ARCHRIVE (Q1 2015): QF’S NETWORK, SCHEDULE & FLEET MANAGEMENT PROPOSAL (ASIA)

 

(The following is a tentative bid for Qantas’ Asia strategy, utilizing its interline/codeshare partner with large economies of scale/volume/network of China Southern (CZ), and Qantas’ resource-sponsored Oneworld partner Malaysia Airlines (MH). The announcement involves extensive near-JV alliances to expand tangible and virtual pax/cargo routes, services and business/presence in Asia. This although, HAS BEEN DECLINED in favor of retaining much of its business structure, while undertaking a joint-venture with China Eastern (MU) to grow mutual presence in MU’s primary hub (PVG), catchment outreach for Qantas and China Eastern in predominately PRC/North-Asia and Australia/NZ respectively, and accommodating mutual future service propositions. The current Qantas Asia strategy also involves growing Jetstar (JQ) with more point-to-point mid/long-haul contract-leveraged services (Gold Coast to Wuhan proposed service), and growing Jetstar Asian subsidiaries INDEPENDENTLY (with little co-mingling, in sharp contrast to what is explored below). This archive proposition article demonstrates how CONVENTIONAL AIRLINE ECONOMICS textbook understanding of radical changes for growth is often opted in disfavor to conservative growth, trend observation/following, competition-feedback, and sensitive management utilizing incremental changes)

Introduction

Given the market demand and growth within the Asia Pacific region, effective network connectivity, scheduling and fleet is a pivotal aspect to Qantas’ Asia strategy. The network and fleet utilization by Qantas Group will aid the capability of catchment outreach, strategized precinct management and product diversification. Such extensive network requires capitalization on:

  • Price and service discrimination for both business and leisure traffic
  • Flow-on services and risk offset onto other carriers.
  • Low unit cost trunk route services with relatively high capacity and economies of traffic density
  • Liberalization and low interline/codeshare cost incur. Demographic catchment maximization and price discrimination through diversified services.
  • Mutual image revitalization.
  • Seasonal capacity flexibility with high seat factor and utilization

The initiated conversation in regards to Qantas’ Asia strategy from a network, schedule and fleet viewpoint, is to build a strong diversified liberal customer-focused interlinked brands to deliver a strategic objective of sustainable returns to shareholders, safety, strong domestic business, transforming Qantas International and growing Jetstar in Asia (Qantas Annual Report QFAP 2013, p77 2014). Hence the network, schedule and fleet management in providing a wider catchment precinctification and product diversification to facilitate for Qantas Group’s motifs, will be spoken objectively from the following perspectives:

  • Market segmentation in operations
  • Directional Hub/Spoke Operations, O/D distance minimizations and served city pairs
  • Airline Network and mutual benefits
  • Trunk and feeder traffic integration
  • Network Integration and scheduling
  • Prospective multi-hub operations
  • Alliances
  • Travel time: scheduled wait times, airport access, flight time, hub connections
  • Equipment assignment, utilization and cost minimization
  • Operational load factors
  • Initiated efficiencies and Economies of Scale and Traffic Density
  • Inter-linked scheduling pattern utilization
  • Traffic imbalance, seasonality and leasing
  • Airport constraints minimizations, assignment, infrastructure and intra/inter-modal traffic feed.

The culture of these strategies for Qantas’ mainline operations is to be risk averse in the International market and Asian operations around the priorities of high service standards and domestic market operations.

 

Announcement brief: network and service provisions

The culture of this strategy for Qantas’ mainline operations is to be risk averse in the International market and Asian operations around the priority of high service standards and domestic market operations.

