A new influx of capacity is heating up competition on the crowded—and lucrative—routes between Australia and Europe. But it is not the home-market carriers on either end that are gaining. Instead, this is increasingly becoming a key battleground for the Middle Eastern and Asian airline giants.

This has always been one of the highest-profile long-distance markets, thanks largely to the so-called Kangaroo route from the U.K. to Australia. In a dynamic that is being echoed all over the globe, legacy airlines based at the extremities of this corridor are struggling to compete against carriers with growing hubs in the Persian Gulf region, Southeast Asia and China.

Emirates and Singapore Airlines have established themselves as leading players on Europe-Australia routes, which all require at least one stop due to their length. Most European airlines have pulled out, and Qantas and British Airways have retrenched. Other carriers such as Etihad Airways and China Southern Airlines have entered the fray to underline their emergence as industry powers.

A fresh phase of growth is underway, with most of the relative newcomers planning significant expansion in the near future. The demand for service to Australia is further demonstrated by the fact that three airlines operate Airbus A380s to multiple cities, and at least another two will bring A380s to this market as soon as their deliveries begin. Only five other airports globally have more A380 service than Sydney.

Qantas has certainly recognized the changing dynamic of this market. As well as cutting back its European flights, it is considering linking with Emirates to take advantage of the Gulf carrier's extensive European network. If this deal eventuates, it would represent an admission that if you can't beat 'em, joining them is the only alternative.

Rival Virgin Australia has already reached this conclusion. It has formed a partnership with Etihad Airways, relying primarily on the Gulf airline's Europe services rather than attempting to start its own flights there.

The comparative weakness of alliance partners Qantas and British Airways on the Australia-Europe routes “is explained quite simply by geography,” says Craig Jenks, president of Airline/Aircraft Projects Inc. They are based at either end of a route that requires a stopover, and so they do not have hubs in the middle like other airlines in this market.

Qantas and British Airways “just can't compete,” says Jenks. For the airlines that can connect the two legs at their hubs, filling both flights is easier. However, Qantas and BA have a harder time replacing the passengers that disembark at their main stopover point in Singapore.

“Hub logic says you want to be in the middle, offering multiple one-stops” to a large number of European and Australian destinations that Qantas and British Airways cannot match, Jenks says. The stop in the middle is a “huge minus” for BA and Qantas, but a “huge plus” for their competitors.

This has been an important factor for Emirates to capitalize on, says Barry Brown, the airline's vice president for Australasia. He uses the example of Australian travelers wanting to fly to Vienna: on Qantas or British Airways, they could fly to London one-stop, and then transfer again to Vienna. On Emirates, they could get to Vienna by transferring once in Dubai. While Qantas can offer 28 two-stop code-share flights to Europe through London, Emirates can offer about the same number of one-stop routes.

Sydney Airport's executive director of aviation services, Shelley Roberts, agrees that the Middle Eastern carriers such as Emirates have a network advantage on European service. “What we're seeing is that people are wanting to fly directly into Europe [from the stopover point], to wherever they're going, rather than flying into London, for example, to then travel backward” into Continental Europe.

The Australia-Europe market has seen a dramatic change in its major players, Roberts says. In 2000, six European airlines flew to Sydney, from the U.K., France, Austria, Italy, Greece and the Netherlands. Of those six, only British Airways remains—although Virgin Atlantic has since added service via Hong Kong.

This does not reflect any dip in demand—the market is still there, it is just being served by different airlines, Roberts stresses. There has been significant “transference of traffic” from Asian connecting points to Middle Eastern hubs in recent years, she says. In fact, Sydney Airport is seeing growth in overall European traffic, “so clearly those markets are being stimulated” by the increased competition.

Eighteen carriers offer service to Europe from Sydney with a stop in Asia or the Middle East, according to airport data. Another three offer a stop-over in the U.S., although these are longer routes often used by travelers who want to spend time in U.S. and European cities on the same trip.

Qantas has admitted its international division is struggling in the face of new long-haul competition. The airline has pruned back its Europe service and is more likely to continue cutting rather than adding flights in this market.

Currently, Qantas flies daily from both Sydney and Melbourne to London via Singapore, both with A380s, and has a daily Sydney-Singapore-Frankfurt flight. Qantas also code-shares on British Airways' daily London-Singapore-Sydney route. In addition, Qantas has 24 weekly flights to Singapore from Perth, Adelaide and Brisbane, and these can connect to onward Qantas and British Airways flights.

Prior to March, Qantas operated routes to London through Hong Kong and Bangkok, but it elected to eliminate the London leg of these flights. British Airways made a similar decision to cut its Australian services beyond these two cities. The airlines still connect to each other's flights in Hong Kong and Bangkok, however.

Should a code-share deal with Emirates come to pass, Qantas would probably end its Frankfurt flights at least. Qantas CEO Alan Joyce has indicated that linking with other airlines is part of the solution for the carrier's ailing long-haul operation. But picking the right partner will be key, and the existing British Airways partnership would likely be a casualty of an Emirates link.

