Tokyo withdrawal will end Virgin Australia’s brief return to long haul arena
Virgin Australia's decision to halt its Tokyo route underlines the continued weakness of Japanese demand, and further cuts back its already limited international network.
The Australian airline intends to discontinue the flight between Cairns and Tokyo Haneda Airport from 24-Feb-2025, citing the slow recovery of the Japanese outbound travel market. This trend has also affected airlines based in Japan and elsewhere.
The Haneda route is Virgin Australia's longest flight, and Tokyo is one of just six international destinations served by the airline.
So although it is only one route, it is relatively significant in the Virgin Australia network. The airline is operating far fewer international flights than before the COVID pandemic, almost all of which are short haul.
In many ways the route was a hold-over from Virgin Australia's pre-pandemic iteration, when it had a greater focus on international services.
The airline has been operating the Tokyo flights with narrowbody aircraft, and likely wanted to retain the coveted Haneda slot for strategic reasons.
Making Cairns-Tokyo work would probably be challenging, even absent the current demand slump. The fact that Virgin Australia is cancelling the route in Feb-2025 indicates that it does not envisage a dramatic return of Japanese demand any time soon.
It also reflects Virgin Australia's continued lack of appetite to return to operating widebody aircraft that would be better suited to the Australia-Japan market.
- Virgin Australia will cut its Tokyo Haneda route from Feb-2025, but will offer codeshare service via All Nippon Airways.
- Japanese visitors to Australia were at 66.3% of pre-pandemic levels in May-2024.
- Qantas and Jetstar are the leaders in Australia-Japan market, with approximately 35% of seats each.
- Virgin Australia has the lowest share of the five participants, with just over 5% of seats.
- The airline is operating just 42.6% of the international weekly seats it had in 2019.
Narrowbody flights from Cairns were not Virgin Australia's first choice for its Haneda slots
Australia's International Air Services Commission (IASC) first granted Virgin Australia the rights for a Tokyo Haneda service in 2019.
Initially the airline intended this to be a route between Brisbane and Haneda using Airbus A330 widebodies, beginning in Mar-2020.
However, the onset of the COVID-19 pandemic changed the equation dramatically. Virgin Australia went through a bankruptcy restructuring that resulted in it cutting all of its widebodies and its long haul routes.
The airline has gradually restored some short haul international routes to markets such as Queenstown in New Zealand, Bali, and some South Pacific island destinations.
Virgin Australia was also able to retain the Haneda slot. It was allowed to change the route's Australian origin to Cairns, allowing it initially to use a Boeing 737-700, then a 737 MAX when deliveries of those aircraft began.
The route was finally launched in Jun-2023, and Virgin Australia was granted a five-year renewal by the IASC in Feb-2024.
It is likely that one of the reasons for using narrowbodies for the Haneda service was to retain the highly sought-after slot for possible future use.
There is still enough time before the planned route suspension for Virgin Australia to think about trying to obtain another change to its approval and secure widebodies to fly to Haneda from one of the larger Australian cities.
However, if - as appears more likely - Virgin Australia drops its Haneda rights, then Qantas would probably apply to take up the slots.
Virgin Australia has the smallest share in a subdued Japan-Australia market
Virgin Australia stated that the slow recovery in leisure travel from Japan was a major reason behind cutting the Cairns-Haneda route.
The airline estimates that inbound demand from Japan to Australia is 35% lower than pre-pandemic levels. This means passenger numbers on the route are "significantly below forecast" and the flights are "no longer commercially viable," Virgin Australia said.
Virgin Australia noted that the depreciation of the Japanese yen against the Australian dollar had played a larger part in the slow demand rebound, with the value of the yen now about 40% lower than in 2019.
The chart below illustrates the weak recovery of Japanese tourists to Australia.
For the month of May-2024, Japanese visitors to Australia were at 66.3% of 2019 levels - essentially corresponding to the number cited by Virgin Australia.
The top line on the chart represents 2019, with 2024 in blue, and 2023 the bright red line below that. The comparisons versus 2019 were much narrower in the first three months of 2024, and every month in 2024 has been above 2023 numbers.
However, the fact remains that there has been a consistent recovery gap in this market.
Australian monthly visitor numbers from Japan, depicting 2019, 2022, 2023 and 2024
Despite the lower visitor numbers, overall seat capacity between Australia and Japan is actually higher than pre-pandemic levels.
For the week of 22-Jul-2024, there were 26% more seats in this market than in the same week in 2019 - this reflects the fact that demand originating in Australia is higher than in the other direction.
The chart below shows that Qantas and Jetstar are the current leaders in this market, as each have approximately a 35% share of seat capacity for the week of 22-Jul-2024.
Next are All Nippon Airways (ANA) with 14.9%, and Japan Airlines (JAL) with 9.9%.
Virgin Australia has the lowest share, with 5.2%.
Capacity between Australia and Japan by airline, as measured in weekly seats, 2019 to 2024
Virgin Australia is the only airline flying between Cairns and Tokyo Haneda. However, Jetstar offers flights between Cairns and Tokyo Narita airport.
Virgin Australia is operating less than half its pre-pandemic international seat capacity
The loss of the Tokyo route will further diminish Virgin Australia's international network.
The airline has five other international destinations - Queenstown, Bali, Nadi (Fiji), Apia (Samoa), and Port Vila (Vanuatu).
In 2019 Virgin Australia also had long haul routes to Los Angeles and Hong Kong. Its New Zealand network was far more extensive, and it offered other short haul international routes.
The chart below illustrates the changes in Virgin Australia's international seat capacity since 2019.
For the week of 22-Jul-2024, Virgin Australia was operating just 42.6% of the international weekly seats compared to the same week in 2019. Aside from seasonal fluctuations, the airline's international capacity has largely tracked at a similar level through most of 2023 and 2024.
Virgin Australia: international capacity, as measured in weekly seats, 2019-2024
Virgin Australia has made no secret of its intention to focus on the lucrative domestic market since its restructuring, only resuming some international routes that it can operate with narrowbodies.
While it has not completely ruled out adding widebodies in the future, such a step appears unlikely in the medium term. More clarity may emerge when the current owner Bain Capital secures new investors for Virgin Australia, or completes an IPO.
At least for now, Virgin Australia will rely on its airline strategic partners for most of its international access.
For example, Virgin Australia noted that it will still be able to offer service to Japan via its codeshare with All Nippon Airways (ANA), which flies up to 17 times per week to Australia.
Virgin Australia said the end of the Cairns-Tokyo service will allow it to redeploy the 737-8 capacity used on that route to its domestic network.
The airline currently has seven 737-8s, and is due to add another in Aug-2024. It also has 84 737NGs in its fleet, according to the CAPA - Centre for Aviation Fleet Database.
Stepping out of the Japanese long haul market is a sensible move for Virgin Australia
It is easy to understand why Virgin Australia was loath to relinquish its Haneda slots - after all, slots at that airport are highly valued and difficult to obtain.
However, dropping the route is now the right move, particularly if there is no intention to re-establish a widebody fleet in the near future.
The single narrowbody long haul route is something of an anomaly in the Virgin Australia network, which otherwise primarily consists of short haul routes. Virgin Australia is better to rely on its partner All Nippon Airways (ANA) to serve the Japanese market with aircraft better suited to such flights.
Japanese demand recovery is another issue. Leisure travel seems certain to eventually return to pre-pandemic levels, but it is taking longer than expected, thanks to broader economic factors.
The continuing uncertainty over the Japanese rebound no doubt helped nudge Virgin Australia towards axing the Cairns-Tokyo route.