Issue 362: Three-Thirty

Just a coincidence? Perhaps. It should be noted though that the air services agreement between Australia and Singapore offers unlimited capacity for airlines of both countries. Further, there are seven airlines that have nonstop flights in the market – British Airways, Emirates, Jetstar, Singapore Airlines, Silkair, Scoot and Qantas.

Meanwhile, the Australia-Hong Kong bilateral is maxed out on the Hong Kong side for flights to the four major international airports in this country of Brisbane, Melbourne, Perth and Sydney. As such, the only Hong Kong flag carrier serving those key markets is Cathay Pacific.

Hong Kong Airlines does currently offer three weekly Hong Kong-Gold Coast-Cairns-Hong Kong flights. However, these will end on October 28. On the Australian side, Qantas had been the only local flag carrier with nonstop flights to Hong Kong since its Australian Airlines subsidiary ceased operations in 2006.

That was until July 2017, when Virgin Australia began nonstop Melbourne-Hong Kong flights with Airbus A330-200s, adding a third player to a market that Cathay Pacific and Qantas had had to themselves since Virgin Atlantic ended its fifthfreedom Sydney-Hong Kong tag flight in May 2014.

The impact on the market was immediate as ticket prices fell some 30 per cent, including tactical sub- $400 offerings from Virgin Australia and $499 return itineraries from Qantas that certainly had the travelling public excited.

Has Virgin Australia’s Melbourne- Hong Kong flight been successful? While airlines are typically reluctant to discuss the financial performance of specific routes, the fact Virgin Australia on July 2 doubled its presence in Hong Kong when it commenced nonstop flights from Sydney offers an indication that things are going OK.

Indeed Virgin Australia chief executive John Borghetti told reporters at Sydney Airport before boarding the inaugural flight to Hong Kong both services had exceeded expectations.

An analysis of publicly available data from the Bureau of Infrastructure, Transport and Regional Economics (BITRE) shows that Virgin Australia had an average load factor of 68 per cent for its flights from Melbourne to Hong Kong during the first four months of 2018. Its inbound flights from Hong Kong to Melbourne had an average load factor of 78.6 per cent.

‘You could call us almost a boutique carrier with high quality at very reasonable prices.’ JOHN BORGHETTI

While average load factors offer no great insight into route profitability, the numbers do suggest Virgin Australia is making a decent fist of attracting passengers in a market where inbound visitors from Hong Kong grew 14 per cent in 2017.

There is still available capacity for Australian carriers under the bilateral, meaning the opportunity for Virgin Australia to grow its Hong Kong operation, which is supported by an alliance with HNA Group carrier Hong Kong Airlines, is predicated on having the aircraft to mount more flights, as well as takeoff and landing slots at the busy Chep Lap Kok Airport.

Borghetti said Virgin Australia’s competitive advantage was its ability to “provide better service for lower prices”.

“Part of the problem with the Australia-Hong Kong is that there were only two airlines operating it and as good both airlines are, the pricing was quite expensive and I would argue that the service and the product is not as good as ours,” Borghetti told CNBC Television in Hong Kong.

“If I was to encapsulate our differentiation if you will, it is that we are, you could call us almost a boutique carrier with high quality at very reasonable prices.”

Looking further ahead, Virgin Australia is also planning to operate to mainland China with its own aircraft. However, that ambition is, for now, tempered by the reality that China’s major centres such as Beijing, Guangzhou or Shanghai, are difficult to access due to the limited number of takeoff and landing slots available.

Virgin Australia’s transformation from low-cost-carrier Virgin Blue to a diversified airline group under Borghetti’s leadership has been, by any fair estimation, an occasionally turbulent one.

However, as Borghetti’s time as chief executive draws to a close – it was announced in June that the veteran aviation executive would retire by the end of calendar 2020 after some eight years in the role – there are promising signs his legacy will include Australia having a second international carrier with a significant presence in key overseas markets such as Hong Kong and mainland China.

That can only be good for Australia.