Royal Brunei’s new A320neo fleet leads to North Asia expansion; Australia is not part of the plan

Newly delivered A320neos give Royal Brunei Airlines (RBA) the flexibility to expand in Australia and downgauge its only existing Australia route Melbourne, from 787s. However, RBA is not intending to resume expansion in Australia and considers the recent use of A320neos on two Melbourne flights a one-off.


Summary:

  • Royal Brunei has taken delivery of four A320neos and is slated to take another three over the next few months.
  • The airline plans to use the A320neos to expand its network in Asia, particularly China.
  • A new service to Brisbane was considered but has been ruled out for now.
  • Melbourne will continue to be served with 787-8s despite the recent deployment of A320neos on two flights.

RBA suspended services to Brisbane and Perth in 2011, leaving Melbourne as its only destination in Australia. Darwin and Sydney were dropped in 2008.

Melbourne was upgraded from four weekly flights to daily in 2012. RBA has since maintained a daily schedule on Bandar Seri Begawan-Melbourne, and in 2014 introduced 787-8s on the route.

RBA took delivery of four 787-8s in late 2013 and early 2014, replacing six 777-200ERs. The 787s have since been used on its three long haul routes, comprising Bandar Seri Begawan-Melbourne, Bandar Seri Begawan-Dubai-London Heathrow and Bandar Seri Begawan-Jeddah. The 787s have also occasionally been deployed to some regional destinations, namely Hong Kong, Kuala Lumpur, Singapore and Shanghai.

At the end of Jun-2018, RBA received a fifth 787-8, which will enable the airline to decouple Dubai and London into separate nonstop routes in late Oct-2018. Blue Swan previously analysed how RBA’s new daily nonstop Heathrow service will impact the Melbourne-London market as it starts to offer convenient one-stop connections.

See related report: Royal Brunei reduces Melbourne-London transit times, offers attractive fares

Despite now having five 787s and just three long haul routes, RBA was recently short of 787s due to unscheduled Rolls Royce engine inspections. RBA therefore deployed the A320neo on two Melbourne flights, landing in Melbourne on 01-Aug-2018 and 12-Aug-2018.

RBA currently operates four A320neos, all of which have been delivered over the last three months. It is slated to take a final three A320neos over the next few months. Of the seven A320neos, three are for growth while four are replacing A320ceos. RBA plans to continue operating two newer A320neos, resulting in a fleet at the end of 2018 of nine narrowbody aircraft (compared to six at the beginning of 2018) and five widebody aircraft (compared to four at the beginning of 2018).

RBA last year considered using A320neos to resume expansion in Australia. Specifically, it looked at Brisbane, which was previously served with widebody aircraft.

See related report: Could Royal Brunei Airlines be heading back to Brisbane?

The recent deployment of the A320neo on Bandar Seri Begawan-Melbourne, which is slightly longer than Bandar Seri Begawan-Brisbane, proves the aircraft is capable of operating to Brisbane. RBA did not have any payload restrictions on the two Melbourne return flights that were operated earlier this month with the A320neo.

However, RBA has decided against resuming Brisbane – at least for now – and instead plans to use the expanded narrowbody fleet to pursue expansion in Asia. This is a sensible decision because Asia growth is more in line with Brunei’s aspirations to develop its tourism industry.

RBA would have to rely almost entirely on sixth freedom transit traffic in the Brisbane market, including connections to the new London nonstop. However, to make the London connection work RBA would have to sit an A320neo in Brisbane for over 12 hours, which it determined it cannot afford given these are new aircraft with high capital costs.

RBA will have to partially rely on transit traffic in new Asian markets but expects to attract significant local inbound traffic, helping Brunei boost tourism. Australia is a tiny source market, with less than 10,000 visitors per year, and has declined in recent years while North Asian markets have grown rapidly

RBA is adding a third frequency to Seoul in Aug-2018. The route was initially launched in Oct-2017 with A320ceos and is now served with A320neos. It also plans to resume service in Dec-2018 to Taipei, which it last served in 2013.

In addition, RBA has announced plans launch Haikou in late Oct-2018 and Beijing in Dec-2018, pending regulatory approvals. The addition of Haikou and Beijing will grow RBA’s mainland Chinese network to five destinations. Nanning and Hangzhou were added in Apr-2018, supplementing Shanghai.

RBA and its government shareholder are keen on improving links to China, which is now Brunei’s second largest source market. RBA is also looking at potential new services to India and Japan as it places into services the last batch of A321neos.

While the A320neo has the range to serve all of Australia, it does not offer the ideal product

RBA has opted against outfitting lie flat business class seats on its A320neos. The new aircraft are in the same configuration as RBA last two A320ceos, which were delivered in 2015, with 138 economy and 12 business class recliner seats.

While the economy product, which includes seatback IFE monitors, is good enough for long haul flights the business class product is insufficient. RBA’s business class customers in the Melbourne market are accustomed to the lie flat product on its 787s and were likely disappointed when the A320neo was used on the two recent flights.

It is therefore no surprise RBA has no intention of using the A320neo to Melbourne on a regular basis. Operating a mix of A320neo and 787s would make sense from a demand perspective as RBA’s average load factor to/from Melbourne is only 71% (based on BITRE data from 2017). However, a mixed schedule would be challenging to manage from a product perspective. Philippine Airlines is now mixing the A321neo and A330 on Sydney, but it has lie flat business class seats on both aircraft types.