Climbing up and up down under - Australian aviation on the rise

Growing international trade and improved connectivity are lifting Australia into the ascendant among the general rise of the Pacific nations.

We have all heard the numbers about the growth of the Asia Pacific region and how the axis of the global aviation sector is moving to the east. These discussions are always dominated by the rising stars of the region such as China, India, Indonesia and Vietnam, but thanks to enhanced international connectivity and trade Japan remains one of the key aviation economies in the region.

The International Air Transport Association (IATA) expects 7.2 billion passengers to travel in 2035, a near doubling of the 3.8 billion air travellers of 2016 and the latest update to the association’s 20-Year Air Passenger Forecast suggests that the developing Asia-Pacific region will be the source of more than half the new passengers over the next 20 years. And for Australia, an IATA study shows a forecasted 3.4% average annual growth in international airline passengers through to the end of this decade.

For the Oceania region, which includes Australasia, Melanesia, Micronesia and Polynesia, Boeing sees a need for 1,020 new commercial aircraft though 2035, valued at $160 billion and claims new aircraft technology will play an important role in bringing more sustainable air services into this part of the world.

Air traffic touching Oceania in aggregate is expected to grow 4.7% annually over the next 20 years, mirroring the rate of world growth, according to Boeing, as “airplane technology continues to develop improved range capability and fuel efficiency”. The manufacturer says these improvements are “particularly beneficial” to the remote geographical location of the region by opening new international routes that were formerly unreachable.

“Oceania remains an important market for Boeing as airlines continue to add capacity, modernise their fleets and shift their business models to adapt to this competitive market,” says Dinesh Keskar, senior vice president of Asia Pacific and India Sales, Boeing Commercial Airplanes. “While we see the majority of the demand being for single-aisle airplanes such as the 737 MAX, fuel-efficient twin-aisle airplanes such as the 787 Dreamliner and the 777X will also be needed, enabling airlines to profitably open new routes, never before possible.”

Visitor arrivals into Australia continue to show impressive grow and that is thanks in a big part to enhanced global connectivity and a proactive approach to network development from airports, destinations and Tourism Australia, the Government agency responsible for attracting international visitors to the country, both for leisure and business events.

Latest data from the Australian Bureau of Statistics show that double digit year-on-year growth in visitor arrivals was recorded in all of the first ten months of 2016, bring the total number of arrivals for the year ending October 2016 to a record 8.14 million.

“It’s fantastic to see the number of international visitors from all of the markets Tourism Australia targets grow over the past year with a particularly strong performance from key Asian markets and the US,” says Tourism Australia managing director, John O’Sullivan.

Arrivals from China, Japan and South Korea grew by more than one fifth for the 12 months to October 2016, up 20%, 21% and 28% respectively over the period. Double digit growth in visitor numbers was also recorded from the US (17.6%), Malaysia (16.3%) and Singapore (15.7%) for the year.

Growth in visitor numbers to Australia was driven by the leisure segment (+14.7%), in particular by holiday arrivals (+25.1%) across the 12 months with Tourism Research Australia visitor survey data putting annual international visitor spend at approaching $40 billion, a more than 11% rise over the previous year. Growth across the three key north Asian markets of China, Japan and Korea had resulted in a $12.3 billion contribution to Australia's economy alone in the last year.

There were over 25 million international inbound seats into Australia in 2016, with New Zealand remaining the largest market by visitor arrivals, up 3% in the 12 months to October 2016 to 1.34 million passengers. There are over 425 flights per week between Australia and its ‘neighbour’ island, with capacity up 9.7% in the past year as additional city pairs and frequencies have been added. This market is worth around $2.7 billion in terms of visitor spend.

However, it is being quickly caught and will soon be overtaken by the strong Chinese outbound market, which delivers significantly more economical benefit into Australia. An estimated 1.17 million passengers arrived in the country from China in the last year, up 20% on the previous year thanks to enhanced connectivity between the nations boosting annual capacity by more than a third (35.1%). This market is currently estimated to worth around $9 billion annually in visitor spend, a number that is certain to rise thanks to recent changes to the air service agreement between China and Australia.

