Modest growth in international flights to Australia, while domestic capacity appears to have stabilised in June 2015

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1 This newsletter is produced on a monthly basis and reports the latest route developments as well as updates on alliances, code shares, consolidation, pricing, new carriers, aircraft orders, airports and Air Service Agreements. Articles are sourced from CAPA - Centre for Aviation. Modest growth in international flights to Australia, while domestic capacity appears to have stabilised in June 2015 International capacity to Australia grew marginally by one per cent in June Capacity from the United States of America (USA) recorded the strongest growth in June, while Malaysia recorded the largest declines. Capacity out of Malaysia is expected to see declines in the subsequent months with Malaysian Airlines planning to reduce international capacity across its network as it transitions to a new company from September Average load factors on all flights into Australia continued to strengthen on the back of increased capacity, growing three percentage points in June Domestic capacity within Australia also grew marginally by one per cent in June Average load factors held steady. Capacity growth continued to be focussed on high traffic leisure based routes, with strong growth seen on the Brisbane-Melbourne, Cairns-Melbourne and Ballina-Sydney routes. Mining routes continued to register capacity declines (e.g. Brisbane-Moranbah, Brisbane-Mount Isa, Brisbane-Gladstone, Newman-Perth). Growth in seat capacity on flights into and around Australia by key aviation markets 14% 1 7% 5% 7% 1% 1% 1.3% 1.5% 0. New Zealand - 8% Singapore - 5% United Arab Emirates 0% Malaysia USA includes Hawaii Indonesia - Hong Kong - China - Thailand - 1% Japan 0% Other int'l Total int'l - 1.4% DomesQc - 17% Year Ending Jun 15 Month of Jun 15 Source: BITRE, year ending June 2015 Note. The above chart only reports direct flights (i.e. flights where flight numbers remain the same for all segments). It should only be used indicatively for longer haul markets such as the UK. Excludes cargo flights. HEADLINE NEWS The depreciation of the Chinese yuan has generated headlines, with reports focussed on the wide range of impacts, but as far as aviation is concerned, China s outbound market outlook remains bright. China s larger economic change, of which the yuan is one part, could impact business traffic to and from China. However, the larger outbound leisure segment should continue its robust growth, aided by an increase in trans-pacific capacity and changes to visas. In other popular Chinese tourist destinations like Japan, Korea, Australia and Europe, the yuan is still at a two year, or longer, high. In six years, low-cost carriers (LCCs) have grown to account for 30 per cent of the Japan-Korea market. The overall market continues to grow, but with full-service carriers reducing capacity; 2015 is the third consecutive year of full-service capacity declines. Korea s independent LCC, Jeju Air, has captured 9 per cent of the overall market, with Korean carriers accounting for 85 per cent of overall capacity, the result of their lower cost base compared to Japanese carriers. The Japan-Korea market is characterised by dual-brand strategies, whereby full-service airlines pass routes onto their LCC, fly alongside their LCCs or have the LCC launch entirely new services. Air Asiana plans to make Japan a large focus of its proposed LCC Air Seoul giving it a LCC presence in Korea s largest market - but has faced delays as a result of several safety incidents. Lufthansa and Singapore Airlines have steadily been losing market share to the Gulf carriers. The two carriers have tried to use product upgrades to improve their position in the Asia-Europe market but have yet to explore potential partnership opportunities. Lufthansa and Singapore Airlines together account for approximately 27 per cent of non-stop Southeast Asia-Western Europe seat capacity. However, when also counting passengers flown through all connecting points, their share of the market drops to 13 per cent. Emirates alone has 12 per cent of the market, and once Etihad and Qatar are added, 27 per cent of passengers between Southeast Asia and Western Europe now transits with the three Gulf carriers. Tourism Australia s August

