Qantas slashes Sydney-San Francisco capacity, impacting corporates and benefiting United

Qantas has been shouting about its deployment of the Boeing 787-9 on the Sydney-San Francisco route. But replacing older 747-400s it is slashing capacity by more than a quarter. Lower capacity levels could lead to higher fares in all cabins, impacting corporate customers.


Highlights:

  • Qantas is downgauging its Sydney-San Francisco service from 747-400s to 787-9s;
  • Qantas’ year-round Sydney-San Francisco capacity will be reduced by over 25% as it is only adding a limited number of frequencies as it switches to much smaller aircraft;
  • United Airlines, the only nonstop competitor, should benefit along with one-stop competitors.

Qantas announced on 7-May-2019 its plans to begin deploying 236-seat three-class 787-9s from 4-Dec-2019 between Sydney and San Francisco. The airline resumed Sydney-San Francisco in late 2015 and currently (based on May-2019 schedules) serves the route with six weekly flights using 364-seat three-class 747-400s.

It is introducing a seventh year-round frequency as 747-400s are swapped for 787-9s, giving business customers the flexibility of a nonstop flight every day of the year. However, this does not come even close to offsetting the capacity lost due to the downgauge.

Qantas will have 1,652 one-way weekly seats on Sydney-San Francisco from December compared to 2,184 seats currently (May-2019), representing a 24% reduction. Business class is being reduced by 16% from 348 weekly one-way seats to 294; premium economy by 9% from 216 seats to 196; and economy by 28% from 1,620 seats to 1,162.

The reduction in year-round capacity is even sharper (around 28%) as Qantas has already been operating a seventh frequency using 747-400s during peak periods.

CHART – Qantas is currently the largest operator in the Sydney – San Francisco market, but its aircraft switch will see United Airlines offer more capacity on the route from the end of this yearSource: CAPA – Centre for Aviation and OAG

United Airlines will overtake Qantas to become the market leader in capacity terms. It serves Sydney-San Francisco daily with 252-seat two class 787-9s, generating 1,764 weekly seats. United will have more business class seats (336 per week) and significantly more economy seats (1,428 per week, including 616 extra legroom seats) but does not yet offer a premium economy cabin on its 787 fleet.

The US carrier will particularly have an advantage in the bottom end of the market as its economy share of nonstop seats will increase from 47% to 55%. Qantas is likely not to bothered by this as it should result in higher average yields but should be concerned about United increasing its business class share from 49% to 53%.

One-stop competitors will also likely fill some of the void left by Qantas. American Airlines (via Los Angeles), Delta Air Lines (via Los Angeles), Fiji Airways (via Nadi) and Hawaiian Airlines (via Honolulu) all compete in the Sydney-San Francisco market. Virgin Australia also offers one-stop connections via Los Angeles using its joint venture partner Delta. Qantas could fill some of the void from reduced nonstop capacity by offering one-stop connections via Los Angeles and Melbourne.

The decision to deploy the 787 on Sydney-San Francisco does not come as a surprise given that Qantas has been preparing to phase out its remaining 747-400s. Qantas placed orders in May-2018 for six additional 787-9s for delivery in late 2019 and 2020. It stated at the time it would use the additional 787s to accelerate the retirement of its 747 fleet to 2020.

The airline has eight 747-400s remaining in service and will be down to seven 747s by the end of the current quarter (30-Jun-2019). All but one of these aircraft are in 364-seat three-class configuration; Qantas has one remaining 353-seat four class 747-400 (with first class) that currently operates some of its Sydney-Honolulu flights. The first of the six additional 787s will be delivered in Oct-2019 and two are expected to be in the fleet by the time Sydney-San Francisco operations commence.

What is somewhat surprising is the decision to only add only one frequency as the 747-400 exits the Sydney-San Francisco market. When transitioning from 747-400s to 787-9s on the Brisbane-Los Angeles route, Qantas added three frequencies for a total of 10, resulting in only a slight reduction in capacity.

Brisbane-Los Angeles-New York JFK was one of seven routes Qantas has chosen to deploy its initial batch of eight 787-9s, which were delivered in 2H2017 and 2018. The other routes are Brisbane-Hong Kong, Melbourne-Hong Kong, Melbourne-Los Angeles, Melbourne-Perth-London, Melbourne-San Francisco and Sydney-Hong Kong.

Daily Perth-London was launched in Mar-2018 and four times weekly Melbourne-San Francisco was launched in Sep-2018. The other 787 routes were previously operated with other widebody types and (on most) some frequencies are still operated by other aircraft models.

Sydney-San Francisco is the first route announcement for the six additional 787-9s. While Qantas has not announced other routes for its second batch of 787s, Sydney to Honolulu, Johannesburg, Santiago and Tokyo Haneda are the most obvious choices because they are now operated with 747-400s. Qantas has already phased out its Brisbane and Melbourne based 747s.

It will be interesting to see if capacity declines significantly on the remaining 747 routes (similar to Sydney-San Francisco) or if capacity will be roughly maintained through frequency increases (similar to Brisbane-Los Angeles). The Sep-2018 Melbourne-San Francisco launch obviously mitigates to some extent the reductions on Sydney-San Francisco 14 months later but for corporates and passengers that are frequently travelling between Sydney and San Francisco the nearly 30% reduction in capacity will be seen as disappointing.