay counter competition while a more enduring effort will let it overtake the competition.