Strategy 1

  • To accommodate growth of industry wide RPKs between Australia and East Asia, new routes of Qantas mainline services to Guangzhou Baiyun International Airport (CAN). Trunk routes include SYD/MEL /PER- CAN. Major routes with high volumes will consist of 1 daily service by CZ and QF, where CZ will predominantly have evening CAN departures early morning turnarounds at Australian ports, while Qantas will operate on basis of early morning turnarounds at Guangzhou with evening departures from Australian ports. Adelaide and Brisbane will be codeshared during off-peak periods and Darwin will be purely codeshared onto JQ. Demand based on direct services where current demand is over 500 seats per day. CZ also post losses which can be narrowed if cuts services (Centreforaviation.com, 2014),
  • Utilized fleet will be CZ A330-200/300 and QF A330-200/300, with seasonal alterations of fleet if required.
  • Time discriminatory services utilizing flexible capacity Qantas mainline equipment with high premium configuration on evening Australian-port departures with early morning arrivals into CAN.
  • Non-cost ASK share between China Southern and Qantas mainline between China Southern’s off-season secondary Australian ports operations of ADL/BNE-CAN operations and Qantas domestic operations (CZ capacity cutback required due to over-capacity (Centreforaviation.com, 2014)). Also ASK share on Jetstar trunk and feeder services. ASK purchase opportunity on major CZ network flights if business case feasible.
  • Transit minimizations at DRW. New hub
  • Segmented fares for JQ interline services on CZ operations.
  • Jetstar International network reconfiguration with consistent high-density 787 operations from DRW – CAN. Infrequent few weekly services.
  • New interchange hub at DRW with feeder traffic to/from primary and secondary Australian ports.
  • Interline cost minimizations as product of bilateral, ports and regulatory consultation.
  • Axing of codeshare with China Eastern, Air China and potentially China Airlines.
  • Maintain total capacity share to/from Australian ports from/to CAN by capacity share and subsequent reduction of CZ services. Reductions would include cutbacks to one daily services to SYD and MEL with flexible capacity and possible higher frequencies during high volume seasons.
  • Potential for Qantas and/or China Southern to operate direct services from CZ’s secondary hubs of PVG, PEK or other ports if demand requires it, whereby interline restructure is required.
  • Revampment of in-flight service demanded on Australian and domestic segments as bid to differentiate from Chinese competitors.
  • Long-term future of transferring from Jetstar Hong Kong to LCC induced codeshare/interline with China Southern, if CZ posts interests of equity takeover from China Eastern.
  • Freight hub transfer from HKG to FedEx’s and CZ-Cargo’s CAN hub for Qantas Freight, along with interline opportunities for Qantas to utilize belly cargo and/or seasonal 744 freighter aircraft on the route. Consultancy required with other freight carriers, notable Yangtze River Express and UPS.
  • Cut back capacity while maintaining frequency to HKG to compensate passenger spillage. This can be done by utilization of strategy 2 for expansion of MH network to HKG, or through HKG regulatory body and Emirates in requesting codeshare and provisions of new enroute services of Australian ports to DXB via HKG.
  • Frequent flyer points and lounge/service accessibility
  • Joint terminal proximity and operations

Strategy 2

  • To accommodate the future growth of tiger economies in South Eastern, South Asia and island nations, while also responding to Malaysia Airline’s capacity cutback and restructure (Centreforaviation.com, 2014), Qantas, as part of its Asia strategy of catchment precinctification and product commonality offering, will announce an alliance with its Oneworld partner Malaysia Airlines, and an expansion of current relationships.
  • Qantas announcement of new trunk services of SYD/MEL /ADL/PER – KUL. Qantas will operate routes or codeshare where feasible (codeshare dependency on Brisbane flights). Major routes with high volumes (SYD/MEL/PER/ADL) will consist of daily frequencies by MH (similar to CZ, with MH late evening departure from KUL and Australian port early morning turnaround, while Qantas will operate night flights from Australian ports to KUL, with early morning arrival)
  • Time discriminatory services utilizing flexible capacity of Qantas mainline equipment with high premium configuration on evening Australian-port departures with early morning arrivals into KUL. Also incorporate and retain QF codeshare of Emirates’ BNE/MEL – KUL night operations.
  • Utilization of QF A330-200/300 and MH A330-300 equipment
  • Non-cost ASK share between Malaysia Airlines and Qantas mainline between MH’s off-season secondary Australian ports operations and Qantas domestic operations (MH capacity cutback required due to over-capacity (Centreforaviation.com, 2014)). Also ASK share on Jetstar trunk and feeder services. ASK purchase opportunity on major MH network flights if business case feasible.
  • Segmented fares for JQ interline services. DRW operations. Hub expansion.
  • Demand segmented fares on MH services, which along with capacity reduction, can push MH’s yield on routes.
  • Part of Jetstar’s new revamped operations includes new routes from DRW-KUL on 788 or A320 equipment. Infrequent with few weekly services.
  • Time based conjunctions at DRW for feeder traffic into DRW for the 788/320 services.
  • Interline cost minimizations as product of bilateral, ports and regulatory consultation.
  • Retain most codeshare with other airlines, and only begin axing codeshare only if MH undertakes restructure, turnaround and localized expansion successfully. Long term could see axing of Bangkok Airways, Jet Airways and Vietnam Airlines.
  • Maintain total capacity share to/from Australian ports to KUL by capacity share and subsequent reduction of MH services.
  • 787 operations to Phuket replaced by 320/321 operations from DRW via KUL.
  • Retain SIN and Vietnamese JQ operations only if profitable. Capacity and schedule to SIN on Qantas mainline should remain. Possible rerouting of JQ 788 Phuket to be from Darwin with stopover at KUL. Australia’s main JQ international operations now via DRW.
  • Belly Cargo capacity share. MASkargo to take Qantas Freight capacity to/from KL solely for onward flights to destinations not covered on Fedex’s CAN network.
  • Free-lease agreement for MH fleet common to QF fleet (predominantly equipment share of 737-800 and A330-200/300 equipment. Possible leasing of 777-200ER and A380-800 aircraft to speed up QF 744 retirements and MH’s future fleet consolidation).
  • Frequent flyer points and lounge/service accessibility
  • Joint terminal proximity and operations.
  • Potential consultancy to MASkargo and UPS Airlines for freight share and logistics distribution, with potential 744 QF-freight operations.

