Qantas seeks to expand codeshare with Air Niugini

A file image of an Air Niugini Boeing 737-800 at Sydney Airport. (Rob Finlayson)
A file image of an Air Niugini Boeing 737-800 at Sydney Airport. (Rob Finlayson)

Qantas is seeking to expand its codeshare agreement with Air Niugini on Australia-Papua New Guinea (PNG) routes.

The airline has applied to Australia’s International Air Services Commission (IASC) to add its QF code on Air Niugini’s nonstop Cairns-Port Moresby and Townsville-Port Moresby services.

The application also calls for the continuation of existing arrangements where the two carriers codeshare on the Sydney-Port Moresby route (operated by Air Niugini) and the Brisbane-Port Moresby route (operated by both Qantas and Air Niugini).

“Qantas believes that the continuation of existing code share arrangements and the proposed expansion offers maximisation of the public benefit,” Qantas executive manager of international affairs Rohan Garnett said in the submission to the IASC.

The IASC decision in late 2016 approved a free sale codeshare arrangement on the Brisbane and Sydney routes but did not allow Qantas to add its QF code on Air Niugini’s Cairns-Port Moresby service.

The Qantas application was vigorously opposed by Virgin Australia, which described it as the “single most significant barrier to entry on the PNG route“.

Virgin Australia is the only other airline offering regularly scheduled passenger flights between Australia and PNG with six flights a week on the Brisbane-Port Moresby route using Boeing 737-800s.

At the time, the IASC said it was “difficult to come to conclusions about likely outcomes” on the market with and without the codeshare.

As a result, it approved the codeshare on both the Brisbane and Sydney routes for a “trial period” in order to assess the impact on the market following 12 months of traffic and financial data to December 31 2017.

Since that decision was handed down, Air Niugini added Townsville as its fourth destination in Australia in April 2017.

Qantas’s submission to the IASC, dated February 16 2018, said Air Niugini was likely to cut flights to Australia if the existing codeshare arrangements were not able to be maintained and expanded.

This would result in reduced capacity, less flexible scheduling and a more limited range of fares for consumers.

“The code sharing arrangements have supported the ongoing viability of Air Niugini and, as such, are of vital importance to the PNG economy,” Qantas’s submission said.

“The additional traffic generated by the marketing carrier contributes toward operating costs and allows the operating carrier to maintain and/or operate more services.

“A reduction in Air Niugini’s schedules would be an almost certain consequence of the existing code share arrangements ending and the proposed expansion not receiving authorisation.”

In particular, Qantas said Air Niugini’s Townsville-Port Moresby flights would benefit from a Qantas’s codeshare, given the PNG carrier was considering dropping the route due to low passenger numbers.

“If the Qantas code was added to these services, the resulting access to Qantas’ distribution capability and marketing would assist in ensuring the benefits from this service are not lost,” Qantas said.

Further, Qantas said Air Niugini was unlikely to maintain Boeing 767-300 widebody flights on Brisbane-Port Moresby absent the codeshare.

A downgauge to smaller narrowbody aircraft would have a significant impact on the freight market between Australia and PNG.

“It is unlikely that alternative freighter operators would match the regular schedules from the Qantas/Air Niugini code share arrangements,” Qantas said.

Figures from the Qantas submission showed 274,324 passengers travelled between Australia and PNG in the 2016/17 financial year (FY17), a decline of three per cent from the prior corresponding period.

“These FY17 numbers are equal to total passenger traffic in financial year 2012,” Qantas said. This followed a seven per cent drop in 2015/16.

Air Niugini had the largest market share between Australia and PNG in 2016/17 at 54 per cent, down 3.4 percentage points from the prior corresponding period.

Meanwhile, Qantas improved its market share by 3.4 percentage points to 19.9 per cent, with Virgin Australia down 2.5 percentage points to 11.5 per cent. Third country carrier traffic grew 2.5 percentage points to 14.6 per cent.

The average seat factor on all Australia-PNG services in 2016/17 was at 52.2 per cent, Qantas said.

“Against the background of weakening passenger demand, the presence of other competitors and the potential for new entry continues to act as a competitive constraint on both Qantas and Air Niugini,” Qantas said.

Qantas noted it and Air Niugini both independently priced and sold services on the PNG route, with both carriers operating their own yield management systems. This created a “genuinely competitive dynamic”.

“Each airline offers separate fare structures and rules resulting in varied fare levels and fare conditions, giving passengers more choice and flexibility,” Qantas said.

Submissions in response to the Qantas application are due by March 2 2018.