More competition on the Pacific routes?
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More competition on the Pacific routes?
This was reported in the online version of The Age today . . . and the results of their poll are reported below.
As at 7th Feb the 'poll' results seemed to indicate that the punters are in favour of more competition.
Unleash Singapore Air on the Pacific
Tony Webber
February 7, 2012
Singapore Air would make a difference on key Pacific routes if permitted to fly from Australia.
Singapore Airlines should be given a chance to fly on the Pacific route.
Not because Singapore Airlines deserves something back in return for allowing Qantas to start up a premium airline in Singapore, but because a public benefit test says so.
The move would improve the welfare of Australians. Here's how:
Extra passengers
Fact 1: a daily Singapore service from Sydney and Melbourne to Los Angeles on a 471-seater Singapore A380 aircraft will add 344,000 seats to each city pair. At a 77.3 per cent seat factor this means an additional 532,000 passengers a year.
Currently there are around 968,000 passengers on Sydney and 400,000 passenger movements on Melbourne to Los Angeles. Singapore Air's entry therefore increases Los Angeles passengers by around 39 per cent.
Lower airfares
Fact 2: adding more seats to the market will lower airfares. The exact size of the airfare reduction depends on a parameter that describes how demand changes as the airfare changes - the airfare elasticity of demand.
On the basis of a conservative estimate of this parameter, airfares could fall by as much as 39 per cent, more so on the Melbourne-to-Los Angeles route.
According to Tourism Research Australia data, the average airfare paid by inbound tourists on the US route fell by 26 per cent between September 2008 and September 2010 (the period over which V Australia and Delta started on the Los Angeles route) so falls of 40 per cent are conceivable when a large dump of seats is added to the route.
If a booking were to be made on a Qantas flight today for a Sydney or Melbourne flight to Los Angeles that departs in three months' time, the average airfare that would be paid for a mix of economy through to first class travel is about $1,410 one way.
A 39 per cent reduction in Los Angeles airfares represents a saving of $550 one-way for the average passenger.
Consumer benefit
On US routes into and out of Australia (including Honolulu), about 63 per cent of passengers are Australians flying to the US while the remaining 37 per cent are US residents flying to Australia.
This means that 862,000 of the current Australian passengers flying to Los Angeles would benefit from lower fares.
The lower airfares is estimated to generate a total benefit (which economists call consumer surplus) to Australians of about $564 million.
Trade in services
Around 167,000 additional Australians will head overseas and 98,000 additional US residents will visit Australia.
The money spent by Australians in the US is essentially an import (a travel service debit to be technical) and that spent by US residents in Australia is an export (a travel service credit).
If both Aussie and US residents spend the same amount of money, which is about $3,305 (excluding international airfares) then Australia's trade and services deficit will worsen by $228 million. This is bad for Australia.
While the trade and services deficit worsens by $228 million the Aussie consumer is better off by $564 million because of cheaper airfares. The maths is therefore favourable for the Singapore-based airline.
And this is likely to be the worst time to do the maths from a Singapore Airlines perspective.
If the maths was based on a 2001 mix of outbound and inbound passengers, where Australians travelling to the US represented just 40 per cent of passengers (rather than 63 per cent), Australia's trade in goods and services would be significantly better off and the business case that would be put to the Australian government would be far more favourable.
Capacity pull-out
Another potential adverse impact of Singapore entry is that the incumbent carriers cut-back on capacity or pull-out of the route altogether.
This outcome has certainly occurred in the past, with American carriers like Continental, Northwest and American Airlines pulling out of the route.
It would seem, however, that the benefits are so significant to the Australian consumer that this outweighs the risk of capacity pull-out.
Australian jobs
The addition of Singapore capacity will add to Australian jobs.
More staff will be needed at Sydney and Melbourne airports to check-in passengers, handle baggage and freight, cater, clean and re-fuel the aircraft, and perform the relevant engineering checks, repairs and maintenance.
More back-office staff will also be needed. And to really support their case, Singapore should commit to using Australian-based cabin and technical crews.
Another drawback that would need to be considered is that any profit from the route would flow back to the owners of Singapore Airlines.
But then again, Australian airlines are not 100 per cent Australian-owned either, with Qantas' foreign ownership level at about 39.1 per cent.
Rights to the US
The last obstacle that Singapore airlines would need to clear is the right to land in the US from an Australian port.
Singapore would therefore need to plead its case not just to the Australian Government but also the US Government.
Given the number of cashed-up Australian tourists that they are likely to bring into the US economy, the business case at the moment would seem to be favourable at first glance.
