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The deciding factor in airline fight for Sydney-Los Angeles market share

2009 July 29
qantas a380

Image by Joits via Flickr

Anyone who has watched reality TV show ‘Survivor’ knows how important it is for a competitor to form an alliance with other players to ensure one’s survival on the show; therefore, it is not surprising to see that, in the latest airline fight for survival on the very lucrative yet increasingly crowded Sydney to Los Angeles route, airline alliance might be the deciding factor that determines who stays and who goes.

Qantas is the dominant airline on the SYD-LAX route with about 70% market share up until now and the route generated 30% of its pre-tax earnings last year.  United is the other airline that served this route with 30% market share;  the numbers are going to change however, with V Australia started operation on this route this past February, and Delta early July.

With the arrival of V and Delta, the total capacity is estimated to have grown by more than 35%, while yield level has slumped more than 25%. In fighting to keep its market share, Qantas put A380 on the route, allow children to fly for free and put out a 2 for 1 sale for its business class seats. Other three responded with their own fare discounting and promotion. All these during an economical downturn when the demand is already depressed.

No wonder analysts are predicting that at least one of the airlines will have to pack up and leave soon. “It is unlikely that all of the carriers will continue to serve on the route. There’s simply too many seats on the route and you can’t fill them,” says one airline analyst.

However, almost all airlines involved have expressed their determination in staying put on the route, so what gives? At the end of the day, the airlines’ staying power depends on their ability to attract enough business travellers and frequent flyers who are willing and able to pay for fares that can sustain long-term flight operations on the route, and in this regard, Qantas, United and Delta clearly have an advantage over V Australia.

Business travellers and frequent flyers, especially those paid to travel by their employers, clearly prefer airlines that can offer an expansive network in which they can collect and redeem frequent flyer miles, have access to lounges at most airports worldwide, easily transfer to domestic flights beyond international gateway cities.

United is the founding member of the largest airline alliance the Star Alliance, which includes Lufthansa, SAS, Air China, Singapore Airlines and South African Airways, just to name a few. Qantas belongs to another big airline alliance “One World”, which includes American Airlines, British Airways, Cathay Pacific, JAL and a few other airlines. Delta, on the other hand, belongs to Sky Team, with team mates like Air France, Korean Air, China Southern and others. Frequent flyers on Qantas, United and Delta can collect and redeem miles on any member airlines’ flights, have access to airport lounges of any alliance member airlines all around the world, they also enjoy a more extensive flight network within the US to get to their final destinations .

V, on the other hand, doesn’t belong to any influential airline alliances, doesn’t have an extensive domestic network within the United States, even though they have a partnership with Virgin America. V has some good measures to attract business travellers, for example, free limo pick up to its business class passengers, however, in the fierce competition on the Sydney to Los Angeles route, I believe it is the weakest player and probably will have to withdraw operations before end of the year.

What do you think? Feel free to leave a comment!

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