Sydney-Los Angeles game of chicken continues

If you're a passenger thinking about flying between Sydney and Los Angeles, things can't get much better. If you're one of the four airlines that fly that route, things can't get much worse. Earlier this month Delta became the fourth airline to fly between the two cities, joining Virgin-backed startup V Australia, which had entered the market this past February. They joined Qantas and United, which have shared a cozy duopoly for the past 15 years on the route (since Continental stopped flying it), and the result is a four-way game of chicken and a fare war that won't end until one airline drops out - all amidst a dismal business travel climate.

The airlines are resorting to tactics that have an air of desperation to them. Qantas is allowing kids to fly for free on the route, and when you buy a business class ticket, you get two for the price of one - deals that the airline has labeled "unprecedented." Said a Qantas spokesperson: "This is the first sale of its kind for many, many years." Qantas, which used to control nearly 75% of traffic on the route, now flies around half. Before things got bad, the airline made around a quarter of its cash on the route, and even though it's losing money there like everyone else, Qantas has interest enough to stick it out and wait for the situation to improve.

Then there's United, which has come out with the uncharacteristically ballsy proclamation that it would match any competitor's fare between Sydney and Los Angeles. "United is determined and committed to matching the initiatives of other carriers and we'll compete aggressively on price if that's what's required for us to protect our business here," said their Pacific vice president, James Mueller, quoted in The Australian. "I look at our services to Australia as sort of our southern cornerstone of our overall Pacific product offering... [we] fully intend to keep operating here indefinitely." According to the article, United's revamped premium cabins have paid off, with the airline's market share on the route holding steady (for now). United has been flying the route for nearly 25 years, ever since it purchased Pan Am's Pacific route network in April 1985.

And then there are the new entrants: V Australia and Delta. Things have become more complicated now that Delta has announced a joint venture with V Australia parent Virgin Blue, to say nothing of the latter's codeshare agreement with United on domestic flights from Sydney. Some analysts are predicting that one of the airlines could leave the market as early as October, but which one? Both Qantas and United are so well-entrenched in the route that I don't see either giving it up; this leaves Delta and V Australia. Some have said that Delta, being the larger of the two, won't be the one to pull out, but I'm not so sure. If Delta does drop LAX-Sydney, they might lose their claim to flying to all six inhabited continents, but right now it can't be much more than another international route for them. V Australia, on the other hand, doesn't have anywhere else to turn to if they drop the route, apart from service to Los Angeles from Brisbane and Melbourne.

So, if you're planning a trip to Australia, book now while prices are low - before the game of chicken comes to an end.

photo by code20photog from Flickr

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Delta starts flights on crowded Sydney-LAX route

photo: Delta flight 16, a Boeing 777-200LR, gets ready to leave Sydney. Photo by AFP

Delta Air Lines started Los Angeles - Sydney service on July 1, becoming (as Fish pointed out) the first US airline to fly to all six 'inhabited' continents since Pan Am. If anything, it further sends home the message that Delta is now a major international player, and that it's putting some of the route authorities it acquired with Northwest to good use. Even though the US, unlike so many other countries, has never had an official 'flag carrier,' Pan Am was the closest to it until it went bust in 1991. So perhaps now Delta has assumed that mantle - not bad for an airline that, 80 years ago last month, started out as a crop-dusting operation in Louisiana.

But Delta had better not be expecting an easy ride on the US-Australia route, which is known for being a major cash cow for the airlines that fly it. Up until recently, those airlines were Qantas and United, and they both made a lot of money (Qantas apparently makes 20 to 30% of its money on the route, and I recall that United also also attributes a pretty hefty amount of its earnings to the route as well). United and Qantas had a lock on the market, and if you didn't like one of those airlines, your options were, well, rather limited (unless you wanted to fly via Asia, which adds several hours). Qantas flew about 70% of the traffic, leaving United with the remaining 30%.

But Virgin offshoot V Australia started flying between Sydney and Los Angeles this past February, and suddenly things got complicated - the formerly lucrative route has turned into a money-losing one. Fares went down, as they usually do when a carrier enters a new market; over the past year, prices have gone down by more than half. Qantas' market share on the route is expected to fall to just over 50%, and just as badly, their international yields were down 25% in May versus the same month last year. Capacity will be going up by as much as a third, now that there are new airlines flying the route and Qantas is using the A380, and that can also lead to lower yields.

Still, nobody's giving up, at least not yet. "[The route] is such a jewel that we intend to keep it," said Alison Espley, United's general manager for Australia and New Zealand. "Someone may not last the distance, but we will." She said that United has been flying the route for 24 years and isn't going anywhere, and that other airlines are going to "have to look very seriously" at exiting the route. Virgin chief Richard Branson similarly predicts an airline exiting, but of course, not his own: "I would put money on either Delta or United not flying across the Pacific in two to three years." By year's end, predicts Flightglobal, the market share on the route will be Qantas 60%, United 17%, V Australia 15%, and Delta 8%.

What used to be a comfortable money maker is no longer, and chances are that at least one of the four airlines might have to consider stopping flying Sydney-Los Angeles pretty soon.

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Airbus slows A380 output

photo by NguyenDai

Airbus unsurprisingly announced that it would lower the amount of A380 aircraft it produced this year to 14, down from 18. Originally, the company had planned to increase production this year compared with last (and still is expected to deliver 20 next year), but the weakened economy and recent scare over swine flu has had an impact on travel demand, causing airlines to defer/delay some aircraft deliveries. IATA has estimated that air traffic, which started declining back in September, fell by 11% in March. (The figures for April will be released soon.)

It's only the latest bump in the A380 program, which has not only seen cost overruns (development spending is now at $18 billion, up from the originally planned figure of $12 billion) but also substantial delays. Singapore Airlines, Qantas and Air France are expected to be among the airlines that take delivery of A380s this year. And Airbus is also scaling back production of other models, too - a move that competitors Boeing and Embraer have also followed.

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Branson launches V Australian

As an Open Skies agreement between the United States and Australia takes effect, Richard Branson's newest addition to the Virgin fleet was announced earlier this week. V Australia, a division of Australian carrier Virgin Blue, will fly from Sydney to Los Angeles starting in December, competing with Qantas and United (which are the two airlines that currently fly the route). Branson said that "there is going to be very fierce competition, as there is with Virgin Blue and Qantas in Australia, and fares will definitely drop quite dramatically across this route... Our philosophy is never to go out with an empty seat."

Fares are relatively cheap - V Australia's return economy seats start at $1899. A special promotional round-trip fare of $777 for the first 1000 US passengers to book sold out quickly. In terms of aircraft, V Australia will start out with a single Boeing 777-300ER (it has ordered 6 total). Right now, Los Angeles is the only concrete destination, but the airline has also been interested in flying to Japan. It has also applied to the US Department of Transportation for approval to operate from Sydney to San Francisco, Las Vegas, Seattle, and New York.

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