31-Aug-2015 5:50 PM

Australia is a key market for Emirates and Etihad, and is the missing link for Qatar Airways

Analysis

Every two hours, an Emirates aircraft - half of them A380s - departs Dubai for Australia. After India, the UK and US, Australia is Emirates' fourth largest market by seat capacity deployment but second largest, after the US, for available seat kilometres.

About one in every 10 seat kilometres flown by Emirates is en route to Australia. Emirates is the largest international airline in Australia after Qantas while its neighbour, Etihad Airways, is eighth largest. Etihad in Australia punches above its weight: globally it is 37% the size of Emirates but has 45% as many seats to Australia as Emirates does.

Qatar Airways is missing out. If its Australian capacity was in proportion to Emirates the way Etihad's is, Qatar would have around 18,000 weekly seats and 50-60 weekly flights, placing it on the heels of Cathay Pacific as the seventh largest airline in Australia. Instead Qatar has only 14 weekly flights, 4,700 seats and is Australia's 18th largest carrier.

Summary

Australia is the fourth largest market for Emirates, after India, the UK, and the US.
Qatar Airways is missing out on the Australian market due to limited air traffic rights.
Qatar Airways is smaller than Emirates and Etihad in Australia, despite being larger globally than Etihad.
Qatar Airways' limited Australian presence affects its global network, particularly in Europe, Africa, and Asia.
Emirates and Etihad have been increasing their non-stop capacity to Australia, while Qatar Airways has been limited to one-stop services.
Sydney Airport is lobbying for Qatar Airways to receive additional traffic rights, but the lobbying has been met with counter-lobbying from Qantas and Virgin Australia.

Qatar has been unable to secure the same generous air traffic rights Emirates and Etihad have. And now that those two partner with Australia's only two main airlines - Qantas and Virgin Australia - there is lobbying to keep restricting Qatar. This has global impacts as Qatar's network is shaped by limited Australian capacity.

Qatar was the last to enter Australia and is smaller than Emirates and Etihad

Australia has been a significant part of Emirates' operation for nearly two decades. Emirates launched services to Australia with three weekly flights to Melbourne in 1996.

Etihad was the second Gulf carrier to enter the Australian market, but over a decade later in 2007. Qatar Airways was the last of the three to enter with a 2009 launch.

(Turkish Airlines, sometimes considered a "fourth Gulf carrier", has not yet launched services to Australia. Turkish has a wider European network than the Gulf carriers, but flying non-stop to Australia from Istanbul cannot be done without payload restrictions, and overall the Turkey-Australia air service agreement is limited, handicapping expansion.)

Emirates, Etihad and Qatar Airways available seats to Australia: 2005-2015

Etihad in 2015 will have about the same number of seats to Australia as Emirates had in 2005. But in 2015 Emirates is more than 2.5 times its size from 2005.

Qatar Airways is even smaller: its 2015 size is about Etihad's 2008/2009 size. Etihad is three times the size of Qatar Airways in Australia despite Qatar globally being one and a quarter times the size of Etihad.

Frequency and equipment for Gulf carriers into Australia and New Zealand: 24-Aug-2015 to 30-Aug-2015

	Emirates	Etihad	Qatar
Auckland	Daily A380 via Brisbane, daily A380 via Sydney	-	-
Adelaide	Daily 777-300ER	-	-
Brisbane	Daily A380, daily 777-300ER via Singapore	Daily 787-9	-
Christchurch	Daily 777-300ER via Sydney	-	-
Melbourne	Daily A380, daily 777-300ER via Kuala Lumpur, daily 777-300ER via Singapore	2x daily 777-300ER	Daily 777-300ER
Perth	Daily A380, 2x weekly 777-200LR, 5x weekly 777-300ER	Daily A330-200	Daily 777-300ER
Sydney	2x daily A380, daily 777-300ER via Bangkok	Daily A380, 4x weekly 777-300ER	-

Qatar is unable to use its Australian online points as gateways for the rest of the country. Its Melbourne service arrive at 21:25, too late to connect to domestic points. Its Perth service arrive at 18:15. This could allow limited intra-Western Australia connections or long layovers until red-eyes to east coast Australian cities are available. But Qantas appears unwilling to give Qatar codeshare access although both are in oneworld; the two do not partner.

Qatar also does not have any codeshares with Qantas or other airlines in the Southeast Asia-Australia market, limiting its offline options. Qatar currently only codeshares with Cathay Pacific to Australia, providing one-stop connections from Doha to Adelaide, Cairns and Sydney. This gives Qatar a two-stop product from Europe to three Australian cities with relatively long and uncompetitive journey times.