Chinese and Australian airlines now have unrestricted international access into each other’s markets through this new arrangement for an “open aviation market” between the countries. This will pave the way in particular for China-based carriers to maintain their strong growth into Australia and add new routes from China’s emerging second and third tier cities into Australia.

The deal will certainly benefit Chinese airlines more than their Australian counterparts due to the heavy bias in traffic flows outbound from China. However, Australia’s minister for infrastructure & transport, Darren Chester, notes that there are also transfer benefits to the country’s long-haul operators.

“We have also liberalised traffic rights and code share arrangements, which are important for Australian airlines,” he says. “This will enable Australian and Chinese airlines to service destinations between and beyond both countries, and will allow them to take full advantage of their cooperative arrangements with their commercial alliance partners.”

China is now Australia’s fastest growing major source market in terms of annual visitor traffic and Tourism Australia’s John O’Sullivan highlighted at the recent World Routes air service development forum in Chengdu, China, that key to building this success had been moving away from supporting traditional group tours and aggressively targeting China’s rapidly emerging middle class.

Fastest Growing Major Inbound Markets into Australia
Rank Market Inbound Seats (2016) Capacity Growth Since 2010
1 Qatar 445,000 304.7 %
2 China 1,630,000 179.6 %
3 United Arab Emirates (UAE) 2,480,000 167.4 %
4 Philippines 395,000 128.8 %
5 Indonesia 1,925,000 74.9 %
Source: AirVision Market Intelligence from Sabre Airline Solutions

Air capacity from China into Australia has almost trebled this decade, but it has not been the fastest growing international market in terms of capacity. That has been the Gulf state of Qatar, where again a more liberal approach to aviation regulation has allowed its national carrier, Qatar Airways, to significantly grow flights into Australia from its Hamad International Airport hub, supplemented with passengers from across its global network.

After debuting in Australia in 2009 with flights into Melbourne, Qatar Airways added flights to Perth in 2012 and in 2016 added both Adelaide and Sydney to its network. From June 2017 it will deploy its Airbus A380 into Australia for the first time on the Melbourne route, enabling it to double its daily capacity since the launch of link, while maintaining just the single rotation.

Over this decade the United Arab Emirates (UAE) has emerged as the third largest origin market for capacity into Australia behind New Zealand and Singapore. Like Qatar Airways this partly lends itself to the dramatic growth of Gulf carriers, in this case Emirates Airline, which now offers non-stop flights from Dubai International Airport into Adelaide, Brisbane, Melbourne, Perth and Sydney, with four of the five markets now served using A380s.

However, it is also due to the introduction in April 2013 of a ten-year partnership between Qantas and Emirates for the Australian flag carrier to route its flights from Melbourne and Sydney to London Heathrow via Dubai International Airport instead of via their former Asian route.

The UK market and the famous Kangaroo Route is important to Australia and it remains the third largest for annual arrivals (approximately 710,000 visitors in the last year) and second largest in terms of value with an estimated $3.7 billion visitor spend, up 6% on the previous year. Connectivity choices along the Kangaroo Route are immense with options via the Gulf (Qatar and UAE) and Asia (Brunei, China, Hong Kong, Indonesia, Malaysia, Singapore and Thailand) and from 2018 will see the arrival of the first ever non-stop flights between the countries.

Thanks to improving technology and enhanced efficiency, Qantas will introduce a daily non-stop Perth – London Heathrow service. The Perth – London flight at 14,498 kilometres and 17 hours will not hold the title of being the world’s longest when it is launched in March 2018, a position currently held by Air India after it switched its Delhi – San Francisco route to operate across the Pacific rather than the Atlantic to increase the flight distance to 15,127km, but it is certainly one of the most significant in terms of global aviation connectivity.