2 ROUTE DEVELOPMENT North Asia Xiamen Airlines plans to launch Fuzhou-Sydney and Xiamen-Sydney services on 29 November 2015 and 5 December 2015, respectively. Fuzhou-Sydney services will operate three times weekly and Xiamen-Sydney services will operate twice weekly, both using Boeing aircraft. China Southern Airlines plans to revise Guangzhou-Perth operations for the northern winter season of , with the carrier continuing four times weekly operations on the route from 25 October 2015, as it cancels its planned fifth weekly service on the route. Etihad Airways plans to reduce its Chengdu-Abu Dhabi frequency from daily to four times weekly from 26 October 2015 to 25 January 2016 and from 22 February 2016 to 25 March These services could connect to the carrier s Australian services. China Eastern Airlines has filed an application to Civil Aviation Administration of China (CAAC) to launch three times weekly Shanghai Pudong-Brisbane services using A equipment from 16 January Hainan Airlines has filed an application to CAAC to launch twice weekly Xian-Sydney and Changsha-Sydney services using A320 equipment from November Hong Kong Airlines plans to launch services to Australia with three times weekly Hong Kong-Gold Coast-Cairns services from 8 January Services will operate with 292-seat A330 aircraft, configured with 32 business class seats. Numerous Taiwan services were cancelled on 8 August 2015 as a result of Typhoon Soudelor. China Eastern Airlines cancelled several Taiwan services, and China Southern Airlines cancelled 60 services across Taipei, Xiamen, Fuzhou and Kaohsiung airports. South and Southeast Asia Qantas Airways plans to add more than 140 frequencies to its schedule across the summer holiday season, with the carrier to also launch two new routes from Brisbane. The frequency of its Singapore-Perth services will increase from five times per weekly to daily between 30 November 2015 and 21 February 2016, using equipment. The frequency of its Jakarta-Sydney services will increase from four to five times per week between 7 December 2015 and 10 January 2016, using A330 equipment. Singapore Airlines plans to increase the frequency of its Singapore- Brisbane services from three times daily to 24 times weekly, effective 1 December 2015 to 10 February The carrier also plans to increase the frequency of its Singapore-Melbourne services from four times daily to 31 times weekly, effective 11 December 2015 to 20 December 2015 and 2 January 2016 to 17 January The airline will operate the additional frequencies with A on both routes. Additionally, Singapore Airlines introduced its premium economy cabin on Singapore-Sydney services on 10 August Emirates plans to replace equipment on its daily Dubai-Singapore- Melbourne service, from Boeing ER equipment to A380 equipment, effective 1 March The route makes Australia the carrier s third largest A380 destination worldwide. Qatar Airways has deployed A equipment on the third of three daily Singapore-Qatar frequencies, effective 1 August Deployment of A350s on the route resulted in a substantial capacity increase, including growth in business class seats from 22 to 36 per flight. These services could connect to the carrier s Australian services. SilkAir plans to adjust its Cairns and Darwin services to operate weekly Singapore-Cairns services, three times weekly Singapore- Darwin services, and twice weekly Singapore-Darwin-Cairns- Singapore services, effective 25 October. The carrier will operate the routes with Boeing equipment. Scoot plans to increase the frequency of its Singapore-Melbourne services from five times weekly to daily, effective 15 December The airline plans to commence the route on 1 November Jetstar Airways deployed Boeing equipment on five times weekly Singapore-Melbourne services on 6 August 2015, replacing A equipment. Etihad Airways plans to reduce Kuala Lumpur-Abu Dhabi frequency from twice daily to 12 times weekly from 25 October 2015 to 17 November 2015 and from 10 January 2016 to 26 March These service reductions may impact upon connections to the carrier s Australian services. Several services were disrupted from Bali Denpasar Ngurah Rai International Airport due to volcanic activity at Indonesia s Mount Raung. Garuda Indonesia, Indonesia AirAsia and Thai Airways resumed Bali services on 6 August 2015 after the reopening of Bali Denpasar Ngurah Rai International Airport. Jetstar Airways and Virgin Australia cancelled services to and from Denpasar on 8 August 2015 and 9 August 2015, partially resuming operations on 10 August 2015 and recommencing all services on 11 August Jetstar Airways and Virgin Australia both launched six additional services to assist passengers affected by cancellations. Virgin Australia Group plans to optimise its international network to meet customer demand on key trans-tasman and short-haul international routes. Planned measures include Tigerair Australia replacing Virgin Australia on a number of services to Denpasar. These include replacing Virgin on the Denpasar-Adelaide route, with five weekly services to commence from 23 March 2016; and on the Denpasar-Melbourne and Denpasar-Perth routes, with daily services to commence on both routes from 23 March Virgin Australia also plans to suspend its five times weekly Phuket-Perth service on 1 February Thai Airways plans to adjust equipment on its seven times weekly Bangkok-Brisbane service from two class 292-seat Boeing ER equipment to two class 264-seat 787-8, effective 25 October Tourism Australia s August

