End of line carriers increasingly relying on partners to serve China


Air New Zealand's decision to end Auckland-Beijing services in favour of a one-stop service on its Shanghai flight with onward connections by partner Air China is the latest example of the difficulties 'end of line carriers' in Australia and New Zealand are having serving China, which is a top trading partner for both.

Ending services to Beijing is not a light decision given how coveted Beijing slots are, but Air New Zealand's move is not unprecedented. Qantas in 2009 made the exact same move, ending Beijing service in favour of a one-stop partner connection. Qantas also bolstered its Shanghai schedule, which Air New Zealand is doing too with progressive daily service.

  • Air New Zealand is ending its Auckland-Beijing services and opting for a one-stop service on its Shanghai flight with onward connections by partner Air China.
  • Qantas made a similar move in 2009, ending Beijing service in favor of a one-stop partner connection and increasing its Shanghai schedule.
  • Air New Zealand will drop its twice-weekly Auckland-Beijing service but add a fifth weekly frequency on Auckland-Shanghai, with plans to make it a daily offering within a year.
  • Virgin Australia has no immediate plans to enter the Chinese market due to intense competition and the fragmented nature of the market.
  • Qantas attempted an Asian hub strategy with a premium carrier in Southeast Asia, but discussions ended earlier this month.
  • Jetstar, a subsidiary of Qantas, is already present in China and is expected to add new destinations and potentially increase the frequency of its Singapore-Beijing service.

ANZ from 30-Jun-2012 will drop twice weekly Auckland-Beijing service while adding a fifth weekly frequency on Auckland-Shanghai from 04-Jul-2012 with intentions to bring the service to a daily offering within a year. ANZ will codeshare on Air China services between Shanghai and Beijing, allowing ANZ to maintain a virtual presence in China's capital city. ANZ as part of its long-haul route restructure is placing greater reliance on partners, and recently switched its Japanese codeshare partner from JAL to fellow Star Alliance carrier ANA.

See related article: Air New Zealand hones in on long-haul restructure as first half profit falls

For historical comparison, Qantas in 2009 ended thrice weekly Sydney-Beijing service while increasing Sydney-Shanghai from five times weekly to daily. Qantas also ended twice-weekly Melbourne-Shanghai services. Qantas maintains full-service carrier presence in Beijing via codeshares with China Eastern out of Shanghai and interlines out of Hong Kong with Cathay Pacific and its subsidiary Dragonair. Qantas had a net reduction of three weekly services while ANZ will see an initial reduction of one weekly frequency, but within a year will have overall growth in the market.

Long-haul newcomer Virgin Australia has no plans to enter the Chinese market in the near future. Competition is intense from mainland carriers with significantly lower cost bases and the market is fragmented, with no single city commanding the majority of traffic. Access to multiple points in China and India too is critical, and Virgin plans to rely on strategic partner SIA, which with subsidiary SilkAir serves 10 mainland destinations from its Singapore hub.

"Most of the traffic to both China and India is not monodestinational. It's multiple, usually. Fly into Delhi and come out of Mumbai. If you just service one point in those countries, you're going to get imbalances on your directional flows. So unless you're prepared to operate to a number of ports it's best not to do it," Virgin Australia CEO John Borghetti previously told CAPA. "The best way to serve [China and India] is via a mid-point. Singapore is in a perfect position."

Qantas attempted a similar Asian hub strategy with the plan it announced in Aug-2011 to establish a premium carrier in Southeast Asia. That strategy shifted to be a lower capital-intensive joint-venture with Malaysia Airlines, but discussions ended earlier this month, although future endeavours are likely.

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Qantas this week was in the news for its plan to make a move on the mainland market via a new Jetstar subsidiary in Hong Kong, with some perceiving the carrier as a rebound for Qantas' Asian strategy after the premium carrier faltered. But Jetstar Hong Kong is part of a different strategy in the Qantas Group: spreading the Jetstar low-cost model across Asia. The premium carrier would have targeted the full-service market sector. Jetstar Hong Kong would have eventuated even if the premium carrier was realised - high-level planning for Jetstar Hong Kong had been occurring before the premium carrier ran into trouble - and the two would have been complementary as part of the Qantas Group's dual brand strategy.

See related article: Qantas expands Asian strategy with Jetstar Hong Kong venture with China Eastern

Jetstar, and its Singapore-based Jetstar Asia subsidiary, are already present in China, with additional growth likely. New destinations are expected to be added while there is potential for the daily Singapore-Beijing service to become double daily. Scoot earlier this week announce it would launch four-weekly services to Beijing alternative Tianjin, which AirAsia X serves from Kuala Lumpur with five-weekly services.

While Jetstar's Beijing service does offer connections from Australia, they are ill-timed and involve length layovers. But this underscores how the route is more about intra-Asia traffic than linking China with Australia. For Australia-China services, Qantas had been banking on the lower operating cost of the 787 as it "opens up that range of routes that we wouldn't see to be economical today" Qantas CEO Alan Joyce has previously remarked.

Its Shanghai flights are strategic, with Qantas waiting on the future to offer better opportunities. Air New Zealand takes the same view, with GM international airline Christopher Luxon saying, "We're confident of the potential for long term growth from one of China's most modern and populous cities."

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