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In focus

1 May 2010 by Alex McWhirter

Alex McWhirter examines topical business travel issues

Can BA survive the kangaroo route? That is the question being asked now that British Airways’ Australian schedule has been cut at certain times to as little as a single daily flight to Sydney.

The sparseness contrasts with 22 years ago, when BA was a leading carrier on the route. At that time it served no fewer than seven cities in Australia and New Zealand from London. An announcement in a 1988 BA timetable proclaimed: “We’re on top Down Under. With our direct daily service from London to Sydney plus flights to Brisbane, Adelaide, Melbourne, Perth, Auckland and Christchurch, no one offers such a choice of destinations. Or a better way of getting there.”

Today, BA is a minnow Down Under, and such a claim would ring true only if made by the likes of Singapore Airlines or Emirates. BA has cut back over the years because of fiercer competition from dozens of indirect carriers. That fact, combined with cheap premium fares and high operating costs, means it is almost impossible for a European-based carrier to earn money flying to the other side of the world.

Indirect airlines, whether based in Asia or the Gulf, have exploited the kangaroo route for years. They provide convenient links between Europe and Australasia via their home bases. But in recent years it is the Middle East airlines that have stepped up the pressure. Consider that Emirates barely flew outside the Gulf in 1988, yet today it mounts a staggering 70 flights a week between Dubai and Australia. Contrast that with BA’s 14 flights from London. More recently, other Gulf carriers have joined the fray, such as Etihad (28 weekly flights from Abu Dhabi) and Qatar Airways (seven flights from Doha).

The intense competition has driven down fares, which is good for the consumer but not so good for the likes of BA because of the high operating costs it must face. Consider that London-Sydney is three times the distance of London-New York, yet the cost of a premium fare ticket is roughly the same to either city.
Look at aircraft utilisation. A British Airways jumbo leaving Heathrow on Sunday night for Sydney will not return to base until Wednesday morning. Were that plane plying London-New York, it could make three round trips in that time and earn three times the revenue.

Also, consider crew costs. BA needs several sets of staff to operate such a long flight. “It’s a complex operation, and when there are delays it’s difficult to put [the schedule] back together,” a spokesman says.

So how do the indirect carriers thrive? Unlike BA and its Australian counterpart, Qantas, they can mix and match their planes and destinations to make the most of their fleet.

For example, when you fly London-Sydney with Cathay Pacific you take a B747 for the first sector to Hong Kong, then switch to a smaller A330 for the final leg down to Sydney. Once that B747 arrives in Hong Kong, it might be switched to a regional flight or sent back to London.

Or how about one of Singapore Airlines’ A380s? Invariably, the same superjumbo operates right through from London to Sydney. Once there, it spends a couple of hours on the ground before returning to Singapore for another spell of duty. But once a BA flight reaches Sydney in the early morning, it is marooned on the tarmac for ten hours, because an earlier departure would run up against the Heathrow airport curfew.

The indirect carriers have another advantage – they can combine cities at each end of the route. SIA can carry passengers from Copenhagen or Manchester to Perth, Brisbane, Sydney and so on via Singapore. Emirates can go from Newcastle or Dusseldorf to all these points via Dubai.

BA and Qantas compete through their JSA (joint services agreement), which provides cost advantages as they market one another’s flights. The JSA has been in operation for 15 years, and in February it was extended for a further five. It is telling that, according to Melbourne newspaper The Age, in its submission to the local competition authority Qantas argued the JSA should be extended because “Middle East carriers will capture almost 50 per cent of the profitable business travel market by 2012”. But the carriers also share hubs in Singapore and Bangkok, and compete by offering network connections with one another in the two Asian cities.

One might think the Australian government would wish to protect Qantas by restricting competition. But Australia is the world’s most isolated continent, and it needs more and better air links – more than those that Qantas alone could operate – to prosper.

BA says it is committed to Australia and with the new JSA it would seem its flights are safe for the time being. But the pace of aviation is so fast that who knows what the situation will be like in five or ten years’ time?

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