Qantas Airways head of sales and distribution Rob Gurney spoke with BTN senior editor Jay Boehmer last month about Australian corporate demand, the impact of premium economy class seating on business travel and the effect of aircraft technology on the carrier's hope of serving U.S. interior points nonstop.BTN: To what extent has the financial crisis impacted your corporate travel outlook?
Rob Gurney: I don't think it is as grim in Asia/Pacific as it is in North America, particularly in the transatlantic travel market. There's no doubt that this is an economic crisis of global reach and impact, and clearly the economic situation is dominating news in this country and throughout the region.
There's no doubt that the sentiment in Australia and through the region is one of caution, but the Australian economy and our financial system are in good shape. We haven't had in this country the sort of fallout you've seen in other parts of the world in the banking system. That's one important difference to flag: The banks are solid, and the federal government moved quickly with deposit guarantees and an economic stimulus package. There's still a high level of confidence in banking and finance, generally.
This is more a story of slowing economic growth. A variety of forecasts say it's slowing, and most of the official forecasts from the Treasury or Reserve Bank show slowing growth, but not a recessive economy in Australia. Those things put Australia in probably a better position than other parts of the world, but I wouldn't suggest there isn't caution.
In terms of travel, we haven't seen as much evidence of specific cutbacks and changes in policy as much as in other parts of the world. There is evidence of some companies temporarily changing policies, downgrading from business to economy. Most business travel out of Australia is long-haul, so a lot of the policy changes capture traffic of, say, five hours or less. That does not apply to many international routes Qantas operates, as most are longer lengths.
BTN: Qantas and some other carriers in the Pacific have introduced premium economy cabins. Given the environment, do you run the risk of cannibalizing your business class?
Gurney: Through the research we did, we didn't expect to see downtrading from business to premium economy. When we designed this product, we essentially saw the consumer group as leisure customers who were prepared to pay a premium for a more comfortable seat and more personalized service. We also recognized there would be business customers interested, such as medium-sized businesses or those where the business owner is the person traveling and is very mindful of cost. That's a good product for them as it's priced between economy and business class.
We're not seeing a lot of corporations trading up at the moment, but if customers decide to trade down and move from international business travel policies to an economy policy, premium economy is something else they can consider, and it does make a considerable difference to the traveler in terms of the comfort level offered. There's been an ebb and flow around this.
There are corporates, regardless of the economic circumstances, that have had policies where travelers generally do travel in the economy class. It gives them an opportunity for them to rethink that travel policy without going to the cost of business class.
BTN: The United States and Australia enacted a liberalized aviation agreement this year
(BTNonline, Feb. 15). Does it offer opportunities in the United States?
Gurney: We were a strong supporter of the Australian government's efforts to fully liberalize the air services agreement with the United States. We do think it brings new opportunities for growth, and we are going to see increased competition since there will be another airline, an Australian carrier, starting on the transpacific routes.
We already operate something like 47 frequencies on the Pacific route. One of the direct consequences of opening up the bilateral is that our codeshare points can be increased under those arrangements. Previously, the number of points we could serve through codeshares had been capped. Now that limitation has been removed. That provides us with a growth of codesharing opportunities.
We've been growing rapidly. Over the past five or six years, U.S. capacity has grown in excess of 20 percent. The next phase will come in the form of the Airbus A380 aircraft that we're starting to operate. The first route was Melbourne-Los Angeles, and Sydney-Los Angeles was added shortly thereafter. We'll be progressively adding services on those routes as more A380 aircraft come into our fleet. By putting them in airports in Los Angeles, where gate access is becoming more constrained, the A380 provides us with the capability to increase bandwidth of capacity. It's a major part of our growth strategy on the U.S. route.
We also fly to John F. Kennedy International Airport via Los Angeles, but the aircraft we operate doesn't have the range with a decent payload to serve that market nonstop. As aircraft technology improves, our next area of interest in the States is to fly nonstop from Australia beyond the West Coast gateways. There's a variety of points of interest to us, but that's dependent on aircraft technology and there's not an aircraft that can do it without significantly impacting our payload.
BTN: Could nonstop service to the East Coast be on the horizon?
Gurney: We've done various exercises looking at that with existing aircraft. Is it something we'd like to do? Yes, but there's no aircraft on the near- or midterm horizon that would be able to do that.
Probably, what would come earlier is an aircraft that could get us to places like Dallas, which would be of interest because we could fly into American Airlines' hub, and that would provide significant opportunities for us. Obviously, we don't build the aircraft, but we're in dialogue with the manufacturers, and this is an opportunity that's of interest.