“This is a game-changing route flown by a game-changing aircraft. Australians have never had a direct link to Europe before, so the opportunities this opens up are huge,” says Alan Joyce, chief executive officer, Qantas Group. “When Qantas created the Kangaroo Route to London in 1947, it took four days and nine stops. Now it will take just 17 hours from Perth non-stop.”

Not only will the route open new trade opportunities from Western Australia, a market previously used as a stop-over on flights to London between the 1940s and 1960s, it will also generate some passenger flows currently originating or terminating in Eastern regions of Australia.

“A direct flight makes travelling to Australia a much more attractive proposition to millions of people. We expect many travellers from Europe will start their time in Australia with a visit to Perth before going on to see other parts of the country. Our modelling shows that people from the East Coast as well as South Australia would fly domestically to Perth to connect to our non-stop London service,” adds Joyce.

Nigel Mayes, senior vice president consulting and product development at air service development consultants ASM, describes the proposed new Qantas ultra-long-haul link as “one of the most eye catching recent developments” in the Australian aviation sector.

"This is an attractive proposition for Qantas because it's one of the largest O&D markets in the world which currently has no direct route. Qantas' new Boeing 787-9 Dreamliner aircraft now enables them to serve that direct and therefore potentially gain a competitive advantage,” he says.

"There are currently 249,000 passengers travelling annually between the two cities - and two million between the UK and Australia - and Qantas will undoubtedly hope to attract a larger share of this market with the new service.

"In addition, Qantas have a major partnership with Emirates and this route could actually assist both parties. There are bilateral constraints to major centres such as Sydney, Melbourne, Auckland, Darwin and the Gold Coast via the Middle East; so a direct route to Perth could relieve some of this capacity and benefit both the airlines."

The international market may generate important income for Australia, but domestic demand is the lifeblood of the country’s connectivity system and despite the recent global financial crisis it has remained resilient. With a total area of 7,692,024 km2 Australia is the largest country without land borders, the largest completely in the Southern Hemisphere and sixth largest in the world, and therefore regular and reliable air services are essential.

An estimated 53 million passengers flew domestically in Australia in the last year with the Melbourne – Sydney air corridor among the largest in the world by passenger volume. After a small decline in domestic capacity in 2015 (down 0.7%), the market returned to growth in 2016 (up 0.9%) reaching a record high of 79.2 million seats.

Although data shows that 19 air operators performed domestic flights within the country in 2016, the market is dominated by Australia’s big three airlines. Together, Qantas (34.6%), Virgin Australia (28.9%) and Jetstar Airways (20.6%) have a combined 84.1% share of capacity.

New Zealand knows the Americas potential

To many Air New Zealand is known for its trans-Tasman operations but the carrier has huge ambitions to grow its network into the Americas, taking advantage of its existing connectivity into Australia to secure a major share of the developing Australia – Americas market. With a home market of just over one million O&D passengers in and out of the Americas over the last year (12 months until October 2016), Air New Zealand plans to grow its share of the four million plus passengers that are flying in and out of the region to and from Australia.

“Australia is a huge strategic opportunity for us once Australians understand that using Auckland as a one stop hub to North or South America makes great sense - particularly for those currently starting their long-haul journey with a domestic connection,” says Christopher Luxon, chief executive officer, Air New Zealand.

“We’re well established as the preferred airline for Australians travelling to New Zealand and one of Australia’s most respected brands, however, many Australian travellers still think of us as a trans-Tasman carrier and that’s a perception we’re determined to change,” he adds.

Capturing just a little bit more of that market would see hundreds of thousands more Aussies flying with Air New Zealand to North and South America. The airline currently has a 5.9% share of the Australia - Americas, but with an expanded network through new flights from its Auckland International Airport base to Buenos Aires, Argentina and Houston, USA from December 2015, it expects to increase passengers connecting to and from Australia. These add to its existing flights to Honolulu, Los Angeles, San Francisco and Vancouver in the United States and Canada.

RN1 Australia

This article is modified from an original feature that appeared in...

ROUTES NEWS - ISSUE 1, 2017 

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