Surprisingly Qatar does not yet codeshare with BA on Singapore-Sydney, which would provide a faster option to Australia's largest market. Its codeshare with Malaysia Airlines (MAS) also does not yet include flights from Kuala Lumpur to any of the five Australian cities served by MAS.

Emirates also has large share of Australia-New Zealand market

Emirates is the only Gulf carrier to fly beyond Australia, availing of services to New Zealand. Emirates' trans-Tasman network includes A380 deployment, and Emirates is the third-largest carrier in the Australia-New Zealand market after Air New Zealand and Qantas.

Air New Zealand is the leader with about a 33% share of seat capacity followed by Qantas with 18% and Emirates with 15%. Virgin Australia (which has a trans-Tasman JV with Air NZ) has about a 14% share. Jetstar, owned by Qantas, has a 12% share.

Emirates and Qantas are required to offer a minimum amount of trans-Tasman capacity as part of the approval conditions for their alliance. Future Qantas decreases would need to be met with increases from Emirates, potentially meaning Emirates could have more trans-Tasman capacity on a fifth freedom basis than Qantas does on a third and fourth freedom basis.

Australia to New Zealand capacity by carrier (seats per week, one way): 19-Sep-2011 to 14-Feb-2016

Qatar's limited Australian presence shapes its global network

With the vast majority of their traffic connecting, Gulf carriers see their global network impacted from specific markets. Changes or restrictions in key markets can be felt throughout the system.

Broadly, Qatar's limited Australian network impacts its European market since most Australian traffic connects onwards to Europe. Having limited Australian feed may restrict the development of European flights. Since European flights also significantly feed into Africa and Asia, those markets are also impacted.

To consider possible impacts from Qatar's limited Australian network, we greatly simplify the networks of the Gulf carriers. The graph below shows for Emirates, Etihad and Qatar their core "east" (Asia, including the Indian sub-continent, and Australia) and "west" (Europe and North America) markets. The east and west markets feed into each other and traffic between these regions is a broad representation of the Gulf carriers. This of course excludes point-to-point traffic, the Middle East, Gulf carriers' not insignificant African operation, and the smaller regions of Latin America and the CIS.

The graph below shows the number of one-way seats to eastern markets (in red, green and blue for the Far East, Australia and South Asia) and western markets (in black and gray for North America and Europe). For each carrier, the number of seats per direction is approximately the same.

One notable exception is Etihad's western markets, where there is perhaps an under-exposure to Europe. This could be partially alleviated when taking into account Etihad's extensive codeshare network that sees European partners fly into Etihad's Abu Dhabi hub, thus giving Etihad capacity to sell. Alternatively there could be other explanations, such as strong feed from Africa and the Middle East, which is not considered in these simplified graphs.

Emirates, Etihad and Qatar one-way seat capacity by direction: 24-Aug-2015 to 30-Aug-2015

Qatar's eastward seats are approximately the same as its westwards seats despite its under-representation in Australia (the small sliver of green on the graph above). As the Gulf carriers are different sizes, to better focus the numbers we use the same data as above but express it in the graph below in terms of each data set equalling 100%.

Emirates, Etihad and Qatar one-way seat capacity by direction (scaled to 100%): 24-Aug-2015 to 30-Aug-2015

Emirates and Etihad have almost identical proportions of eastward traffic. Qatar, however, to compensate for a smaller Australian network places more emphasis on the Far East (Northeast and Southeast Asia). This market is about 55% of its eastwards capacity whereas for Emirates and Etihad it is around 40%. This places some risk on Qatar in terms of general competition and saturation, but also if there was ever a regional issue in the Far East Qatar could feel it more. Qatar is also slightly under-represented in South Asia - which could change with an IndiGo stake.

There is less consistency with the Gulf carriers' westward markets. North America ranges from 15-25% with Europe holding the balance.

Etihad has the highest proportion of westward capacity in North America. And looking back at the first graph in this series, it has more net capacity to North America than Qatar.

Etihad had an early build-up in North America; perhaps like in Australia it realised the opportunity and saw there would be large competition. More recently Etihad's North American growth has been helped by its investment in India's Jet Airways. Jet flies from numerous Indian cities to Etihad's Abu Dhabi hub, allowing Etihad to link North America with codeshares on Jet Airways. This is similar to Etihad selling partner capacity from Abu Dhabi to Europe.

One possible conclusion is that Emirates and Etihad are relying more on long-haul to long-haul connections whereas Qatar sees more medium- and even short-haul connections. Long-haul to long-haul delivers cost and scale advantages.