Strategy 3

  • Retain distinguished interline and codeshare servicing on Narita/Osaka services for both Jetstar and Japan Airlines. Further increase premium dependency on Narita’s JAL regional operations for Japan and South Korean services. Retain Asiana codeshare.
  • Long term future of starting international localized A320-series services to unfilled Indonesian and Eastern Pacific services.
  • Push for greater utilization of 787s, hence allowing transfer of some orders to QF-mainline.

 

Announced new routes, schedules integration and proposal

The basis of the strategy is to keep ASK and RPK delivery at consistency, while maintaining pricing power of direct services on premium QF-mainline services through operational capacity decreases to major economic hubs, resulting in strategically re-channeling diverse passengers through geographically centric and ideal hubs.

Strategy 1

  • Sydney and Melbourne evening departures (CZ302/301, CZ322/343) with A330-200/300 for 0600 local time arrivals into CAN respectively, will be replaced and operated by QF low-density premium cabins on A330-300 equipment (capacity may be increased if demand required). The new QF services will turnaround at CAN for 2 hours and return for SYD/MEL 2000 arrival time.
  • CZ will retain its evening services from CAN into MEL and SYD morning turnarounds.
  • Perth’s CZ320 flights will fall back to seasonal peak services upon demand, as QF replaces and operates as sole operator of trunk services with A330-200/300 equipment. The new QF flight will depart PER at 2140 for arrival into CAN at 0600 local time.
  • Re-schedule of CZ382 service from BNE to CAN with A330-200 equipment from 0955 departure to 2255 for CAN arrival time of 0600 local time.
  • Introduction of 787-8 (2-5 weekly) services from DRW-CAN departing DRW at 1330 for 1800 arrival into CAN. Turnaround for midnight departure and 0730 arrival into DRW.
  • Reschedule of DRW services from CNS, BNE, SYD, MEL, and ADL and PER for arrival of JQ and QF domestic services into DRW before 1245 DRW time (exclusively for outbound JQ service) AND vice versa for late morning and midday QF/JQ return services to CNS, BNE, SYD, MEL, and ADL and PER.
  • Retain regional QantasLink service schedule.
  • Output is common arrival and departure times for Qantas and China Southern with maximized access to airline’s hub and operations.
  • Morning arrival into CAN allows access to minimum of 75 CZ services within 3 hours layover (FLIGHTSTATS), while evening arrivals allow 55 CZ service connections within 3 hours layover on JQ/CZ evening arrivals from Australian ports. Vice versa on inbound Australian services.
  • Frequency reduction on QF operations to HKG, with potential of partner airlines such as Emirates taking the route if economically feasible (upon government consultation of HKG slot exchange).
  • Frequency reduction of QF PVG services upon fall in demand of direct services in favor of CAN-PVG/SHA operations.
  • Resumption of FX77 SYD-CAN Fedex operations. Capacity share and potential seasonal QF-cargo services.