Tony Webber was Qantas Group chief economist between 2004 and 2011. He is now managing director of Webber Quantitative Consulting and Associate Professor at the University of Sydney Business School, and contributed this article to BusinessDay.[/
Tony Webber
February 7, 2012
Singapore Air would make a difference on key Pacific routes if permitted to fly from Australia.
Singapore Airlines should be given a chance to fly on the Pacific route.
Not because Singapore Airlines deserves something back in return for allowing Qantas to start up a premium airline in Singapore, but because a public benefit test says so.
The move would improve the welfare of Australians. Here's how:
Extra passengers
Fact 1: a daily Singapore service from Sydney and Melbourne to Los Angeles on a 471-seater Singapore A380 aircraft will add 344,000 seats to each city pair. At a 77.3 per cent seat factor this means an additional 532,000 passengers a year.
Currently there are around 968,000 passengers on Sydney and 400,000 passenger movements on Melbourne to Los Angeles. Singapore Air's entry therefore increases Los Angeles passengers by around 39 per cent.
Lower airfares
Fact 2: adding more seats to the market will lower airfares. The exact size of the airfare reduction depends on a parameter that describes how demand changes as the airfare changes - the airfare elasticity of demand.
On the basis of a conservative estimate of this parameter, airfares could fall by as much as 39 per cent, more so on the Melbourne-to-Los Angeles route.
According to Tourism Research Australia data, the average airfare paid by inbound tourists on the US route fell by 26 per cent between September 2008 and September 2010 (the period over which V Australia and Delta started on the Los Angeles route) so falls of 40 per cent are conceivable when a large dump of seats is added to the route.
If a booking were to be made on a Qantas flight today for a Sydney or Melbourne flight to Los Angeles that departs in three months' time, the average airfare that would be paid for a mix of economy through to first class travel is about $1,410 one way.
A 39 per cent reduction in Los Angeles airfares represents a saving of $550 one-way for the average passenger.
Consumer benefit
On US routes into and out of Australia (including Honolulu), about 63 per cent of passengers are Australians flying to the US while the remaining 37 per cent are US residents flying to Australia.
This means that 862,000 of the current Australian passengers flying to Los Angeles would benefit from lower fares.
The lower airfares is estimated to generate a total benefit (which economists call consumer surplus) to Australians of about $564 million.
Trade in services
Around 167,000 additional Australians will head overseas and 98,000 additional US residents will visit Australia.
The money spent by Australians in the US is essentially an import (a travel service debit to be technical) and that spent by US residents in Australia is an export (a travel service credit).
If both Aussie and US residents spend the same amount of money, which is about $3,305 (excluding international airfares) then Australia's trade and services deficit will worsen by $228 million. This is bad for Australia.
While the trade and services deficit worsens by $228 million the Aussie consumer is better off by $564 million because of cheaper airfares. The maths is therefore favourable for the Singapore-based airline.
And this is likely to be the worst time to do the maths from a Singapore Airlines perspective.
If the maths was based on a 2001 mix of outbound and inbound passengers, where Australians travelling to the US represented just 40 per cent of passengers (rather than 63 per cent), Australia's trade in goods and services would be significantly better off and the business case that would be put to the Australian government would be far more favourable.
Capacity pull-out
Another potential adverse impact of Singapore entry is that the incumbent carriers cut-back on capacity or pull-out of the route altogether.
This outcome has certainly occurred in the past, with American carriers like Continental, Northwest and American Airlines pulling out of the route.
It would seem, however, that the benefits are so significant to the Australian consumer that this outweighs the risk of capacity pull-out.
Australian jobs
The addition of Singapore capacity will add to Australian jobs.
More staff will be needed at Sydney and Melbourne airports to check-in passengers, handle baggage and freight, cater, clean and re-fuel the aircraft, and perform the relevant engineering checks, repairs and maintenance.
More back-office staff will also be needed. And to really support their case, Singapore should commit to using Australian-based cabin and technical crews.
Another drawback that would need to be considered is that any profit from the route would flow back to the owners of Singapore Airlines.
But then again, Australian airlines are not 100 per cent Australian-owned either, with Qantas' foreign ownership level at about 39.1 per cent.
Rights to the US
The last obstacle that Singapore airlines would need to clear is the right to land in the US from an Australian port.
Singapore would therefore need to plead its case not just to the Australian Government but also the US Government.
Given the number of cashed-up Australian tourists that they are likely to bring into the US economy, the business case at the moment would seem to be favourable at first glance.