Another conclusion could be that Qatar is over-exposed in both the Far East and Europe. Proportionally it has more capacity to both Europe and the Far East than Emirates and Etihad. Although not ideal, an alternative outcome may not have been strategically possible. With growth from its immediate competitors and other airlines - and the growing threat of protectionism - Qatar wanted to stake a place in markets before it would be too late.

Qatar also faces limitations in India

Qatar is surely stretched in its South Asian markets, and in particular India. The Gulf carriers could have multiples of their existing Indian capacity if allowed.

Qatar may be flowing more Indian traffic to Europe than it would like. Flowing it to North America would generate higher trip revenue and facilitate over-due expansion in North America. Doing this however would make Qatar's European market heavily reliant, and perhaps too reliant, on the Far East (Northeast and Southeast Asia).

Qatar, unlike Emirates and Etihad, does not have a sizeable Australian operation to link with Europe. Qatar plans to build-up North America in 2016, so how it manages traffic flows without a step-change in Indian capacity will be interesting to watch. Neither Australia nor India seem forthcoming on additional traffic rights. Any gains would likely be incremental instead of momentous, which is what Qatar needs.

Qatar is now trying to diversify its Asian network, particularly in Southeast Asia, by building up connections to North America. Connections over the Gulf between Southeast Asia and the eastern part of North America can be efficient.

A further boost for Qatar in the Southeast Asia-North America is that Qatar serves smaller eastern US points (such as Philadelphia and Miami) that do not have non-stop service from Asian hubs. Qatar allows one-stop service to those points (and from 2016, Atlanta too) whereas other itineraries would involve two stops, one in a North Asian hub and another in a North American hub. Qatar's recent additional Singapore flight was designed to facilitate Singapore-North America connections. Qatar has also been adding frequencies in other Southeast Asian destinations, facilitating quicker connections to North America.

Further Australian capacity would allow Qatar to make its European services less reliant on Asian connections. Australian capacity growth could also see new European destinations or frequencies that would help connect with existing Asian capacity, increasing the markets that can be connected to from Asia. There are then follow-on impacts to Qatar's other global markets.

Emirates and Etihad are moving towards more non-stop capacity

In measuring Emirates and Etihad's Australian seat capacity there is some distortion due to Australian flights operated via Southeast Asia. These flights have local pick-up rights, meaning some passengers on the flights are not passing through the Gulf carriers' hubs. This reduces the need for that point-to-point Australia-Southeast Asia demand to be "linked" with onwards capacity beyond a Gulf hub.

Emirates operates one-stop service to Brisbane via Singapore; Melbourne via Kuala Lumpur and Singapore; and Sydney via Bangkok. Emirates' Singapore-Melbourne service will even be upgraded to an A380 in Mar-2016. This will be Emirates' first one-stop A380 service to Australia; other flights are operated by 777s. (With this change, over half of Emirates' Australian flights will be on the A380.)

Etihad had operated a single fifth freedom service via Singapore to Brisbane, but this has been discontinued with Etihad's recent introduction of non-stop Abu Dhabi-Brisbane service. Etihad now operates an entirely non-stop Abu Dhabi-Australia network, as Qatar Airways has done since its launch. Non-stop seats have comprised around 80-90% of Etihad's Australian network, and from mid-2015 onwards is 100%.

Etihad Airways Australian seat capacity by non-stop versus one-stop service: 2007-2015

One-stop capacity is prevalent - and growing - for Emirates. In 2005, Emirates offered about 365,000 seats to Australia via Southeast Asia and in 2015 will offer about 515,000.

The jump mostly occurred around 2009/2010. This is before the 2012 Qantas-Emirates partnership, but the partnership has helped Emirates as Qantas codeshares on Emirates' Southeast Asia-Australia services. Singapore is Emirates' largest point in Southeast Asia for onward service to Australia, and in Singapore Emirates is now tapping into the network of locally-based Jetstar Asia, part of Qantas' Jetstar Group.

While one-stop capacity to Australia has grown, non-stop capacity has grown at a faster clip. In 2005, only 44% of Emirates' Australian capacity was non-stop. In 2015 70% of Emirates' Australian capacity is non-stop.

Emirates Australian seat capacity by non-stop versus one-stop service: 2005-2015

Sydney airport lobbying for Qatar Airways to receive additional traffic rights

Although it is Australia's largest city and the biggest for aviation, Sydney Airport does not have to be first point in Australia for foreign airlines. After all, Emirates' first Australian point was Melbourne while Etihad's was Brisbane. But Qatar Airways' continued absence from Sydney is unusual.