Strategy 2

  • Sydney and Perth will have schedule altered on its evening departure services. This will include replacement of MH140/141 and MH126/127 to QF A330-300 operations from Sydney and A330-200 from Perth, with high business class density. The flights will be 2250 and 2355 departures for 0430 and 0535 arrival into Kuala Lumpur (capacity may be increased if demand required). These aircraft will turnaround at KUL at 7am with return afternoon arrivals into SYD/PER.
  • Melbourne will have its MH128/129 service retained; yet operations will be independent on this segment as most passengers with QF codeshare will be on EK408/409 service.
  • Brisbane will retain its services with QF codeshares on the flight. Adelaide will have its MH136/139 cancelled and replaced with Qantas A330-300 service departing 0000 (midnight) for a 0615 arrival into Kuala Lumpur and morning turn-back to ADL at 0820 for 5pm arrival back to ADL.
  • Introduction of 787-8 (2-4) weekly services from DRW to KUL complimenting MH’s operations to DRW on MH144/145 (which is evening departure from KUL and morning turnaround at DRW for morning arrival into KUL). Mid-afternoon arrival at KUL and turnaround for morning arrival into DRW. Potential of add-on service of A320/21 for HKT via KUL services from DRW. Operations similar to timing of CAN service allowing reduced transit times.
  • Morning allows 29 connections within 3 hours while 44 in evening (FLIGHSTATS). Frequent MH services allow resumption of MH ordinary operations into Australia without impact of Qantas market share.
  • SIN operations remain yet possible reduction on capacity on Qantas Mainline operations from Australian ports. Jetstar Asia continues service provisions. Possible expansion of DRW-SIN operations on JQ on common A320 equipment with timing and frequency flexibility.
  • Improvement of seasonal operations to other airports thanks to free-lease.
  • MASkargo capacity share, with service resumption on MH6203/6207/6174,6204 operations and seasonal Qantas Freight services to KUL.

Strategy 3

  • Cancellation of all direct medium-haul international services by Jetstar from Melbourne, Gold Coast, Cairns, Sydney and Auckland. Re-channel of passengers through DRW. Announcement of new routes to KIX, NRT, BKK, MNL, SIN, DPS, CGK and other Indonesian and Western Pacific Ports to expand network from DRW. Higher utilization of 787 can allow shift of 787-8s to QF-mainline.
  • JAL codeshare expansion from NRT services exclusively from Qantas. Potentially convert QF 747-400 services to 787-8 with higher flexible frequency. Jetstar operations to/from NRT/KIX will have catchment expansion to domestic and regional services with Jetstar Japan.

(figure 1: JQ-metal ops; figure 2: QF/JQ + partner ops)

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Market Segmentation

Market Segmentation and product differentiation, the conceptual framework of heterogeneous diversity to produce precise distinguishable products for different markets and reservation prices, is widely seen in the sales of perishable seats and services in the airline industry (Scholar.google.com.au, 2014). This is widely seen through yield management, as it utilizes itinerary restrictions, services and time to price discriminate the reservation prices of potential passengers across demographic markets. This has been widely utilized in our proposed Qantas Asia Strategy, through production of new fare classes and types. This will hence improve the end-to-end customer experience in accordance to reservation price. (Centreforaviation.com, 2014). A major attribute to this announcement of catchment precinctification and common product offerings is by attributing your service and your affiliate’s services to consistent product and service to ensure distribution along the demand and reservation price equilibrium of both leisure and business customers.

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From a logistical perspective, itinerary-based market segmentation can be achieved through a variety of ways through our announcement.

  1. Service provisions of given carrier.
  2. Origin and destination based timing discrimination.
  3. Stopovers and network interchanges.
  4. LCC based purchase options (JQ)

The announcement consists of discriminated scheduled services with varied frequencies and timings from/to Australian ports of origin through to/from international Asian destinations via hub stopovers. Such is seen in Jetstar’s multi-point stopovers with interline and restrictive penalties. Leisure travelers will witness JQ multi-stopovers at Darwin and Guangzhou from Australian port origin/destination to East Asian destination/origin. JQ will also have less frequency in services. Product provided also on JQ’s LCC services would also be translated to the lower fares. Business passengers on the other hand will enjoy direct services, greater frequencies, greater in-flight product and lower transit times and less flight time required from Origin to Destination.

Hence the 4 types of itinerary products provided across the price demand curve will be:

  1. Exclusive direct QF operations from Australian ports to major economic hubs (SIN, HKG, NRT, CGK, BKK). Premium interlines opportunities conceived by alliances, CRS and GDS on QF services will remain, especially with Cathay Pacific which shares premium Oneworld responsibilities with Qantas (TheAustralian, 2014)
  2. Premium operations joint with MH and CZ for expansive network operations to Eastern, South-Eastern and South Asia with strategic 1-stop service from/to primary high-demand Australian ports to/from Asian destinations.
  3. Secondary operations on discounted premium QF services to DRW, with JQ services onwards to CAN/KUL (with non-restrictive premium options offerings), and premium interchange onto interlined or codeshare flights.
  4. JQ operations to/from CAN/KUL from/to DRW, upon which low-cost restrictive interline services will be applied from O/D. Multi-stopover with minimized transit times.

