Bloomberg News

Qantas Sees Asia Demand Filling Extra Singapore Capacity

April 11, 2013

Qantas Sees Demand Filling Extra Singapore Seats

A Qantas Airways Ltd. airplane takes off from the domestic terminal of Sydney Airport in Sydney. Qantas is discounting flights to Asia to lure more passengers on routes to Singapore. Photographer: Ian Waldie/Bloomberg

Qantas Airways Ltd. (QAN), Australia’s largest carrier, said it’s managing to fill a surge in capacity to Singapore from its tie-up with Emirates as economic growth encourages travel demand in Asia.

The airline, which increased seats to Singapore by 40 percent from the alliance, is seeing forward bookings over the next few months “growing into that capacity quite quickly,” said Simon Hickey, chief executive officer of the Sydney-based carrier’s international unit.

“We’re quite confident about our position here in Singapore,” Hickey said in a Bloomberg Television interview with Haslinda Amin yesterday in the city state. “It’s a key gateway for Asia where we see a lot of Australian traffic coming to Singapore and then going across Asia.”

Qantas’ alliance with Emirates (EMIRATES), which started March 31, gives travelers between Australia and Europe the option of flying through Dubai instead of Singapore, the traditional gateway for the so-called kangaroo route. The carrier has rescheduled Asian flights to appeal to business-class travelers as the Emirates tie-in allows it to reduce unprofitable routes to Europe.

“It’s a focus on the Asian side,” said K. Ajith, an analyst at UOB Kay Hian Holdings Ltd. in Singapore. “ There’s a lot of millionaires in this region and travel demand is growing faster here than anywhere else, so it makes sense to have a commitment in an Asian hub.”

Qantas opened a “multimillion-dollar” lounge in Terminal 1 of Singapore’s Changi Airport yesterday, Hickey said. It can seat 460 travelers and has 20 shower stalls, the airline said.

Luring Passengers

Qantas fell 0.4 percent to A$1.7825 as of 12:52 p.m in Sydney trading. The stock has advanced 20 percent this year, compared with a 7.7 percent gain in Australia’s benchmark S&P/ASX 200 Index.

Qantas is discounting flights to Asia to lure more passengers on routes to Singapore.

Last month, Hickey said the carrier had “still got a lot of capacity to fill” on aircraft flying to and from Asia.

Airbus SAS expects airlines in Asia Pacific to buy 9,870 aircraft worth $1.6 trillion in the next two decades, fueled by travel growth in the region, Chief Operating Officer John Leahy said Feb. 25.

The Asia-Pacific region will lead demand for new aircraft as economic growth helps boost the size of the middle class by almost five times in 20 years, Leahy said in February.

Asian Market

The region will account for 33 percent of global passengers in 2016, according to the International Air Transport Association. Budget carriers’ market share in the Asia-Pacific region rose to 24 percent last year from 1.1 percent in 2001, according to the CAPA Centre for Aviation, an industry consultancy.

Travel within Asia Pacific overtook intra-North America as the world’s biggest aviation market in 2009, according to IATA. The region’s passenger growth, both domestic and international, is expected to add about 380 million travelers between 2012 and 2016 to 1.2 billion, IATA forecast in December.

Qantas said March 31 that Europe bookings rose sixfold as the alliance reduces the average travel time by more than two hours from Melbourne and Sydney to the top 10 destinations in Europe.

On the new network, passengers will be able to fly to 65 international destinations with one stop in Dubai, compared with the five one-stop destinations in Europe under Qantas’s previous alliance with International Consolidated Airlines Group SA (IAG)’s British Airways unit.

Market Share

The Australian carrier sought the tie-up after losing market share on international routes to Middle East and Asian rivals offering a wider range of connections and more convenient flight times.

Qantas Chief Executive Officer Alan Joyce pledged to return the carrier’s international business to profit after the company reported its first annual loss last year since at least 1993, according to data compiled by Bloomberg.

The tie-up is probably worth about A$90 million ($95 million) a year before tax to Qantas, as it fills more seats on combined flights to Europe, New Zealand and Southeast Asia, and drops the unprofitable Frankfurt service, Andrew Gibson, an analyst at Goldman Sachs Inc., wrote in a note on Feb. 22.

Qantas narrowed its loss on overseas routes in the first half to A$91 million from A$262 million a year earlier, after dropping unprofitable flights and retiring older planes, it said Feb. 21. The airline aims to break even on international routes by 2015, Joyce said Sept. 9.

“That is our target and still our target and we’re working diligently towards that,” Hickey said. The Emirates alliance and added capacity into Asia “are coming together to help our financial situation,” he said.

To contact the reporters on this story: Kyunghee Park in Hong Kong at kpark3@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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