3 Europe and South Africa Etihad Airways has increased the frequency of its Abu Dhabi- Melbourne service from daily to twice daily, effective 1 August Air China plans to launch three times weekly Paris CDG-Chengdu services from 28 January 2016, marking the carrier s second longhaul route from Chengdu. The carrier also plans to launch three times weekly Johannesburg-Beijing services, effective 29 August These services could connect with the carrier s Australian services. Cathay Pacific plans to launch four times weekly Dusseldorf-Hong Kong services on 1 September The service could potentially connect with the carrier s Australian services. Thai Airways has postponed the suspension of its four times weekly Rome-Bangkok services from 26 October 2015 to 1 February 2016 to meet peak season demand. These services could connect with the carrier s Australian services. Garuda Indonesia plans to reduce overall service frequency to Amsterdam from six to five times weekly, effective 25 October The airline will operate three times weekly London Gatwick- Amsterdam-Jakarta and twice weekly Jakarta-Amsterdam- Singapore-Jakarta services. The reduction of these services may impact upon connections to the carrier s Australian services. Australia Tigerair Australia plans to increase the frequency of the following domestic services from Sydney in December 2015: increasing the frequency of its Sydney-Adelaide services from daily to 10 times per week on 11 December 2015; and increasing the frequency of its Sydney-Cairns services from daily to 11 times per week on 8 December The carrier also plans to operate three times weekly Melbourne-Coffs Harbour services from 9 December Regional Express (Rex) has expressed interest in applying for the regulated Perth-Albany and Perth-Esperance services upon expiry of the current contract between Western Australia s State Government and Virgin Australia Regional Airlines in February Air Link plans to operate four times weekly Cobar-Dubbo services from 31 August 2015 with single class 18-seat Beechcraft 1900D equipment. The service will connect with existing Air Link and parent carrier Rex services between Dubbo and Sydney. JetGo Australia plans to operate three times weekly Rockhampton- Townsville-Gold Coast services from 28 September 2015 with single class 36-seat Embraer E135 equipment. Following the deregulation of the Sydney-Narrabri route, Narrabri Shire Council has received interest from two airlines, Airspeed Aviation and JetGo Australia, to operate Sydney-Narrabri services. Narrabri Shire Council plans to enter an agreement with one operator, to service the route for a period of five years. New Zealand Qantas Airways plans to add more than 140 frequencies to its schedule across the summer holiday season, with the carrier also launching two new routes from Brisbane. These include: increasing the frequency of its Auckland-Brisbane services on 19 December 2015 and 2 January 2016; operating seasonal Christchurch-Brisbane services between 3 December 2015 and 22 February 2016; operating seasonal three times weekly services between 4 December 2015 and 21 February 2016; operating additional frequency on its Auckland-Melbourne services on 19 December 2015; operating additional frequency on its Wellington- Melbourne services on 19 December 2015, 22 December 2015 and 23 December 2015; adding frequency to its Christchurch-Sydney services on 17 January 2016; adding frequency to its Queenstown- Sydney services on 6 January 2016 and 7 January 2016; and operating additional frequency on its Wellington-Sydney services on 19 December 2015 and 23 December Virgin Australia plans to increase the frequency of its trans-tasman and Pacific routes, including: operating one additional frequency on its Auckland-Brisbane services between 26 October 2015 and 13 December 2015, two additional frequencies between 14 December 2015 and 24 January 2016, and one additional frequency between 29 February 2016 and 27 March 2016; increasing the frequency of its Christchurch-Brisbane services from eight to nine times per week between 14 December and 24 January 2016; increasing the frequency on its Dunedin-Brisbane services from three to four times per week between 18 December 2015 and 22 January 2016; increasing the frequency of its Wellington-Brisbane services from 13 times per week to twice daily between 14 December and 24 January 2016; increasing the frequency on its Christchurch- Melbourne services from daily to eight times per week on 6 November 2015; and increasing the frequency on its Christchurch- Sydney services from three to five times per week on 25 October Americas Qantas Airways has commenced codeshare operations on American Airlines Los Angeles-Sydney services, scheduled to run from 17 December United Airlines plans to adjust international operations for summer The changes see a number of West Coast US departures moving to Boeing 787 operations, including Los Angeles-Sydney services and San Francisco-Sydney services, effective 25 March The adjustment removes first class from the carrier s Australia services and results in the loss of 280 one-way seats each week on each service. Air Canada plans to offer an improved business class on daily Vancouver-Sydney services from 17 May The carrier will operate the service with upgraded Boeing LR equipment. Tourism Australia s August

