We'll be a disaster for Qantas: Delta
Matt O'Sullivan
April 23, 2009
DELTA AIR LINES has challenged Qantas's dominance of the Australia-United States route after describing its foray into the market as a "disaster" for the incumbent airline.
Qantas stands to lose more than 200 passengers a day - over half the seats on a standard jumbo jet - when Delta begins daily flights between Sydney and Los Angeles in early July.
Even before Delta launches services, the trans-Pacific route has been transformed in a matter of months from being one of Qantas's most profitable international legs to become loss-making, largely because of a dramatic drop in demand for business and first class travel.
Delta's network planning chief, Glen Hauenstein, said its flights in July would be "relatively full" because more than 30 per cent of seats were already booked.
He said there was demand to fly the route because under previous arrangements Qantas picked up more than 200 passengers a day through an interlining agreement with Delta and Northwest Airlines. The two US carriers merged last year.
"So the demand is there and … if you're the incumbent carrier this is a disaster - if you're the non-incumbent carrier, this is an opportunity," he said during Delta's first-quarter earnings briefing.
"And the question is long run, as being the world's largest carrier and having the extensive route network that we have, do we want to have outlet to Australia? The answer is clearly yes."
Delta's Boeing 777s will increase passenger seats on the route every week by almost a quarter, or 4900, to 25,000, just as the aviation industry suffers its worst downturn of the jet age.
Air fares on the route have fallen about 57 per cent since September, according to Macquarie Equities, due to both a dramatic slump in demand and Virgin Blue's long-haul carrier, V Australia, joining Qantas and United Airlines on the trans-Pacific in February.
However, Delta's decision this week to charge $US50 ($71) to check in a second bag on international flights from July 1 could face a passenger backlash.
United has revealed in its latest earnings briefing that it is already suffering on the route. Of its Pacific network, Australia and China suffered the biggest declines in revenue in the first quarter.
United also reinforced the extent of the slowdown by revealing that its total premium traffic fell 30 per cent in the quarter.
The biggest threat to Qantas on the route is Delta's ability to attract US customers because of its extensive US domestic network. The route has historically provided about 10 per cent of Qantas's total passenger revenue.
Qantas management suggested last week that none of the carriers will make money flying between Australia and the US in the current environment. Qantas said premium travel on the trans-Pacific and London-Australia routes had fallen about 20 per cent.
V Australia began thrice-weekly services from Brisbane to LA this month, two months after it launched daily flights from Sydney to the US. It will launch three return services a week from Melbourne in September.