Qantas’ 787 to Hong Kong chases the premium market, but raises a growing premium economy challenge

Qantas on 24-Jul-2018 announced it would fly its 787-9s to Hong Kong, its second-largest port in Asia (Singapore is largest). Hong Kong is the first Asian destination for Qantas’ 787s, and perhaps edges out over Singapore due to Hong Kong’s higher freight demand and longer flying times, where the 787 is better utilised on Hong Kong than Singapore.

Qantas will actually be down-gauging

Like other airlines Qantas might have been expected to use the 787 to make better use of its limited slots at Hong Kong. Qantas wants to add flights to Hong Kong but cannot secure additional slots at the constrained airport. Airlines are up-gauging in Hong Kong (one example: Cebu Pacific from A320 to A330), but Qantas’ 787 announcement is in fact not in a similar vein.

Qantas’ 787 seats 236 compared to 297 on its A330. But the premium seating mix is very different.

Qantas will also briefly use the 787 on the Melbourne-Hong Kong route before reverting to A330s, while the 787 operates no more than two weekly flights between Brisbane and Hong Kong. The 787 will feature most strongly on Sydney-Hong Kong, with six weekly flights.

This also means the biggest change for Qantas is on the Sydney-Hong Kong route, where there is a reduction from Qantas’ initial plan for double daily A330s, and an even steeper reduction from Apr-2018 when Qantas flew a daily A330 and 747. Virgin Australia in Jul-2018 commenced Sydney-Hong Kong flights, in partnership with Hong Kong Airlines, using an A330 with 20 business and 255 economy seats.

Qantas Australia-Hong Kong seat capacity plans: 2018-2019

Source: CAPA – Centre for Aviation, Qantas and OAG Schedules Analyser

Qantas is pursuing yield quality

There are more business seats on the Qantas 787 than its A330 (42 versus 28) and the 787 also has a premium economy cabin, which Qantas did not retrofit onto its A330s. Economy is far smaller on the 787 than A330 (166 versus 269). 91% of seats on Qantas’ A330 are economy versus only 70% on the 787.

Qantas has been seeking improved yields by focusing on premium cabins and shifting emphasis away from economy, which is heavily commoditised and a market where international competitors often have network advantages over Qantas. This may be especially relevant since Virgin Australia entered the Sydney-Hong Kong market.

Qantas A330 and 787-9 comparison

Source: Qantas

Partial offering of premium economy raises a common challenge

The introduction of year-round premium economy raises one of the common issues surrounding the gradual introduction of this relatively new product.

It is a new and very attractive product to sell, but it raises challenges where several aircraft types are used. In the short term it will be difficult with the temporary 787 deployment on Melbourne-Hong Kong, and the two weekly Brisbane-Hong Kong 787 flights.

Passengers flying on other days of the week will either have to forgo premium economy or detour via Sydney.

Virgin Australia does not offer premium economy to Hong Kong while Cathay Pacific offers premium economy on every long-haul flight, particularly beneficial for those looking to fly into one city and fly out of another.

To Qantas’ advantage, it has strong home market pull and a passenger base generally familiar with Qantas’ products but perhaps not which flight has which offerings. This makes it easier to reach out to passengers to sell at initial sale, upgrade through cash or points.

Frequent flyer awards and upgrades to premium economy may be easy to secure given premium economy’s sub-scale offering. The large number of business seats may also mean easy upgrades and awards, at least initially.

The marketing factor: Qantas has an aircraft edge over Virgin

Nonetheless there is a marketing impact in having the 787 fly between Hong Kong and Australia.

Deploying the 787 to Hong Kong gives Qantas a potential marketing advantage. No aircraft type has stood out in the Hong Kong-Australia market. Like Virgin, Qantas mostly uses A330s. The A330 is a type that has been in service for over two decades, even if Qantas’ are a bit newer and recently retrofitted while Virgin’s are even newer. Cathay uses a mixture of A330s, A350 and 777s.

The 787 therefore gives an edge over a growing Virgin Australia footprint, and more limelight to Qantas as Cathay considers deploying to Australia the A350-1000 – a very new type and one which will remain exclusive for some time as only Cathay and Qatar will receive the -1000 in 2018 while in 2019 there will only be a few new operators of the type.