Incoming

There is also extensive codesharing beyond their international gateways, giving Virgin access to more than 200 destinations in the Americas and Delta the ability to sell Virgin’s Australian, trans-Tasman, Pacific and Asian networks.

Borghetti says Virgin is well-placed to benefit from the growth in US outbound travel thanks to its partnership with Delta, and the growing number of Americans heading overseas should give the airline’s loss-making international operations a boost.

“Thanks to our relationship with Delta, it gives us enormous access to now what is happening in terms of growth out of America,” Borghetti says in an interview with Australian Aviation after a preview of Perth Airport’s new Terminal 1 Domestic Pier on November 13.

“Every passenger we sell in America to come to Australia we collect US dollars. That’s good for us. The more inbound comes the happier I am. ” Australian Bureau of Statistics (ABS) data shows the number of Americans visiting this country has risen 9. 8 per cent in the 12 months to October 2015.

Meanwhile, Australians are still keen to head across the Pacific despite the currency movements, with ABS figures indicating there was a 4. 8 per cent increase in Australian travellers to the US over the same period.

The Australian dollar has fallen about 20 per cent against the US dollar in the past year.

Qantas And American Add New Flights

In December, Qantas and American Airlines kicked off two new services – the US flag carrier returned to these shores for the first time since the early 1990s with a daily Boeing 777-300ER offering between Sydney and Los Angeles, while the Flying Kangaroo resumed Sydney-San Francisco flights with 747-400s after dropping the route nearly five years ago.

Qantas is also making its Sydney-Dallas/Fort Worth flight daily, from six times a week currently. On the flip side, there will be some reductions in Sydney-Los Angeles and Melbourne-Los Angeles services.

“The lower dollar seems to have more of a positive effect on demand into Australia than a dampening effect on travel demand out of the country,” Qantas chief executive Alan Joyce said in a statement in November. “Australians tend to compensate for a weaker currency by simply spending less when they are away, rather than changing their destination altogether. ” American and Star Alliance member United are also heading to New Zealand in 2016, with the former to launch Auckland-Los Angeles with Boeing 787s from June, while the latter plans to operate between Auckland and San Francisco from July, also with the Dreamliner.

Qantas said in November it expected total market capacity across all airlines on Australia-US routes to grow by six per cent in 2015/16.

And then there are one-stop carriers such as Air New Zealand, which has made a concerted push to convince Australians of the merits of travelling to the Americas – the NZ flag carrier serves Honolulu, Houston, Los Angeles, San Francisco and Vancouver in North America and Buenos Aires in Argentina – via its Auckland hub.

All this competition has led to sub-$1,000 return fares to the US, with ticket prices well below where they were a year ago.

Air NZ general manager for Australia Leanne Geraghty told The Australian in December she expected fares below $1,000 to remain in the market for some time.

“I think they’ll be here for a few more months anyway and that’s just one of the results of competition,” Geraghty said.

The Virgin chief executive warns that history shows big jumps in capacity tend not to end well.

“I’m old enough to remember. I’ve seen this before,” Borghetti says.

“I’ve seen the Australian dollar go down, I’ve seen a whole lot of capacity being put onto the Pacific and then I’ve seen what follows and what typically follows is at least one player pulls out and I’m just seeing the same thing again.

“We’re not pulling out. Our strategy going forward with Delta is a long-term strategy, not just short-term opportunism because of where the currency is now because one day the short-term opportunism will disappear. Our strategy is more designed on sustainability of whatever we do. ” While declining to offer details on what the long-term strategy is for Virgin’s US operations, Borghetti does say the airline’s existing combination of schedule, frequency and product – new premium economy and business class seats on the fleet of five 777-300ERs are being installed from early 2016 – as well as the partnership with Delta, puts the carrier in a good position to capture the growth emerging out of North America and gain an improved share of the lucrative Australia-US corporate travel market.