In contrast to Qantas and British Airways, Emirates has been continuing to ramp up its flights from Australia to its Dubai hub, allowing links to London and the rest of its European network. Brown says Australia and New Zealand now represent Emirates' second-largest market by revenue, behind only the United Arab Emirates.

Despite Qantas pulling back its European services, competition is tough on these routes, Brown says. Singapore Airlines is “firmly entrenched” in Australia, and while it is too early to determine the impact of the Chinese airlines, “they will be a force” at some point.

Emirates will have a total of 84 flights a week between five Australian cities and Dubai by March, after it adds daily service to Adelaide and boosts Perth frequency to three flights a day. It has three daily flights to Melbourne and Sydney, one each with an A380. The airline is on record as targeting 100 flights a week into Australia, Brown says.

The current governmental air services agreement only allows Emirates 84 flights a week. However, the daily flight to Adelaide will not be counted under the cap, so Emirates can still add seven more frequencies to the larger cities. Brown says the airline will wait until it is using all rights available under the current agreement before pushing for rights to be expanded.

Singapore Airlines (SIA) is the largest of the foreign carriers in the Australian market. It operates 101 weekly flights into five Australian cities, including four daily to Sydney and three daily to Melbourne, Brisbane and Perth. Two each of the Sydney and Melbourne flights use A380s. A fourth daily to Perth will be added in October.

The airline serves 14 cities in Europe direct from Singapore, and starting in October it will boost its London service to four flights per day.

Competition on the Australia-London route is hardly a new phenomenon, although it has intensified with the entry and growth of carriers from the Middle East and other Asian countries, a SIA spokesman says. While the airline will not divulge details, the spokesman says the Kangaroo route “remains one of the major contributors to [SIA's] overall revenue.” Australia-London revenue increased in the first quarter of its 2012-13 fiscal year, compared to the same period a year earlier.

Etihad is another carrier that is increasing its foothold in Australia. It does not have the volume of flights that Emirates has, although it has the advantage of a strategic partnership with Virgin Australia that helps increase domestic feed for its services to its Abu Dhabi hub.

The airline operates 18 weekly flights from Melbourne and Sydney to Abu Dhabi and three one-stop flights a week to Brisbane via Singapore. The Brisbane service will increase to daily in February. Etihad also code-shares on three weekly Virgin Australia flights to Abu Dhabi.

Etihad CEO James Hogan says the Australian market will be among the first to see the carrier's A380s after its deliveries begin in late 2014 or early 2015. The first four routes are likely to comprise London, New York, Sydney and Melbourne, he says.

China Southern is also staking its claim. The carrier operates 31 weekly flights from its Guangzhou hub into the four largest Australian cities, including double dailies to Sydney. During peak times, it also boosts Melbourne service to twice daily, giving it a total of 35 flights.

The Australasia region has been a priority for China Southern as it has ramped up its international operations, says Henry He, the carrier's regional general manager for Australasia. Just three years ago, China Southern only had seven weekly Australian flights, all to Sydney.

This expansion is expected to continue. Including its daily service to Auckland, China Southern has up to 42 flights a week to Australia and New Zealand. It aims to raise this to 55 by the end of 2015.

China Southern markets its Australia-London service as the “Canton Route.” Guangzhou has a geographical advantage versus other hubs that link Sydney and London, the carrier says, as the Guangzhou route is slightly shorter than those that connect in Singapore or Dubai.

China Eastern Airlines and Air China also operate to Australia, although to a far lesser extent than China Southern.

Other Asian carriers have much more significant roles in the Australia-Europe one-stop market, adding to the range of connecting points. Cathay Pacific Airways is one of the strongest, with 77 weekly flights to six Australian cities from Hong Kong, including three flights a day to both Sydney and Melbourne.

Malaysia Airlines has 49 weekly flights to five Australian cities from Kuala Lumpur, and it intends to introduce A380 service on its Sydney route beginning in November. Thai Airways, meanwhile, has up to 38 flights a week to four Australian cities from Bangkok.

Despite the length of the routes, the Australia-Europe market has attracted some low-cost carrier (LCC) interest. Kuala Lumpur-based AirAsia X operated flights to London for three years and Paris for one year, which connected to its Australian services. However, it suspended both European flights earlier this year. High fuel costs, increasing taxes and fees and the Eurozone crisis all contributed to the demise of these flights, says AirAsia X CEO Azran Osman-Rani.

The carrier will likely look at resuming European flights in the future, but probably not in the next few years, Osman-Rani says. He believes the Airbus A350s that AirAsia has on order will be perfect for Kangaroo-route flights. AirAsia X was flying A340-300s to Europe, and while this was viable with fuel at $80-90 a barrel, it would not work with current prices, says Osman-Rani.

There was good customer demand for a low-cost product in the Australia-Europe market, Osman-Rani says. However, the financial crisis hit leisure travel particularly hard. He believes it is unlikely that other LCCs will attempt to fly the Kangaroo routes in the near future. Carriers are “generally staying away from long-haul low-cost, and Europe would not be a good place to start” with that model, he says.