Overcapacity may hurt Australia-Samoa market thanks to Virgin Australia and Samoa Airways

Overcapacity could result in the Australia-Samoa market following Virgin Australia’s decision to launch services to Samoa in Nov-2017. Virgin Australia will likely compete on the Sydney-Apia route against Samoa Airways, the new flag carrier being launched by the Samoan government in Nov-2017.

Virgin Samoa, a joint venture between Virgin Australia and the Samoan government, is currently the only airline operating nonstop flights between Australia and Samoa. Virgin Samoa currently operates two to three weekly flights to Sydney and one weekly flight to Brisbane using 737-800 aircraft. During peak periods such as Christmas it operates up to four flights to Sydney and up to two flights to Brisbane but during the low season in February and March it reduces Sydney to one weekly flight.

Virgin Samoa weekly one-way seat capacity to Australia: Sep-2011 to Aug-2017

Source: CAPA – Centre for Aviation & OAG.

The Samoan government decided earlier this year to terminate the JV with Virgin Australia, which was initially established in 2005. Blue Swan exclusively reported in a 19-Jun-2017 analysis report that Fiji Airways had signed an in principal agreement with the Samoan government to assist the Samoa government in establishing a new flag carrier to take over Virgin Samoa’s flights to Australia and New Zealand. As part of the agreement with Samoan government, Blue Swan reported that Fiji Airways would also assist the new airline in acquiring 737NG aircraft and could potentially increase its services to Samoa from Fiji and Hawaii.

See related report: New Samoan airline to take over Virgin Samoa routes with potential assistance from Fiji Airways

Samoa’s prime minister recently confirmed the signing of an MOU with Fiji Airways. Samoa has confirmed that new flag carrier Samoa Airways could lease aircraft from Fiji Airways but has stated there are no plans to codeshare with Fiji Airways.

As a Samoan owned airline, Samoa Airways would use traffic rights available for Samoan carriers in the Australia-Samoa and Australia-New Zealand air services agreements. These rights are currently used by Virgin Samoa, which qualifies as a Samoan carrier as it is 51% owned by the Samoan government.

The batch of traffic right set aside for Australian carriers in the Australia-Samoa air services agreement are not currently utilised. However, Virgin Australia applied on 10-Jul-2017 to Australia’s International Air Services Commission (IASC) for 880 weekly seats in the Australia-Samoa market. Air New Zealand is already using most of the traffic rights set aside for New Zealand carriers in the New Zealand-Samoa air services agreement.

Virgin Australia stated in its application to IASC that it plans to fully utilise all 880 weekly seats by 13-Nov-2017 to support five weekly flights to Samoa using 176-seat 737-800s. Virgin Australia did not state which Australia gateways it intended to operate from in serving Samoa. However, Sydney will almost certainly be served as it is the main market in Australia for Samoa. Virgin Australia may also operate a low frequency service from Brisbane, similar to the service now provided by Virgin Samoa, and potentially could open a new link from Melbourne to Apia.

The prospect of both Samoa Airways and Virgin Australia operating the Sydney-Apia route, and potentially both airlines operating the smaller Brisbane-Apia route, would result in a doubling of capacity between Australia and Samoa. Competition would have a positive impact, leading to lower fares which would in turn stimulate demand. The Samoa tourism industry has long complained about high fares and a lack of competition impacting demand from its two main source markets, New Zealand and Australia.

The prospect of both Samoa Airways and Virgin Australia operating the Sydney-Apia route, and potentially both airlines operating the smaller Brisbane-Apia route, would result in a doubling of capacity between Australia and Samoa.

However, even with lower fares it could prove challenging to fill up the huge surge in Australia-Samoa seats on a year-round basis. Losses for Virgin Australia and Samoa Airways are likely, particularly for Samoa Airways as it will be a tiny flag carrier lacking any economies of scale. Samoa Airways will also need to establish its brand in Australia and New Zealand and a distribution network. Virgin Australia and Air New Zealand will have a huge competitive advantage in this regards as Samoa is primarily an inbound leisure market from Australia and New Zealand.

Air New Zealand currently operates nine weekly flights to Samoa using a mix of A320s, 787s and 777s. Fiji Airways is the only other foreign airline currently serving Samoa, operating seven weekly flights to Nadi, two weekly flights to Suva (a secondary destination in Fiji) and one weekly flight to Honolulu.

Auckland is currently the only competitive route from Apia. Virgin Samoa competes with Air New Zealand by operating six weekly flights to Auckland, which will be taken over by Samoa Airways.

New Zealand is looking at adding capacity to Samoa, likely by operating more of its existing frequencies with higher capacity 777s. However, the resulting increase in the New Zealand-Samoa market will be very modest (probably less than 10%) while the Australia-Samoa market could see a doubling of capacity as Virgin Australia enters and Samoa Airways takes over the existing Virgin Samoa flights.

New Zealand and Australia are the largest source markets for Samoa tourism, accounting for more than 40% and more than 20% of total visitor numbers respectively. Total visitor numbers to Samoa were up 5% in 2016 to 146,000 and revenue from tourism increased by 7% to USD155 million. Tourism is crucial given the small size of the country, which has a population of only approximately 200,000 and a GDP of less than USD800 million.

The economic and ethnic links are also significant with Samoan residents often travelling to Australia and New Zealand to visit family and friends – and to shop, study and undergo medical treatment. There are as many Samoans living in Australia and New Zealand as in Samoa. New Zealand has a Samoan population of nearly 150,000 people while Australia has a Samoan population of more than 50,000.

Virgin Australia acting group executive for airlines and CEO Tigerair Rob Sharp scheduled to talk at CAPA Australia Pacific Summit on 1/2 August in Sydney  

Other keynote speakers include: Air New Zealand CEO, Christopher Luxon; Qantas International CEO Gareth Evans; Jetstar CEO Jayne Hrdlicka; Sydney Airport CEO Kerrie Mather; Hawaiian Airlines CEO Mark Dunkerley; AirAsia X CEO, Benyamin Ismail; Fiji Airways CEO Andre Viljoen; Managing Director Tourism Australia John O’Sullivan; CEO Sri Lankan Airlines Suren Ratwatte; CEO Nok Air Patee Sarasin; Chairman & CEO AccorHotels Asia Pacific Michael Issenberg; CEO Dallas Fort Worth Airport Sean Donohue; CEO Mantra Group Bob East – and many more.

To witness these thought proving discussions and many more, ensure you attend one of CAPA’s upcoming events and conferences, including the CAPA Australia Pacific Aviation & Corporate Travel Summit, scheduled for 1-2 August in Sydney, Australia. To learn more or register, visit https://centreforaviation.com/events