V Australia Heads To The Middle East

Long-haul subsidiary of Virgin Blue, V Australia, has announced that it will begin new non-stop services from Sydney to Abu Dhabi commencing February, 2011. The Hub analyses this move.

Virgin Blue is currently the second largest operator in the Australian market, second only to Qantas which has a market share of 23% of all scheduled flights; the Virgin Blue Group also owns New Zealand based Pacific Blue. V Australia currently offers long-haul services from three source markets in Australia: Brisbane, Melbourne and Sydney. Operating a fleet of B777-300ER aircraft, the carrier operates to four destinations: Phuket, Los Angeles, Nadi and Johannesburg. The V Australia weekly frequency is summarised below.

Source Flightbase 14-20 September 2010

A FOCUS ON INTERLINE AGREEMENTS

The new service to Abu Dhabi is part of a new V Australia strategy as the carrier will rationalise its network from February next year. It will discontinue services to Phuket, Nadi and Johannesburg, and concentrate on two destinations, Los Angeles and Abu Dhabi. The common denominator of the two remaining destinations is the importance of codeshare agreements that are in place. V Australia has such an agreement to Los Angeles with Delta Airlines, where Delta is the fourth largest carrier at Los Angeles offering scheduled flights to nearly 30 onward destinations, providing invaluable connectivity within the US.

V Australia will also implement an agreement with Etihad Airways for the Abu Dhabi to Sydney route. Etihad Airways currently serves Sydney from Abu Dhabi eleven-times weekly. The agreement with Etihad via Abu Dhabi will give V Australia the ability to target the European market. In fact, Abu Dhabi will offer more European access than with Virgin Atlantic via Los Angeles. Choosing Abu Dhabi instead of a Far Eastern hub means that V Australia will secure a greater share of the pro-rated fare, as it is taking passengers on two thirds of the journey instead of one third, which would be the case with an Asian hub.

Etihad offers connectivity to twelve destinations in Europe according to September flightbase data, a key opportunity to tap into the lucrative Europe to Australia market. Between June 2009 and 2010, over three million O+D passengers flew between Australia and Europe, with Emirates leading the way with a 21% share of this traffic; Etihad, meanwhile, was the fourth largest carrier with a 7% share of this traffic, behind Qantas and Singapore Airlines.

The new agreement will allow Etihad access to the Virgin Blue network in Australia, and in turn, V Australia will have access to the Etihad European network, where the are large ethnic markets such as Athens, and also its wider network in the Middle East, where the are also large ethnic markets such as Beirut. Beirut actually saw over 83,000 O+D passengers travelling from Sydney to Beirut between June 2009 and 2010 without any non-stop services operated.

FUTURE GROWTH

With low-cost long-haul competitor Jetstar currently serving Nadi and Phuket from Sydney with A330 equipment, there is already intense competition in the low-cost long-haul market from Australia. With a model that has yet to be successfully employed across the globe, with only AirAsia X service from Kuala Lumpur to Stansted proving lasting, it seems that V Australia will no longer serve destinations where it is completely reliant on point-to-point traffic and is developing a hybrid business model between network and low-cost carrier.

With Jetstar, which is part of the Qantas group, having ambitious plans for long-haul growth into Asia and Europe, V Australia will be seeking to develop agreements that can add value and connectivity to new destinations. With Jetstar having up to 25 B787 Dreamliners on order, competition is sure to increase in the low-cost long-haul sector.

WHERE NEXT FOR V AUSTRALIA?

A Brisbane to Abu Dhabi route is expected to follow soon after in 2011, and Melbourne would also appear to be a natural progression.

With Air India commencing services from Melbourne to Australia there is currently a huge unserved market potential between Australia and India. Between June 2009 and 2010, over 619,000 passengers flew between India and Australia, with no non-stop service. Singapore Airlines benefitted greatly from this, receiving 37% of the resulting traffic. As Air India is set to commence non-stop services from Delhi to Melbourne, it may make sense for V Australia to look at a partnership with Air India and its subsidiaries to form a codeshare agreement, thus allowing them to take advantage of the huge flows between the two countries, with both carriers able to offer connectivity at both ends of any potential route.

Whilst connecting into another network carrier's hub makes strategic sense, it could be argued that V Australia needs to look for carriers that will offer significant opportunities in the US domestic, Asian regional or a comprehensive European network. Despite the opportunity for connecting traffic , Abu Dhabi is a limited O+D market to Sydney with just 16,000 passengers travelling between June 2009 and June 2010.