Daily Management Review

Qantas Is Betting On Nonstop Service Between Sydney And London


Qantas Is Betting On Nonstop Service Between Sydney And London
After acquiring a dozen special Airbus planes, Qantas Airways will fly non-stop from Sydney to London, charging higher rates in a multi-billion dollar wager that passengers will pay a premium to save four hours on the popular route.
The flights, which are expected to begin in late 2025, would use A350-1000 aircraft that have been specially equipped with extra premium seats and reduced total capacity to transport up to 238 passengers on a 20-hour journey - the world's longest direct commercial flight.
The long-awaited breakthrough will offer Qantas a marketing boost on the "kangaroo route," which has been dubbed "the kangaroo route" because all flights had to stop somewhere for fuel. Singapore Airlines Ltd, Emirates, and Qatar Airways are among the competitors offering one-stop services.
However, Qantas' non-stop flights demand a significant revenue premium due to high fuel costs and low cabin density. The airline has not stated how much it will charge.
Qantas said in a statement on Monday that a solid rebound in the home market and signs of progress in international travel following the worst of the COVID-19 epidemic had given it the confidence to invest heavily in its future. The airline expects to generate a profit in the fiscal year that begins in July.
The deal from the European aircraft manufacturer also includes 40 narrowbody A321XLR and A220 jets, which will begin the replacement of Qantas' ageing domestic fleet over the next decade.
The airline did not disclose the deal's worth, but analysts at Barrenjoey estimated it would cost at least A$6 billion ($4.23 billion) in a client note.
"We have witnessed enormous increases in demand since the start of the calendar year," Qantas Chief Executive Alan Joyce told reporters at Sydney Airport, where a Qantas-branded Airbus A350-1000 test plane flown in from France was parked in a hangar as a backdrop for the announcement.
Qantas shares rose 3% to their highest level since November after the company announced that debt levels had reduced to pre-COVID levels faster than expected. In early trading, Airbus shares were down 1%.
The A350-1000 order was the result of a competition called Project Sunrise, which was launched in 2017 for Airbus and rival Boeing Co to develop aircraft capable of world-record-breaking flights.
Airbus was chosen as the preferred supplier in late 2019, however because to financial difficulties during the epidemic, Qantas postponed purchase for two years.
The aircraft to be used on the Sydney-London trips, according to Airbus Chief Commercial Officer Christian Scherer, will have higher fuel capacity than the A350-1000s now in service with other carriers.
The Qantas planes will feature four classes of service and around 100 fewer seats than rivals British Airways and Cathay Pacific Airways Ltd's A350-1000s. More than 40% of the seats on the Australian carrier will be reserved for premium passengers.
Since the epidemic, when rigorous travel rules were put in place, demand for non-stop flights has soared, according to CEO Joyce.
He suggested that Qantas could recoup increased fuel costs by raising tickets, as it has done previously on its non-stop Perth-London flights.
Qantas said in a market update that, while the company expects an underlying operating loss for the fiscal year ending June 30, 2022, the second half would benefit from better local and foreign demand, with free cash flow likely to rise even more in the current quarter.
According to Barrenjoey analysts, Qantas could earn a 20 per cent revenue premium for ultra-long-haul flights. From late 2025, they want to visit New York, as well as Paris, Chicago, and Rio de Janeiro, according to Joyce.
Project Sunrise is expected to generate a 15 per cent internal rate of return, according to Qantas.