 

Directional Hub/Spoke Operations structure, O/D distance minimization and served city pairs

 

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New Picture (7)New Picture (6)Hubs of high trust are seen in software, where it may be imitated into Qantas Group’s operations in Asia, where multi-hub operations with firm customer base enable analogous seat factor, utility and flexibility in operations (Erights.org, 2014)

Directional hub spoke operations is a pivotal concept taken onboard Qantas’ conceptual Asia strategy to reduce to total number of O/D passenger kilometers required to transport for served city pairs. The conceptual framework behind this is the cosine rule, whereby according to the diagram below, route network can be structured such that theta approached 180 degrees to minimize distance between point A and C, while having the hub interline, codeshare and network benefits operating out from B. Assuming both regional catchments A and C are geographically in similar positions, catchment precinctification based alliances can reduce the total kilometers passengers need to travel from origin to destination in Eastern and SE/South Asia through the MH and CZ network.

Additional costs for operating the aircraft through a hub, discluding miscellaneous costs such as parking, landing, navigation, maintenance and wear/tear. This strategy makes use of the near-infinite degrees of freedom the aviation industry can exploit. (Soar.wichita.edu, 2014)

Hub utility of CAN and KUL is utilized further in these strategies, while inducing little passenger-utility induced traffic spill onto other carriers. The scheduled timings for the additional stopover at Darwin befit the market requirements and low reservation cost for its LCC operations, while also accommodating price elasticity and additional operating costs. (Kanafani and Ghobrial 1985, 2014), (Bath.ac.uk oum gillen noble 1987 price, 2014).

Multi-hub operations will resume operations with profitability of Jetstar Asian subsidiaries. This is an added layer of service provisions to allow flexibility and potential cutbacks in Asia ventures, or re-shuffle of interests resulting in pull-outs from Asia.

Majority of impact from this announcement accommodating additional costs from extra services is powerfully subsidized by the impact of city pairs served that Qantas and its subsidiaries will have access to from the Australian market, and widens the catchment Qantas and its subsidiaries serve as part of an outreached hub spoke network.

 

Airline Network and Mutual Benefits

The key drive for this announcement is to really open up the Asian skies for Australian travellers in return of opening up Australian skies with Asian travellers, a rather win-win situation with mutual benefits. Qantas would enjoy catchment widening in its international network through worldwide accessibility partnerships from its Australian customer base, a move of optimization rather than capital-induced expansion.

In return, carriers such as China Southern and Malaysia Airlines would allow themselves to tap into the Australian market by operating fewer services and also distributing its risks onto Qantas. These carriers at low capitals would have an improved image to Australian travellers, just like how Qantas’ partnership with Emirates moved many transit-based tourism to Dubai through International Passengers by Uplift/Discharge growth of 20% per annum (Search.infrastructure.gov.au, 2014).  Mutual carrier benefits that’s offshoot onto partner carriers with Qantas include (Perkins, 2014), (Academia.edu, 2014):

  1. Push for greater customer service
  2. Greater loyalty and customer base
  3. Tourism boost and increase
  4. Capacity expansion through
  5. Penetrative value of money time and service through price and service war
  6. Pushed airline deregulation

Ways to induce capacity, loyalty and customer base sharing is through fares and price bundling, Terminal and utility connectivity, Reciprocal and alliance-based online booking, Multiline regional and round-the-world visitor tickets, Mutual recognition of frequent-flyer-mileage earnings and award-travel benefits with status and Lounge and service access. Such common service providing are pivotal, and requirement to bridge the gap of service quality is essential, especially for CZ international and domestic front. Examples of product improvements on CZ include in-flight entertainment, higher standards of service providing to business customers, and higher quality service. MH requires service consolidation while maintaining current service provisions to its customers. MH also requires, with given opportunity of the Free Lease Agreement, to expand and follow on seasonal demand of regional services around Asia. (1.bp.blogspot.com, 2014)

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Trunk and feeder traffic integration

As integrated in the network hub operations, significance of trunk and feeder traffic for directional services is crucial. Drivers for this are easier streamlined consumer information, economies of scale and image utilization, offshoot of incentive subsidiary services, hub utilization and distribution, and trunk operations.

