Airlines ride Australia’s international demand wave: part two – United Airlines and Vietjet
Many overseas airlines are taking advantage of a strong demand recovery in the Australian market by ramping up their services to that country. Because of this, Australian routes are playing a particularly large role in their post-pandemic strategies.
Several airlines have increased Australian capacity levels up to - or beyond - 2019 levels, and there have also been some new entrants and new routes in this market.
Part two of this analysis looks at two examples of airlines that have started new routes - United Airlines and Vietjet (part one focused on Cathay Pacific and Philippine Airlines). Some of the challenges facing airlines in the post-pandemic environment are also discussed.
This report draws on information presented during the CAPA Australia Pacific Aviation Summit held 14-15-Sep-2023 in Brisbane. A wide range of industry executives addressed these and many other topics affecting the Australasian airline and travel sectors during the CAPA event.
- United Airlines is planning increases that will boost its Australia capacity by 25% from current levels.
- Vietjet has launched three Australian destinations and is looking to add more, such as Perth and Adelaide.
- The airline is also seriously considering one-stop flights to New Zealand via an Australian city.
- Post-pandemic challenges include ground-handling shortage, visas and limited bilateral rights in some cases.
United Airlines will further reinforce its position as the leading US airline to Australia
While multiple US airlines are increasing their schedules to Australasia in the upcoming southern summer season, United Airlines will remain the leader: "We're going to be up another 25% [in capacity to Australia] from where we are today - it's a pretty substantial increase", said Tim Wallis, United's regional manager for Australia, New Zealand and Tahiti.
United intends to launch a new route between Brisbane and Los Angeles on 29-Nov-2023, and resume Sydney-Houston flights from Oct-2023. The airline already operates five routes to Australia, and extra frequencies are planned for the Sydney-San Francisco and Brisbane-San Francisco services.
"We're very happy with how our sales are performing on the [Australian] routes", said Mr Wallis.
The chart below shows that the last southern summer peak (Dec-2022 to Feb-2023) was higher than the one immediately preceding the COVID-19 pandemic.
The upcoming summer peak is likely to be higher again.
United Airlines: one-way departing weekly frequencies between the US and Australia, Sep-2019 to Sep-2023
One of the factors supporting the increase is United's partnership with Virgin Australia, which began in May-2022. This provides essential domestic feed to the United flights, as well as adding the backing of Virgin Australia's large local sales team.
Fleet dynamics have also played a significant role in United's Australasian expansion. The airline did not cut back long haul aircraft as much as many other airlines during the COVID-19 pandemic, Mr Wallis said. This meant that when borders reopened, "we were able to come back very quickly".
In addition, the slower recovery of markets such as China, India and Japan has meant that aircraft that would otherwise be deployed to those countries have been available to grow the Australian and New Zealand networks.
The upcoming growth in the US-Australia market was discussed in the May-2023 CAPA - Centre for Aviation report: US-Australasia air travel market rebounds strongly - part one: more flights planned for Australia.
Vietjet is a newcomer to the Australian market, but is already looking for more expansion
The Vietnamese low cost carrier Vietjet launched its first flights to Australia in Apr-2023, and now operates routes from Ho Chi Minh City to Melbourne, Sydney and Brisbane.
Demand has been strong from the start, with load factors in the 90% range, said Jay Lingeswara, Vietjet's vice president for commercial. This has prompted Vietjet to add more frequencies to its three Australian routes for the southern summer season.
The airline is also looking to introduce new routes to Australian destinations such as Perth and Adelaide, with Perth flights slated to begin in Nov-2023. Vietjet is also considering a one-stop route to New Zealand via an Australian point, said Mr Lingeswara.
The chart below shows total departing frequencies by all airlines in the Vietnam-Australia market.
In addition to Vietjet, Vietnam Airlines has also increased its services to Australia since the pandemic, and Bamboo Airways has entered the market. Because of this, weekly frequencies have increased beyond 2019 levels.
Vietnam-Australia: one-way departing weekly frequencies, all airlines, Sep-2019 to Sep-2023
Vietjet had been planning to enter the Australian market before the pandemic. When it eventually launched the flights, it was in a much stronger demand environment. Mr Lingeswara said this is an example of how "there is opportunity in every crisis".
Australian tourism to Vietnam has been a major driver of traffic. Another is students travelling to Australia to study. It also helps that Vietjet can feed traffic into Australia not just from Vietnam but also from its routes to India and elsewhere in Asia.
The Australian services were a significant step for Vietjet, as they represented its first foray into long haul widebody flights. The airline has added seven Airbus A330s to its fleet for such flights.
Mr Lingeswara said Vietjet was initially concerned about its move into widebodies, as the A330s have many more seats than the Airbus narrowbodies that it primarily operates. However, the high load factors have vindicated its move.
The airline has also introduced a business class option on its widebodies, allowing it to branch out into more of a hybrid product than its low cost model.
Ground handling, visas and bilateral rights represent challenges for some airlines
While the airlines quoted in this report have all been enjoying strong demand in the Australian market, they have also been confronting some challenges as they restored services.
For example, Mr Lingeswara noted that a shortage of airport ground-handling services is causing headaches as the airline is planning its extra flights. Frosti Lau, Cathay Pacific's regional general manager (designate) for Southwest Pacific, expressed similar concerns about airport ground-handling resources.
Christoph Gaertner, Philippine Airlines' vice president for network planning, said that an extra challenge for Filipino travellers was the difficult process for them to gain tourist visas for Australia. If this process was improved, it would help further stimulate traffic to Australia, he said.
A lack of bilateral access rights has also been a constraint for some airlines. Vietjet's new services have already hit the limit of frequencies to major cities allowed under the Australia-Vietnam bilateral agreement, Mr Lingeswara said. However, he is optimistic that there will be some relief in this regard.
The topic of bilateral rights has been very controversial in Australia recently due to the government's decision to deny Qatar Airways' request for more access rights to the Australian market. This move has attracted criticism from many quarters.
Slow return of other Asia-Pacific markets and cuts by local airlines have helped spur overseas airline activity in Australia
The increased interest in the Australian market - and to a lesser extent the New Zealand market - is caused by strong demand and elevated prices. Australia appears particularly attractive to overseas airlines, while other important markets such as Japan and mainland China are still ramping up.
It also helps that the home airlines are still well down on capacity. Qantas has yet to return its remaining Airbus A380s to service, and Virgin Australia dropped its widebody fleet during its restructuring.
There is no reason to think that demand will ease in the near term, although an increase in overall capacity should put downward pressure on fares.
Australia will remain a key market for many airlines, particularly on routes which have strong inbound as well as outbound flows.