Tony Webber was Qantas Group chief economist between 2004 and 2011. He is now managing director of Webber Quantitative Consulting and Associate Professor at the University of Sydney Business School, and contributed this article to BusinessDay.[/
As at 7th Feb the 'poll' results seemed to indicate that the punters are in favour of more competition.
Poll results
Yes - the more competition the better - 81%
No - It would damage Qantas and other carriers - 15%
Hard to say - 4%
Total votes: 3519
Yes - the more competition the better - 81%
No - It would damage Qantas and other carriers - 15%
Hard to say - 4%
Total votes: 3519
A 39% reduction in fares would be completely unsustainable. QF and VA would not survive and withdraw from the route with large job losses. SQ would attempt to minimize losses by using offshore based staff wherever possible.
With resultant reduced competition, fares would rise again, negating the benefit for the traveller. Back to square one but with fewer Australian jobs and 100% of profits going overseas.
Great idea Tony
With resultant reduced competition, fares would rise again, negating the benefit for the traveller. Back to square one but with fewer Australian jobs and 100% of profits going overseas.
Great idea Tony
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Is Tony Weber schizophrenic? One moment he says QF needs to be nationalised and protected at all costs, (then in between he said fat people should pay more to fly), now he says SIA should be allowed to fly Australia-USA because it would bring Australia untold benefits?
Some of the factual errors in his article include SQ having to plead its case to the US authorities. SQ has unlimited 3rd, 4th and 5th freedoms from Australia to the USA so it does not need to ask the US for anything.
The second dumb thing he says is SQ should be forced to use Australian based cabin crew and pilots to fly to the USA. It's just like saying QF must be forced to use Singapore residents to fly SIN-LHR/FRA/BOM, or that EK must use Australian crew to fly SYD-BKK or MEL-AKL. Completely unworkable.
And anyway, it's not like SQ's cabin crew are paid any less than QF cabin crew - SGD4000-6000 a month for working 10 days a month (tax free because of the way the payments are structured), what a great deal
Jetstar Asia, however, is using an increasing number of Chinese nationals for their cabin crew and I have NO IDEA what they are saying.
Jetstar Asia also pays considerably less than SQ, and SQ also have this unspoken rule - anybody who has worked in an LCC as cabin crew would generally not be allowed into SQ to work as cabin crew. So what's the quality of people they're getting? Well not great, if they can't get any more Singaporeans to join them at what they're paying.
SQ also does not pay cabin crew according to nationality. Everyone gets the same pay whether they are Singaporeans, Malaysians, Koreans, Japanese or Indonesians. How damaging it is for people working the same job and with each other to be getting different pay rates?
Back to the topic, how such articles get published in respectable newspapers is beyond me.
Some of the factual errors in his article include SQ having to plead its case to the US authorities. SQ has unlimited 3rd, 4th and 5th freedoms from Australia to the USA so it does not need to ask the US for anything.
The second dumb thing he says is SQ should be forced to use Australian based cabin crew and pilots to fly to the USA. It's just like saying QF must be forced to use Singapore residents to fly SIN-LHR/FRA/BOM, or that EK must use Australian crew to fly SYD-BKK or MEL-AKL. Completely unworkable.
And anyway, it's not like SQ's cabin crew are paid any less than QF cabin crew - SGD4000-6000 a month for working 10 days a month (tax free because of the way the payments are structured), what a great deal
Jetstar Asia, however, is using an increasing number of Chinese nationals for their cabin crew and I have NO IDEA what they are saying.
Jetstar Asia also pays considerably less than SQ, and SQ also have this unspoken rule - anybody who has worked in an LCC as cabin crew would generally not be allowed into SQ to work as cabin crew. So what's the quality of people they're getting? Well not great, if they can't get any more Singaporeans to join them at what they're paying.
SQ also does not pay cabin crew according to nationality. Everyone gets the same pay whether they are Singaporeans, Malaysians, Koreans, Japanese or Indonesians. How damaging it is for people working the same job and with each other to be getting different pay rates?
Back to the topic, how such articles get published in respectable newspapers is beyond me.
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More competition on the Pacific?
Wait till EK goes from west coast USA to NZ/OZ and/or Sth America to NZ/OZ etc.
330 mins ETOPS for the 77W will enable this and more.
Wait till EK goes from west coast USA to NZ/OZ and/or Sth America to NZ/OZ etc.
330 mins ETOPS for the 77W will enable this and more.
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Look I'm just a simple farmer with family reasons for being interested in what goes on here.