Market extension has been a key drive in catchment precinctification and expansion of Qantas and its subsidiaries. Feeder traffic allows distribution and variance in the non-standardized demand of distribution from trunk services (in which case is Australian ports – CAN/KUL), and reduces risk of under-capacity and loss. Trunk service redistribution changes the network base of Qantas, although facilitation is being made.

Integration of hubs for feeder and trunk services can be proximity and service base through effective gate allocation for international trunk service connectivity to feeder traffic. Price discrimination also bids time-interval based integration and scheduling of services from O/D. Integration impacts can also be minimized through systems already in place at Guangzhou and Kuala Lumpur (despite PRC nationwide policy) of luggage interchange (Travelchinaguide.com, 2014).

Strategy 1 requires Qantas and CZ flight operations to operate to gates with maximized access to utilities, exits and other boarding areas as a bid to maximize passenger utile productivity. This involves access in Terminal A/B boarding areas inclusively. JQ operations require least-cost operations to facilitate LCC operations.

Strategy 2 requires positioning of ideal gates at KUL’s satellite terminal for QF/MH operations with JQ (passengers require transfer). Strategy 2 also requires Australian, Malay and other foreign airports to accommodate and facilitate the binge purge in aircraft movements by an airline entity.

 

Network / multi-hub Integration and scheduling

Network integration and scheduling of services allows catchment precinctification and common product offerings in passenger logistics. Network integration is achieved thanks to hub integrations at Asian ports to allow greater accessibility under the Qantas brand into niche and mainline regions. Utilization of passenger mix models of service and type can facilitate a healthy network of service product offering commonality. This is done through variety of analysis such as vector models, price models comparisons, ratings, paired city models, PREFMAP, LINMAP, LOGIT analysis, adaptive CA and bridging analysis. (Diplomarbeit, 2014).

Multi-hub operations and fleet mix allocation to truck and feeder services will be solely demand based. Given Qantas International has no fixed hub to operate out of due to geographical constraints, along with little passenger catchment areas of potential trunk services, services must be add from major ports, and cut (with replacement codeshare) if demand doesn’t bid it.

 

Alliances

With alliances being an up-gauged retake of feed traffic affecting truck operations, long term operational and product alliances can be incurred to facilitate catchment optimization and further streamlined product offerings. Alliance aspects may include integrated operational models, joint operations and conjunctions and Product line design, along with revved up alliance in announcements made for the long term. Potential for MH and QF to form a group-based alliance.

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Travel time: scheduled wait times, airport access, flight time, and hub connections

Catchment precinctification involves reducing total passenger kilometers flown to accommodate utile losses and varied time values of money. This is a critical process for cost and revenue calculations, price discrimination, product offerings and commonality and contributing factors mentioned above. Schedule must look into fleet utilization, competition and market share, delay recovery and missed connections, and pricing power. Travel times from both airline and passenger perspectives are pivotal in the success of this strategy. Total flight times are minimized thanks to O/D distance minimizations, flight times are cut, wait times according to product offered and high feeder traffic offered for Qantas and subsidiaries.

Some aspect of this announcement includes:

  • Maximized connection flights within narrow transit corridor for reduced O/D travel time.
  • Utilization of time zones and traffic patterns to assign diverse services with feeder traffic timings optimized. Afternoon and morning arrivals/departures are associated with high business traffic and low connecting times for feeder traffic, and this is utilized in schedule
  • Seasonal fleet and frequency changes to facilitate the diverse passenger weekly numbers and traffic imbalance of services required, while maintaining what’s above.
  • Optimizing airport access and constraints removal. Working around curfews and traffic patterns to come optimize strategy.
  • Aircraft assignment for strategy 1 and 2 will be utilization of common aircraft by both carriers (predominantly A330-200/300, A320, 737 and 787-8 (QF options for -9))

 

Equipment assignment, utilization and cost minimization

 

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Equipment assignment is seen in the cost aspect of this announcement. Aircraft assignment for strategy 1 and 2 will be utilization of common aircraft by both carriers of JQ and QF (predominantly A330-200/300 and 787-8 (QF options for -9)). Malaysia Airlines and China Southern will also operate common equipment to Australia (except MH to DRW and PER-Kota-Kinabalu which is 738, and seasonal operations of A380 services by CZ, QF and potentially MH). JQ will also operate its fleet from DRW internationally on some routes as common to its domestic and Trans-Tasman operations. Operations will be predominantly around medium-capacity twin aircraft operations, with options of flexibility for narrow-body operations.

