Hong Kong Airlines swaps Qantas for Virgin Atlantic as Australian partner
Hong Kong Airlines in Jan-2012 signed a deal with Qantas allowing Hong Kong Airlines to sell its new all-premium A330 Hong Kong-London flights to Australia with Qantas covering the Hong Kong-Australia sector. Hong Kong Airlines is pitching its all-premium service, which offers business class and premium economy seats, as offering a high quality product at a lower fare level. Not too long after the Hong Kong Airlines-Qantas deal was completed more senior managers at the Australian carrier became fully aware of the contract and realised giving traffic to a competitor was not in its best interest.
Hong Kong Airlines has now done a deal with Virgin Atlantic, which operates between Hong Kong and Sydney. Australia-London tickets offer Hong Kong Airlines segments in either premium economy or business between Hong Kong and London with a Virgin Atlantic economy sector between Hong Kong and Sydney. While the Qantas deal included business class, Virgin Atlantic is not offering its business class or premium economy product, and Virgin Atlantic's flights are only available from Sydney whereas the Qantas agreement also brought Brisbane, Melbourne and Perth destinations online.
- Hong Kong Airlines signed a deal with Qantas to sell its all-premium A330 Hong Kong-London flights to Australia, but Qantas later realized it was not in its best interest to give traffic to a competitor.
- Hong Kong Airlines has now partnered with Virgin Atlantic, offering Australia-London tickets with Hong Kong Airlines segments and Virgin Atlantic economy sectors between Hong Kong and Sydney.
- Qantas will withdraw its Hong Kong-London route and consolidate its London-bound flights through Singapore, but it still has an incentive to sell the route through British Airways, not Hong Kong Airlines.
- Virgin Atlantic performs stronger on the Hong Kong-London sector than the Hong Kong-Sydney sector, making the partnership with Hong Kong Airlines justifiable.
- The risk of Hong Kong Airlines taking Hong Kong-London traffic from Virgin Atlantic is low, as Virgin Atlantic sees enough demand and is constrained by Heathrow slots.
- Hong Kong Airlines' plans to launch Hong Kong-Sydney and Hong Kong-Melbourne flights have been delayed due to traffic rights limitations, but the issue is expected to be resolved in the future.
Qantas later this month will withdraw its Hong Kong-London route as part of network changes announced in Aug-2011 that will consolidate its London-bound flights through Singapore as well as connecting flights with joint service agreement partner British Airways at Bangkok and Sydney. So while Qantas will not be serving Hong Kong-London, it still has an incentive to sell it through British Airways, not Hong Kong Airlines. Or, for Australia-originating traffic, Qantas can route it through Singapore, and hopefully swap a lower-yielding passenger for a higher-yielding one; Qantas' routes to Europe are loss-making.
Virgin Atlantic does and will continue to serve Hong Kong-London. But the Hong Kong Airlines deal is justifiable. Virgin Atlantic performs stronger on the Hong Kong-London sector than the Hong Kong-Sydney sector. It would not hurt from feed on Sydney-Hong Kong and in Aug-2011 announced a codeshare with sister carrier Virgin Australia for the route (Virgin Australia will not codeshare on to London, using instead its partner Etihad Airways - a source of some frustration for Virgin Atlantic).
Hong Kong International Airport to London (seats per week, one-way): 19-Sep-2011 to 26-Aug-2012
Source: CAPA - Centre for Aviation & Innovata
The risk of Hong Kong Airlines taking Hong Kong-London traffic from Virgin Atlantic is low. Virgin sees enough demand that it would like to operate a second daily Hong Kong-London service but is constrained by Heathrow slots. Qantas has excess capacity relative to profitability and so faced a larger risk of Hong Kong Airlines taking London-bound traffic, although overall passenger numbers originating from Australia will be quite small, especially since Hong Kong Airlines has been unsuccessful in obtaining Australia-Hong Kong traffic rights.
Hong Kong Airlines had planned to launch Hong Kong-Sydney flights in early 2012 with Hong Kong-Melbourne following approximately six months later. But Cathay Pacific holds all of Hong Kong's traffic rights and negotiations to expand the bilateral agreement broke down after Hong Kong rejected a request from Australia, on behalf of Qantas, for greater fifth-freedom rights for Australian carriers. The matter is eventually expected to be resolved - possibly this year - which would then facilitate Hong Kong Airlines flights and eliminate the carrier's need to dance around partnerships.
See related articles: Traffic rights limitation forces Hong Kong Airlines to delay Sydney and Melbourne services