4 American Airlines introduced Boeing 787 equipment on its Chicago O Hare-Tokyo Narita services on 18 August This coincides with the carrier s frequency increase on the route from five times weekly to daily. This service could connect to the airline s Australian services. China Eastern Airlines plans to increase operations to New York, with plans to operate 10 times weekly New York JFK- Shanghai Pudong services from 12 December This service could connect to the airline s Australian services. Japan Airlines plans to launch four times weekly Dallas Fort Worth-Tokyo Narita services from 30 November 2015, using Boeing equipment. The new route is the latest addition to the JV agreement between JAL and American Airlines. This service could connect to the airline s Australian services. Philippine Airlines plans to reduce the frequency of its Toronto- Vancouver-Manila services from four to three times per week, effective 16 September The airline will use Boeing ER on New York JFK-Vancouver-Manila services and A equipment on Vancouver-Manila services, effective 25 October The carrier will suspend its three times weekly Manila- Vancouver service from 15 March This service could connect to the airline s Australian services. Alliances, codeshares and consolidation The Australian Competition and Consumer Commission (ACCC) has granted authorisation to Virgin Australia and Delta Air Lines to continue to coordinate their passenger and freight services between Australia and the US for a period of five years, until 7 September The carriers had sought a 10 year renewal, but the ACCC noted approval for a shorter period was given because of the ongoing evolution of services on the trans-pacific. Virgin Australia, in a submission to the ACCC, has responded to concerns raised by Hawaiian Airlines about the proposed reauthorisation of its trans-pacific alliance with Delta Air Lines. Virgin Australia said Hawaiian has not provided any information to suggest that the alliance would have an anti-competitive effect, noting its introduction the market has seen expanded capacity, additional services, decrease in average fares and robust competition. Virgin Australia and Etihad Airways, in a submission to the ACCC, has requested reauthorisation, through revocation and substitution, of their existing alliance in relation to services between Australia and the Middle East. The carriers requested continued authorisation to give effect to the commercial cooperation agreement and associated codeshare agreements. The carriers requested renewal for a period of 10 years. Gold Coast-Wuhan service from 29 September 2015 and is sought for a period of 10 years. Qantas Airways has submitted an application to the International Aviation Services Centre (IASC) for the renewal of Determination [2006] IASC 105, which allocates unlimited capacity to the UK and is due to expire on 31 August The carrier is seeking renewal of the Determination for a further 10 years on the basis that it is fully utilising the capacity. Qantas Airways, in a submission to the ACCC, has responded to concerns raised by Hawaiian Airlines about the proposed authorisation of its restated JBA with American Airlines. Qantas noted the previous JBA was authorised in 2011 and since then the alliance has delivered considerable expansion of capacity as well as scheduling and connectivity improvements. The ACCC has granted authorisation to Qantas Airways and China Eastern Airlines to coordinate their operations between Australia and China pursuant to a Joint Coordination Agreement. The conditional approval requires both carriers to maintain at least an aggregate base level of capacity between Shanghai and Australia, and at least their current level of capacity on Sydney-Shanghai. The authorisation is valid until 31 October Qantas Airways has responded to an ACCC request for more information about how new routes and frequencies will be facilitated by its proposed alliance with China Eastern Airlines. Qantas explained the new agreement with incentives and expedite capacity growth that would not otherwise occur or would not occur as quickly, as well as enabling sustainable capacity growth to facilitate future expansion. Virgin America has filed an application with the US Department of Transportation, requesting a blanket statement of authorisation to codeshare with China Southern Airlines on China Southernoperated services between the USA and China. Bangkok Airways and Emirates have announced a codeshare agreement covering 19 routes operated by Bangkok Airways. Services covered by the agreement include routes from Bangkok, Kuala Lumpur, Phuket and Singapore to Chiang Mai, Koh Samui, Mandalay, Siem Reap and Yangon. The agreement adds 14 destinations to Emirates global network. Air China and South African Airways have launched a new codeshare agreement which will enable South African Airways to codeshare on Air China s newly inaugurated nonstop Beijing- Johannesburg service as well as points beyond Beijing to Chengdu, Shanghai, Hangzhou and Chongqing. The codeshare will open for sale from 25 August 2015 for travel from 29 October Qantas Group has submitted an application to Australia s International Air Services Commission (IASC) for a Determination permitting Jetstar Airways to operate unlimited capacity between points in Australia other than Sydney, Melbourne, Brisbane and Perth and points in China other than Beijing, Shanghai and Guangzhou. The Determination would support Jetstar s planned Tourism Australia s August