But reading Webber's stuff, and having family point out even the most obvious factual errors in some of the past stuff he has done, this guy belongs to the Kim Jong-il school of publicity, saying outrageous things and shouting 'look at me you bastards.'
Why did he leave Qantas by the way?
But reading Webber's stuff, and having family point out even the most obvious factual errors in some of the past stuff he has done, this guy belongs to the Kim Jong-il school of publicity, saying outrageous things and shouting 'look at me you bastards.'
Why did he leave Qantas by the way?
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Yep this is a great idea, lets open up the pacific to all comers and put Qantas, Air New Zealand, Jetstar and V Australia virtually out of business at the cost of thousands of jobs just so we can know $100 off the average airfare. Sounds like a winner.
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Sadly this sort of speculation is entirely of the Rats own making when they show by their actions that Australia is merely a flag of convenience for their Execs personal ambitions, they alienate a large section of their once loyal customers and the price gouging that has been going on across the Pacific for years.
Nothing they have done in the last few years has secured their customers beyond doors being closed by politicians.
When the Rat starts whingeing, it will be more of the same tripe that their media machine just keeps recycling.
They will reap what they sow, and sadly Australia will be the loser long term.
Nothing they have done in the last few years has secured their customers beyond doors being closed by politicians.
When the Rat starts whingeing, it will be more of the same tripe that their media machine just keeps recycling.
They will reap what they sow, and sadly Australia will be the loser long term.
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"Would you like cheaper fares across the Pacific?" 81% of Australians said "Yes".
"Would you like your aircraft to plunge into the Pacific, as a result of maintenance short-cuts?" 81% of Australians said "No".
"Would you like your aircraft to plunge into the Pacific, as a result of maintenance short-cuts?" 81% of Australians said "No".
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Inherent contradiction.
Tony Webber say the increase in capacity will yield significant economic benefits due to the elasticity of demand due to price. This is true.
He then goes on to say that carriers will withdraw capacity due to the extra competition from SQ. Ok, so is it not clear to him that the elasticity of demand works both ways? Prices will fall with increase in capacity and then go up again as flights are removed from the trans-Pacific routes. Here is where his arguement contains an inherent contradiction.
The historic precedent is that there were a multitude of carriers across the Pacific 20 years ago. Even Webber states that Continental, American and Northwest pulled out of the market. If you will recall, This co-incided with there efectively being only 2 carriers with direct services: QF and UA.
With any competition being eventually forced out the result will be that prices will rise as capacity shrinks. The remaining airlines will ratchet up their yields (they are businesses, not charities) and the result will be further instability in the transportation and tourism markets and higher prices-as has happend historically.
This guy is a genius
He then goes on to say that carriers will withdraw capacity due to the extra competition from SQ. Ok, so is it not clear to him that the elasticity of demand works both ways? Prices will fall with increase in capacity and then go up again as flights are removed from the trans-Pacific routes. Here is where his arguement contains an inherent contradiction.
The historic precedent is that there were a multitude of carriers across the Pacific 20 years ago. Even Webber states that Continental, American and Northwest pulled out of the market. If you will recall, This co-incided with there efectively being only 2 carriers with direct services: QF and UA.
With any competition being eventually forced out the result will be that prices will rise as capacity shrinks. The remaining airlines will ratchet up their yields (they are businesses, not charities) and the result will be further instability in the transportation and tourism markets and higher prices-as has happend historically.
This guy is a genius
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Is this Webber guy the new 'expert' on QF? He must be getting paid for all these 'expert views' to fill the paper with something QF while not much is happening.
What a joke of an article - if SQ were let onto the route now, UA would go straight away. Delta would struggle, QF would cut back and VA would struggle.
Prices across the Pacific have never been cheaper and all carriers are hurting - you need time for all the carriers to establish themselves on the route. How much cheaper can they get considering the competition AND the price of the dollar?
The same people on that poll want the cheapest of everything but get upset that Australians lose thier jobs in manufacturing etc. The same people whine that QF maintains its aircraft overseas but don't care that other airlines do as well.
What a joke of an article - if SQ were let onto the route now, UA would go straight away. Delta would struggle, QF would cut back and VA would struggle.
Prices across the Pacific have never been cheaper and all carriers are hurting - you need time for all the carriers to establish themselves on the route. How much cheaper can they get considering the competition AND the price of the dollar?
The same people on that poll want the cheapest of everything but get upset that Australians lose thier jobs in manufacturing etc. The same people whine that QF maintains its aircraft overseas but don't care that other airlines do as well.
