World’s longest flight heralds death of airline hubs
To see where an airline is heading, look at its order book.
The routes a carrier can fly and the markets it can serve are defined by the planes in its fleet. As a result, announcements this week from Cathay Pacific Airways Ltd. and Qantas Airways Ltd. are telling indicators of how the global aviation market is changing.
Qantas will push Airbus SE and Boeing Co. to develop long-range variants of their A350 and 777X aircraft capable of flying non-stop from Sydney to London and New York by 2022, the company said in announcing annual results Friday. On Monday, Cathay agreed to buy 32 Airbus A321neo aircraft in an order worth $4.1 billion at list prices.
What connects a Qantas plane capable of spanning the earth to a Cathay one that can't even make it from Hong Kong to Sydney?
The answer lies in the decline of the world's global aviation hubs, as Gadfly explained in a video earlier this year:
The shape of global aviation is largely driven by the capabilities of its longest-range aircraft. Since the introduction of the 747-400 in the late 1980s, that's meant that cities such as Hong Kong, Singapore, Dubai and have played crucial roles connecting passengers beyond the range of a single flight. At Cathay's Chek Lap Kok base, about 30 percent of people board other flights.
That created a golden age for the likes of Cathay, which was able to use its strategic position to operate as a node on a global trunk network. For the likes of Australia's Qantas, which had to connect through other countries' hubs, life has been harder. For all that Chief Executive Officer Alan Joyce touts the benefits of the carrier's 2013 alliance with Emirates, the deal was struck from a position of weakness rather than strength.
These new planes are changing the equation. Qantas is already taking bookings for a direct Perth-London route on Boeing's 787 that will skip over Emirates' hub in Dubai from next March. It can hardly wait to extend the concept to the larger cities on Australia's east coast.
The shift won't cause the alliance to fall apart. Passengers wanting to travel between, say, Adelaide and Barcelona will still find the easiest way is to catch a connecting flight via Dubai. Still, it will give Qantas a stronger hand than it had when rival carriers were the gatekeepers between Europe and Australia.
Where does that leave Cathay Pacific? As Gadfly has argued before, this new era could be deeply discomfiting for Asia's pre-eminent airlines of the hub era. Businessclass travelers, who generate most of the profits, will increasingly migrate to the quickest routes between the world's financial capitals, leaving Cathay and Singapore Airlines Ltd.'s slick cabins in the service of lowmargin economy class passengers.
Cathay's current financial distress risks being a harbinger of future conditions.