“Obviously, what I am not going to talk about is our plans on capacity, other than to say I’m very comfortable with the strategy we have planned,” Borghetti says.

“The question then is, is the volume increase that is coming in because of the dollar, is it going to be net better or worse than the increase in capacity on the Pacific? “The answer to that is, well it will be what it will be, but when you are fighting whatever it is, you know that if you don’t have the best

What typically follows is at least one player pulls out.

product you are going to lose more than the other guy. Luckily we do and we won’t. ” Figures from the Bureau of Infrastructure, Transport and Regional Economics showed the Virgin/Delta partnership offered about 735,000 one-way seats between Australia and the US in 2014/15 financial year, representing a 23 per cent capacity share. Virgin averaged load factors of a tick over 80 per cent, while Delta was at about 86 per cent in 2014/15.

Meanwhile, Qantas, which flies to Los Angeles, Dallas/Fort Worth, Honolulu and San Francisco, was the largest player on the trans-Pacific route with almost 1. 6 million one-way seats to North America, representing about 51 per cent.

And United had 16 per cent with about 500,000 seats across its three Australian routes – Sydney-Los Angeles, Sydney-San Francisco and Melbourne-Los Angeles.

The remainder are held by Qantas-owned low-cost carrier Jetstar and Hawaiian Airlines, which serve Honolulu from various Australian ports.

Qantas had average load factors of about 77 per cent on its Australia-US flights, while United to this country recorded load factors of about 81 per cent, an analysis of the BITRE figures showed.

Domestic Market Shows Some Encouraging Signs

While the trans-Pacific market is going through a period of expansion with new routes and new players arriving on the scene, conditions in the Australian market look far more sedate and overall domestic capacity growth remains flat.

Qantas has been shifting capacity out of mining-related routes and reducing the number of widebodied A330s operating on flights between Australia’s east coast capitals and Perth. On the plus side it has added seats on some leisure routes.

Borghetti says there are some tentative signs things may just be starting to pick up, given recent indicators such as the level of consumer confidence and unemployment figures.

“If I look at the total market, in the last two or three weeks we have started to see a little bit of a bounce at the leisure end,” Borghetti says.

“The business market always travels. But we are starting to see a bit more confidence, a bit more inquiries – some are translating to bookings – and that is a good sign.

We have started to see a little bit of a bounce at the leisure end.

“I think the language that is coming out of Canberra is different language. Has it helped? I don’t know, but I get the sense that is has. ” Although Virgin’s most recent traffic statistics showed the airline carried 4. 2 per cent fewer passengers in the three months to September 30 2015 compared with the prior corresponding period, the decline came amid strong growth in yields or average airfares per passenger.

“Yield was what we’re trying to achieve in that quarter and we did achieve that. We were close to double-digit growth. That doesn’t happen every day,” Borghetti says. “You usually have to sacrifice one or the other and we strategically made the decision that we needed to improve our yield, because our product is better now.

“There isn’t a single rule saying that is the exact right seat factor and the exact right yield. You might want to change it from month to month, or quarter to quarter as you will see.

“Now what we have to do is continue to improve the mix of the types of passengers on our planes, especially now that we have Tiger that can capture all those passengers at the bottom end of the market without us forfeiting that to someone else. ” And Qantas’s yield premium over Virgin, which was estimated at about 40 per cent five years ago, was coming down.

“If we now base those calculations on the same format, what we are finding is that yield premium is half that and going south,” Borghetti said.

Borghetti expects a “halo effect” from operating out of the newly opened Terminal 1 Domestic Pier at Perth Airport, which brings all of Virgin’s regional, domestic and international services and that of its alliance partners on the same side of the airfield, to provide a further boost to the airline’s domestic operations.

“We can confidently go out into the market and say we have got in Western Australia the best ground experience of any airline and we do have the best business class experience of any domestic airline in the world in our new A330 business class,” Borghetti says.

“It is not often an airline can go out and make bold statements like that, but they are true. ”