Wednesday, December 03, 2008

Qantas and British Airways merger means bringing the pacific pain to the Kangaroo Route

Story on CNN that BA is in talks with Qantas over a merger (thanks to iKangaroo on twitter where I spotted the story).

I hate this idea.

Right now Qantas is gouging me and every other customer on the Pacific Route (East Coast Australia to West coast USA). Qantas earns 40% more revenue per passenger kilometre on that route than the Kangaroo route because...they can. And they "can" because there is no competition. The only "competitor" (if you can call it that) is United. The US and Australian governments have restricted who can fly this route - ensuring profit good times for Qantas and high prices for me. There are possible long way round options with Canadian and Hawaiian Airlines but the routings and timings are terrible. V-Australia (Virgin Blue's long haul play) is due on the route in Feb 2009 but there is only limited capacity improvements expected and how they will connect out of LA to other US destinations is not clear. Basically Qantas own this route and take advantages of customers because of it.

I ranted about this a lot in a recent post - "Open Skies between the US and Australia: There is no one I don't hate right now".

Currently we (travelling consumers) have been spared this gouging on the Kangaroo Route (Australia to UK/Europe and a Qantas Trade mark) because more than thirty carriers fly this route in addition to BA and Qantas from the well respected - Singapore, Cathay, Emirates, Virgin-Atlantic, Etihad, to the mid ranges - Malaysian and Thai, to the micro and niche - AirAustral, to the "no way in hell would I get on it" - Garuda.

But the UK and AU governments let BA and Qantas enter into a "Joint Services Agreement(JSA)" in 1995 allowing them to
"coordinate scheduling, marketing, sales, freight and customer service activities"
In other words to engage in behaviour that otherwise would be anti-competitive. When accused of this BA and Qantas point to the above facts - that 30+ carriers fly the route as proof that competition continues. However since the JSA was signed the following airlines have pulled out of the route - KLM, Alitalia, Air France, Lufthansa, Lauda Air, Austrian Air. Do you see a common theme? In fact there is now not one Continental European carrier flying the route. Not one. All have been forced to pull out because of the scheduling and marketing collusion of BA and Qantas under the JSA (OK..maybe in the case of Alitalia there have been other causes).

I have a (legitimate) concern that a merged BA and Qantas will have further competition consequences and help Qantas to extend their Pacific gouging to the Kangaroo route. If the government is listening please squash this. Then again it is the AU government(s) that allowed the JSA and Pacific Route dominance to continue.

Update - Delta have announced they will fly the route around July 2009. The Cranky Flier has written a post showing what this means in terms of flight schedules across the Pacific.


samdaams said...

Doesn't Air NZ fly this route? I guess they don't do it direct though (that Hawaii stopover is really nasty, hehe). In any case, from a competition pov I couldn't agree more. I hate it that this kind of thing is governed and not just left over to a free economy. If it were, then I'd have no problem with a proposed merger.

Side note: nice meeting you at Phocuswright. I also decided to finally blog about that pre-flight entertainment on Air NZ (I really sound like I'm working for them now!):

Tim Hughes said...


Absolutely right that NZ fly the route but it goes through NZ and therefore is very difficult to compare it head to head with QF and UA. Should have talked about it above


Anonymous said...

Completely agree. With this and your previous posts on this matter.

Unfortunately dont hold much hope given recent AU Fed Govt paper on future aviation policy that states FOREIGN airlines will continue to be barred from carrying passengers between AU and the US.

The loss of EU carriers as you rightly mention should be large flashing sign to regulators as to why any QF BA tie up should be closely looked at.

Unfortunately, the paper also bodes badly re BA and QF as it alludes to possible changes to Qantas Sale Act making it easier for QF to merge.
More at,21985,24740168-664,00.html

Perhaps if the regulators said any change to the investment criteria to allow such a merger came at the price of complete open skies to all routes? Thoughts?

QF really does need a good dose of competition on the all routes to snap them out of their feeling of a 'god given right' to own the Australian customer. Perhaps they might then develop and invest in their flyer's loyalty (lets not start on the L word).

@Sam as well,
I used to fly SYD to SFO and DFW a lot and coming home would often go the AirNZ option as it allows a shorter leg with a stroll, a hot shower, a change of clothes and breakfast in the lounge. Also provides for some leisurely DFree present shopping if need be(rather than at SYD).
Then a short morning hop across the Tasman lands you very refreshed. If you have the chance/option it's worth a try.
Note: I dont work for AirNZ.

Steve Sherlock said...

question: will V Australia (virgin) have enough capacity to make a difference when they start on the route?

Tim Hughes said...

@Steve S - my understanding is that V Australia will start with just 10 flights a week . not all of them direct (ie some from SYD to BNE before going onto LAX). Is like adding 15% capacity. But the bulk of that capacity will be in the leisure classes - not in premium classes (according to the V Australia configurations that I have seen.

@CarlMaxx - thanks for comments. I am going to have another look at whether or not NZ is viable for my twice yearly flight to Chicago

Anonymous said...

Tim- don't disagree with your assessment on the fact that trans-Pacific is a complete ripoff, I'm heading back to the US for the hols and paid - wait for it - $4,500 on QF in the back of the bus. I can fly on soon-to-be-paired BA in premium economy to London for $3,900, which just shows that whilst kangaroo route competition is likely to get a bit smaller it nowhere near rivals the utter lack of competition to the US. United, which has a shocking product and wouldn't fly them anyway, was only $100 less mind you. So even though V Australia is a small dent in the huge yield of trans-Pacific, it will be welcomed!

Anonymous said...

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Tim Hughes said...

@Max Mickle - my advice to you is to stop embarrassing yourself and your company by spamming the blog with links to asiarooms. I am going to keep finding your comments and pointing out to people that the best marketing ideas you can come up with is comment spam. You are only doing your brand harm

Anonymous said...

good one tim.

for some reason im getting a copy of each post on this topic.

i think i will use this as an example in my eyefortravel, singapore presentation.

my arguement is for brands to act more like the spirit of google i.e. to wow users through innovation. rather than just trying to appear in the google index and compromising themselves, like our mate max.

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