As CAPA previously explored, Qatar's Doha hub is structured differently from Emirates' Dubai and Etihad's Abu Dhabi hub. This, along with Sydney airport's curfew, makes it exceptionally challenging for Qatar to serve Sydney on a commercial basis that provides onward connections from Doha.

For a comparison, Qatar's Melbourne service departs Melbourne at 22:55. This is after the Sydney curfew, and Sydney is further from Doha than Melbourne is. Using the Melbourne service as a template, bringing the time forwards is restricted based on when the aircraft must depart Doha. Ground time in Melbourne is only 90 minutes, and any scheduling would need to ensure padding in the event a delay brushes up against the Sydney curfew.

Qatar Airways is fully utilising its Australian capacity and cannot add frequencies to existing points or launch new Australian cities (this excludes secondary Australian cities that are not capped under the bilateral but are probably not viable). Non-stop New Zealand service is not possible.

Sydney airport is lobbying the Australian government for Qatar to be granted additional traffic rights. Sydney Airport earlier in Dec-2014 said a Doha-Sydney service could add up to 237,000 annual seats to Sydney, generating an increase of AUD240 million (USD171 million) in Australian GDP.

Sydney Airport calculated 82% of Etihad's Australian passengers and 75% of Emirates' Australian passengers connect beyond their respective hubs of Abu Dhabi and Dubai. Sydney sought to deflect that Qatar would take marketshare by saying "Qatar Airways does not cannibalise but rather expands the existing available international one-stop network from Australia by establishing links to destinations not served via the Middle East".

The airport cited 17 beyond points from Doha not served by Emirates or Etihad as of Dec-2014, including Berlin, Oslo, Edinburgh and Ankara. Sydney further noted that when excluding markets with extreme backtracking, only four of Qatar Airways' markets are served by Australian carriers: Abu Dhabi by Virgin, and Dubai, London and Johannesburg from Qantas. (Given limited options in the Australia-South Africa market, Sydney Airport does not consider Australia-Gulf-Johannesburg routings unusual.)

Sydney's lobbying has fallen on deaf ears. Even if traffic rights were made available, Qatar would still face a scheduling dilemma. But without traffic rights there appears limited reason to adjust schedules.

Outlook: Qatar's lack of an Australian partner makes access difficult

Lobbying for Qatar Airways has been met with counter-lobbying from Qantas and its partner Emirates, and Virgin Australia and its partner Etihad. None have any interest in seeing Qatar expand in Australia, and they appear successful in their efforts.

It is unlikely Qatar will receive the traffic rights to give it a presence proportional to Etihad's. Such a scale may not be commercially feasible in the medium-term. The comparison with Etihad may not be valid as some might argue Etihad's Australian network is too ambitious.

Qatar Airways was disadvantaged by its late entry and limited initial traffic rights compared to what Emirates and Etihad have been able to secure. But Qatar is further challenged by not having a local Australian partner. In no other market is Qatar's lack of a partnership such a large issue.

In the UK Qatar benefits from traffic right access as well as a local friend, British Airways. In the US Qatar has an open skies agreement and has been able to work with fellow oneworld carrier American Airlines despite American's partnership with Etihad pre-dating Qatar's oneworld ascension.

Qantas is different as it has skin in the game by flying to Dubai; American does not serve the Gulf. Qatar Airways also receives beyond US gateway help through a partnership with the independent JetBlue.

There is no other major carrier in Australia not affiliated with Qantas or Virgin. Even if or when Qatar receives additional traffic rights, the lack of a local partner will hinder beyond gateway traffic, although this is perhaps less important in Australia, where the population is clustered around a handful of cities. Qatar does not codeshare on Qantas services from Melbourne and Perth, its two online ports, and Qantas does not codeshare on Qatar's Australian routes.

Canada and China are major aeropolitical challenges for Gulf carriers, but equally so for all three of the Gulf carriers. Etihad's limited Air Canada partnership has not seen Etihad gain additional Canadian traffic rights. India is also a challenge, and Etihad's stake in Jet Airways occurred as Etihad gained additional Indian traffic rights. Qatar could be looking to replicate that with a possible stake in IndiGo.

Although the three Gulf carriers - Emirates, Etihad and Qatar - are often thought of as a collective bunch, between them they have nuances, some not so subtle. Australia will likely remain a sharp difference: Etihad is larger than its global size may suggest while Qatar Airways is significantly smaller. This impacts Qatar's beyond markets, forcing compensation elsewhere in the world to balance its hub.

As the three Gulf carriers fight protectionism battles globally, Australia is one example of an internal debate with Emirates and Etihad pushing against Qatar's inroads. Australia delivers a lesson, perhaps in the extreme, of the value of partnerships. It cannot hurt to have friends.