Timing of services from Australian ports to CAN will be well utilized (especially east coast operations), as flight times and turnaround times both accommodate delay recovery, time based idealized arrival, departures and turnarounds. Free lease of aircraft allow flexible costs in accordance to revenue, reducing risks. (Centreforaviation.com, 2014)

The new schedule pushes aircraft utilization, while the positioning of JQ’s hub requires less presence and greater productivity of 787 fleet, allowing transfer of much of its 787 operations to Qantas mainline, a contributor to the gradual improvement of worldwide Passenger load factors and utilization.

 

Operational load factors

Operational load factor is the percentage of capacity and freight utilized within and aircraft. Operational load factors are maximized thanks to diversified services, risk adverse strategy, seasonal operations and free-lease agreements. Cargo capacity also utilized thanks to freight hubs utilized in Asia strategy.  Diversity of feeder traffic on the JQ domestic network is making up of high load factor operations from DRW – CAN/KUL/NRT and other major cities. Load factors can also be maintained during seasonal purges (especially through JQ) by downsizing frequency and capacity.

 

Initiated efficiencies and Economies of Scale and Traffic Density

Being a mass transport infrastructure, economies of scale is the reduction in long-run average in marginal costs by increasing size in operating unit (BusinessDictionary.com, 2014). According to (bath.ac.uk, 2014), average cost is a function of scale of operator, factor prices and demand setting), where factor prices include variable and fixed operating costs, and scale of operator is by value of assets. With asset write-downs, flat-line demand and increase in factor prices and holding strong dollar, Qantas and its subsidiaries can utilize its current economies of scale and utilize others in potential partnerships/alliance, to increase purchase power as per increase in demand, factor prices and asset valuations, an effective method utilized in the transport industry.

Qantas can initiate efficiencies through streamline operations and commonality of fleet utilization to destinations, while also tweaking demand through the channeling of demand through secondary hubs. Economies of traffic density through utilization of S-curve frequency/demand complex, can be achieved through an increased presence in trunk and feeder operations to have greater price power in the air transport value chain (bath.ac.uk, 2014, Christensen 1973)

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Traffic imbalance, seasonality and leasing

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Passenger traffic is predominantly seasonal, with high deviation in passenger loads as mentioned in the costs and revenue aspect of this discussion. A free lease agreement and risk distribution with load factor supply/demand consistency will result in Qantas’ growth and presence in Asia, while inducing greater profitability in operations of aircraft. The lease agreement includes trade of common fleet of A330s, 737-800s (with common product offerings, services and configuration which may be an incurred cost for QF in upgrading portion of its 738 fleet for commonality) and potentially A380s in accordance of sector distances, utilizations, capacity requirement and traffic requirements.

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This is due to a basic means of information collaboration of available public data to identify binges and purges in the load factors of comparison carriers. Such is seen in the diversification and risk elimination process in finance, where inputs are collated to reduce standard deviations and consistency in data within comparable portfolios, to consistent systematic risks (in this case, manipulated to a high-end load factor and yield consistency) (Fycs.ifas.ufl.edu, 2014). Data collation and information aggregation is a useful tool in the finance industry, and can be manipulated into the analysis of  revenue capacity induced on Qantas and Malaysia Airlines international and domestic operations (thanks to fleet consistency) on monthly intervals in a common time period (2011-2013) (Centreforaviation.com, 2014)

It is clear to see that the binge in capacity of one carrier during one period of time is the purge of its Oneworld counterpart. With the ideal seat factor of 80%, it is clear that the exchange of capacity during periods of high/low traffic density can combat and provide consistency in load factors and operating bottom lines. Aircraft leasing is exclusive in tackling the issue of seasonal transport. Free lease enables efficient utilization of aircraft through exchange on low-cost burden transactions.

In this announcement, the exchanged equipment will predominantly revolve around high-capacity wide body A330 and narrow-body 737-800 equipment common to both Malaysia Airlines and Qantas (and are backbones of each). Exchange of each at given times of binge and purge in capacity will be as follows:

-Northern Hemisphere Summer/ Southern Hemisphere Winter (end of October to beginning of March): Malaysia Airlines should cut capacity while maintaining frequency on high demand purge regions. This is done through provisions of A330 equipment and potentially A380 and 777 equipment to Qantas during this time. Qantas will require of this extra capacity during the high season, and uplift capacity on major domestic and international routes through removal and replacement of their 737-800 international configuration and potentially A330-200 equipment, which will be transferred to MH during this period.

