Was it right for Qantas to postpone Project Sunrise?
Alan Joyce, the chief executive officer (CEO) of Qantas, stated that the Australian airline was “a couple of weeks” away from finalizing its order for the Airbus A350-900ULR that would have launched its Project Sunrise flights. The plan was to launch the non-stop flights between Sydney, Australia and New York and London in the first half of 2023. But was the decision right?
The current crisis has sent Qantas into survival mode. The airline, of course, is not alone, as the whole sector has suffered massively. Joyce himself stated that this was the “worst crisis we have ever come across,” during Centre of Aviation (CAPA) Australia Pacific 2020 Aviation Summit on September 2, 2020. One of the decisions that Qantas was forced to make was to cut costs and limit its capital expenses. The airline let go of over 6,000 employees, with another 2,500 jobs in peril, noted the chief executive. Aircraft orders were also placed on hold, including the 12 Airbus A350-900ULR order, which was delayed until the end of 2020.
“We would rather wait for the coronavirus issue to be out of the way before we put a firm aircraft order in for the A350,” Joyce told the Executive Traveller at the time.
However, what if Qantas were to launch the Project Sunrise flights, despite of the current situation and the uncertain future regarding international demand?
The main problem of international, including ultra-long-haul, travel is the fact that the rules on where customers can land without the need to self-isolate are constantly shifting. The uncertainty does not make a good mix with a risk of contracting the virus, resulting in passengers loosing confidence to fly whatsoever. According to Joyce, the Australian group will not have a substantial international route network until July 2021. Even after it is restarted, Qantas expects to operate its international itineraries at 50% of its pre-COVID-19 levels. While only a forecast, which as Joyce noted can still change, it does illustrate the current mood around international travel.
Numbers, released by the International Air Transport Association (IATA) on September 1, 2020, painted a grim picture. According to the industry body, the demand for International travel crumbled by 91.1%, as capacity was at 85.2% of July 2019 levels. Planes were flying half-full or half-empty, depending on the outlook on life, as on average 46.4% of seats on board were occupied.
“Governments have cooperated to set the guidelines for a safe re-start of aviation,"stated IATA’s chief executive Alexandre de Juniac. "But they have not cooperated to actually make a re-start happen.” Bubbles are an option to slowly restart international travel. Both de Juniac and Joyce have expressed their support for them.
If the issue of people being forced into quarantine is solved, “with markets that have low levels of transmission, like New Zealand, maybe Japan, maybe some countries in Asia, then you could see these bubbles opening up one by one,” commented the chief executive of Qantas.
Travel bubbles have been opened all across the globe, including the ground-breaking Indian attempt to create a multi-national travel bubble. The Asian country has set up agreements with Canada, France, Germany, Maldives, Qatar, United Arab Emirates, the United Kingdom, and the United States. All of the countries, apart from the Maldives and the two Gulf countries, are separated by quite the distance and while do not warrant an ultra-long-haul flight, it is still quite a journey to reach the U.S. from India, as an example. The opportunity was used up by a few airlines, including Vistara and SpiceJet, two Indian carriers who have never flown long-haul prior to their first odysseys to the United Kingdom.
And travel bubbles can provide exactly that: an opportunity for direct, point-to-point connections. In contrast, feeding a hub with traffic can elevate the potential risk or create a hurdle, as governments can and have closed down separate regions or states in one country.
Qantas will resume its international operations with the Boeing 787 Dreamliners, according Joyce. The 787 provides airlines the chance to fly long-haul without hindering the profitability of the flight, unlike the Airbus A380, if to use Qantas as an example. While the Australian carrier believes that there is space for the latter aircraft in its fleet, the A380s will still stay in the Mojave Desert for at least the years.
Meanwhile, the 787, with its smaller size which results in much lower operating costs and almost identical range, can offer airlines the opportunity to attract a traveler who is neither afraid nor reluctant to pay more to travel. The Dreamliner’s main competitor, the Airbus A350, can also do the same and facilitate point-to-point traffic.
“The fleet we will now have internationally, will be the 787s, which I think will be the right aircraft coming out of COVID because it will give us a very broad network,” commented Joyce. According to him, the Dreamliner will provide the airline “with a good mix of premium cabins in it“ and will allow Qantas to operate routes without any stopovers. Direct routes will have an even bigger business case in a post-corona market, added the Australian executive.
The journey from point A to point C, skipping point B, has been on the uptick. Airlines that used to rely on their hubs to facilitate their growth, have now started to switch to more direct traffic. Case in point, Emirates: the United Arab Emirate airline, according to its own chief operating officer (COO) Adel Al Redha, under normal circumstances carried a 70-30% split of transfer and direct traffic. On August 24, 2020, Al Redha indicated that the ratio now stood at 50-50%.
Many uncertainties regarding Project Sunrise
“We think the business case could be even stronger post this,” said Joyce during CAPA Australia Pacific Aviation Summit. However, going through with the plan and ordering 12 Airbus A350-900s, valued at $317.4 million per unit at list prices, would not improve Qantas’ public image in any way whatsoever. Especially at a time when the company is letting go thousands of employees in order to cut down costs.
The airline appears opportunistic regarding its future aircraft purchases. A fixed up balance sheet in the future would allow Qantas to order aircraft when “not many people will be ordering aircraft,” according to the company’s chief executive. There will be opportunities for the Flying Roo to “get even better deals than we did in the past,” added Joyce.
Furthermore, the lack of a unified approach regarding self-isolation requirement across the world, creates issues for launching new ultra-long-haul routes. Passengers might be wary of getting on aircraft if they do have to self-isolate after travelling. The hectic approach of some governments looks like an attempt to hit a piñata with a blindfold on, rather than an attempt to balance the risk of transmission and the well-being of the economy. As a result, demand can suffer and in turn, the profitability of the flight as well. With finances across the board in no shape to take up additional pressure, that is once again, an argument against launching such flights at the given moment.
However, swimming in blue waters can help Qantas further retain its dominance in Australia and establish the airline as a pioneer in a relatively undiscovered model of flying ultra-long-haul routes. Whether now, or two or three years down the line, the answer to the question of when to give the Project Sunrise a green light comes back to the company’s balance sheet.
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