Airlines hope US routes will rebound after heavy losses

2 Jan


While the arrival of Virgin’s offshoot V Australia and Delta Air Lines on the route in 2009 ushered in a period of super-cheap fares, it turned what had once been a highly profitable business for the two incumbents, Qantas and United Airlines, into a substantial loss-maker.


However, anecdotal evidence from Flight Centre shows that fares to Los Angeles and New York have become more expensive in the past year. In December, return economy tickets to Los Angeles went up by about 20 per cent to $1150 compared with a year ago. Return tickets to New York rose by about 10 per cent to $1360.

Despite a rise in fares, the latest government figures show consumers are still eager to fly between Australia and the US. Qantas’s seat utilisation on the route in September 2011 averaged 91 per cent; Virgin’s 90 per cent; Delta’s 92 per cent and United’s 87 per cent.

While Qantas is bleeding money on flights to Europe, the trans-Pacific route has become its best international performer and has been breaking even.

In contrast, Qantas has dubbed routes to Europe, China and south-east Asia as ”structurally challenged” because of intense competition from Middle Eastern and Asian airlines that have lower operating costs.


This has sparked speculation that Qantas might increase capacity on the trans-Pacific route while scaling back further on flights to Europe.

CBA Equities’ aviation analyst, Matt Crowe, said he would be surprised if Qantas boosted capacity on the trans-Pacific route, given the broader economic conditions.

”It looks like there is a fair bit of capacity already [on the route],” Mr Crowe said.


A Qantas spokesman said it was closely watching developments in Europe but no decisions had been made about changes to capacity on its international network.


Qantas operates A380 superjumbos on the Los Angeles route – helping to boost its appeal to passengers – while its Boeing 747-400 jumbo jets fly to Dallas. The latter replaced San Francisco as a destination for Qantas in May, partly because it is the main hub for its alliance partner, American Airlines.


To ease its exposure to Europe, Qantas will reduce flights on the so-called kangaroo route from five a day to three from April. The flights it drops from Hong Kong and Bangkok to London will be filled by Qantas’s joint-venture partner on the route, British Airways.




Virgin Australia is also bedding down its alliance on the US route with Delta after US regulators reversed earlier opposition to give it anti-trust immunity in May. After incurring losses earlier, Virgin turned a profit on the route last financial year.


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