– Northern Hemisphere Winter/ Southern Hemisphere Summer (mid-March to mid-October): Malaysia Airlines should increase capacity and maintain frequency on high demand binge destinations. This is done through provision of 737-800 equipment and A330-200 equipment for QF A330-300 and A380 aircraft, and potential return of 777-200s and MH A380s. Qantas will require to drop capacity and level load factors and yield during this low-season, and re-run 737-800 and A330-200 services on demand-purge sectors.

Hence the provisions of fleet exchange should be accommodated for both airlines to catalyze restructure and improvement of Qantas and Malaysia Airlines operations. This requires proficient bilateral agreements, lease-related agreements, transport-deregulation and  a common drive for efficiency. Cost burdens of this also needs to be covered, with contract work, re-configuration of fleet (especially on 35% of QF’s 737-800 fleet requiring upgrade to MH standards), and opportunitiy costs presented in seasonal exchange of aircraft.

 

Airport constraints minimizations, assignment, infrastructure and intra/inter-modal traffic feed.

  • Guangzhou Airport is under expansion with construction of a third runway, with 2020 aim of passenger capacity from 45 million passengers to 80 million. Expansion of intermodal transport with high-speed rail planned for development through Guangzhou Airport to compliment current inter-city rail developments. This will facilitate access to localized regions, especially Shenzhen and Hong Kong. (Centreforaviation.com, 2014). Requires premium services for business traffic. Requirement of terminal with LCC terminals.
  • Kuala Lumpur Airport already has 70-million passenger capacity currently underutilized. Operations to KUL will be mainly such to induce proximate interchange from truck to feeder traffic. Inter-modal infrastructure currently very stable and with high capacity. Already facilitates LCC operations.
  • Major airports in Australia with capacity and time based limitations, which may impact connectivity and utilization and timing of aircraft operations. Predominantly seen KUL operations from East-coast night flights.
  • Improvements of Darwin airport infrastructure to accommodate influx in capacity and hub operations and expansion to East Pacific, South East Asia and medium haul 787 services. Required inter-modal infrastructure upon demand by Australian Government.
  • Influx in Guangzhou Traffic and Kuala Lumpur traffic requires airports across Australia to improve capacity and remove constraining factors to allow free transparent operations into Australian ports.
  • Requirement for airline liberalizations and deregulations for improvement of passenger volumes and excitement in the tourism industry, which may lead to improvement of Qantas Group’s bottom line.

 

Resultant Network & Logistics

New Picture (14).png

  • Catchment expansion of Qantas Group into Asia through interlines, codeshare and hubbing at Guangzhou and Kuala Lumpur.
  • Catchment precinctification and directional hubbing at CAN and KUL to reduce total flying time and costs while diversifying operating variable cost onto customer utile and service requirements of leisure and business traffic. Leisure passenger offset onto JQ services and low cost interline and restrictive operations by MH and CZ, while CZ, QF and MH operations to Asia via Guangzhou and Kuala Lumpur for business full service.
  • Low cost model of new hub requirements at DRW for Jetstar’s Asia operations and interline.
  • Greater revenue potential with low capital and risk involved.
  • Neater Network for Qantas Mainline’s worldwide presence along with Asia, sparking the potential of projects such as Sydney-connect to South America from Asia.
  • Efficient and neat configuration of Qantas passengers on price-discriminated networks.
  • Geographic consolidation and gateway-provisions in KUL, CAN and DRW, reducing total kilometers passengers need from O/D.
  • Reducing operational costs through capacity decrease, economies of scale and traffic density, newer fleet and commonalities.
  • Through allocation of routes, maximizing productivity with block-time allocation and segment reduction. Schedule harmony.
  • Maintaining capacity and frequencies on trunk services while reducing capacity on inelastic business-dense traffic to stimulate and excite greater yields and pull-out from international price-wars.
  • Commonality and younger fleet and expansion of twin-body operations and facilitation of future orders.
  • Consistent utilization and demand flexibility thanks to free lease agreement, inducing flexible ASKs, RPKs, ATKs, RTKs and seat factors.

Hence the strategy of catchment precinctification and common product offerings from a purely operational, schedule, equipment based and logistical analysis, along with the bounties of the free lease agreement, is a collaborative strategy with great potential of re-lifting the potential efficiency and Qantas International and domestic services at the non-expense mutual benefit with its parter carriers of China Southern (CZ) and Malaysia Airlines (MH)

 

Australia_Asia_Airlines_Boeing_747SP_Wheatley.jpg

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