5 Airports Qantas Group and Sydney Kingsford Smith Airport have reached a 10-year commercial deal regarding the future of Terminal 3, which will see ownership of the terminal revert from Qantas to Sydney Airport as of 1 September In line with current operations, Qantas will retain exclusive use of Terminal 3 and will continue to manage most of the terminal on behalf of Sydney Airport until 30 June After that time, Qantas will incur a per-passenger charge at an agreed rate through to 2025 and retain priority usage to Terminal 3 through to 30 June Qantas held a 30-year lease on the terminal, which was due to expire on 30 June Qantas Airways has announced a multimillion dollar refurbishment of its terminal and lounge facilities at Brisbane Airport commencing by the end of 2015 and continuing through to early The carrier will construct a new lounge precinct in a domestic terminal expansion, increasing capacity by 30 per cent with the redesign of the existing Qantas Club and construction of a new Business Lounge and Chairmans Lounge. Qantas will also create a single international lounge, merging its First and Business lounges. Qantas Airways opened a new domestic business lounge at Perth Airport on 26 August The lounge is 50 per cent larger than the previous lounge space and offers seating for more than 350 people offering distinct zones to dine, work and relax. The lounge is available exclusively to business class passengers as well as platinum and platinum one frequent flyers. Other news Virgin Australia Group has stated that it expects to return to profitability in FY2016, and generate a Return on Invested Capital in line with its cost of capital for FY16, which is approximately 10 per cent. Virgin Australia Group CEO John Borghetti said: Over the past financial year, the Group s Return on Invested Capital has increased from 1.4 to 6.1 per cent. I m pleased to confirm that based on current market conditions, all business metrics are on track for the Group to return to profitability and report a Return on Invested Capital in line with its cost of capital for the 2016 financial year. Qantas Airways increased its total ancillary revenue from USD1.27 billion in 2013 to USD1.39 billion in 2014, according to the 2014 Airline Ancillary Revenue report by IdeaWorks. This equates to an increase from USD45.67 to USD50.16 per passenger over the period. The report noted: A big portion of the ancillary revenue total is generated by the sale of miles or points to banks that issue cobranded credit cards. Qantas Group and Japan Airlines plan to invest a further JPY5 billion (USD41 million) in Jetstar Japan, the second such investment by the two carriers in 12 months. The two airlines will jointly provide JPY3.5 billion (USD28.7 million) initially, with JPY1.5 billion (USD12.3 million) to follow at a later date. The Qantas Group s total investment in the carrier will rise to AUD215 million as a result. Tigerair Australia commenced operations from the new Terminal 4 at Melbourne Tullamarine Airport on 18 August 2015, with approximately 40 frequencies expected to operate from the airport on the first day. Tigerair Australia CEO Rob Sharp said: The newlook Terminal 4 provides a vastly improved customer experience at our busiest domestic port and is the first terminal in the Asia Pacific region to feature fully automated self-service check in facilities. Virgin Australia CEO John Borghetti said the carrier plans to relocate to its new pier at Perth Airport s Terminal 1 by the end of November 2015, ending more than 12 months of delays. The carrier had initially planned to move to the new terminal by June Australia s Productivity Commission has released a draft report identifying barriers to Australian service exports, recommending that the Australian Government should provide unrestricted access for foreign airlines flying to and from Brisbane Airport, Melbourne Tullamarine Airport and Perth Airport as well as all secondary airports in Australia s major gateway cities. Following this, the report recommends the Australian Government provide unrestricted access to Sydney Kingsford Smith Airport unless a published assessment demonstrates that the costs of unrestricted access would outweigh the benefits to the community. Nanjing will implement a 72-hour visa-free entry policy for international transit passengers from 1 September 2015, according to Nanjing Airport. The policy covers travellers from 51 countries and regions including the USA, Russia, UK, France, Australia, Japan and South Korea. The same visa-free policy is already in place in a number of other Chinese cities. Tourism Australia s August