Qantas’s international unit made just 10.7 Australian cents of revenue per seat, per kilometer flown in its last fiscal year through June, of which 10.3 Australian cents was eaten up on operating costs. If you fly the roughly 17,000 kilometers (10,500 miles) between London and Sydney and buy a decent bottle of liquor at duty free, the A$70 ($48) you’ll spend will quite possibly be more money than the operating profit Qantas made on your ticket for the entire flight. Qantas’s Jetstar budget carrier makes about twice the profit per kilometer that the international business brings in, and its mainline domestic unit is five times more profitable.
So what gives? Establishing ultra-long-haul routes is no easy task. Qantas is modifying in-flight menus and lighting patterns and using its staff as guinea pigs in a test flight this weekend to examine how passengers will cope with such a long journey.
Costs don’t explain it. Indeed, they’re likely to be somewhat worse on direct ultra-long-haul flights than on more conventional routes. On a fully-laden twin-aisle passenger jet, fuel will often weigh more than all the passengers and cargo. Breaking the journey and refueling en route at a hub airport is a good way of keeping costs down, because it means that you don’t have to carry fuel for the second “leg” of the flight.
Revenue, however, is a different matter. Qantas’s domestic business is so profitable because it has a single struggling rival, Virgin Australia Holdings Ltd. Despite flying more passengers in the 12 months through June than it did six years earlier, Australia’s domestic aviation network operated fewer flights. That’s possible because the muted competition between Qantas and Virgin gives them the discipline to keep a lid on capacity growth, allowing more people to be squeezed onto each plane and keeping prices high.
International routes aren’t normally like that. At least a dozen different airlines typically compete to ferry passengers between Australia and Europe, and those with hub airports mid-route can easily serve multiple destinations in a way that would be crippling to an end-of-line carrier like Qantas. The partnership between Qantas and Emirates, which started in 2013, was intended to get around this problem by funneling the Australian carrier’s passengers onto the huge network operated by its Gulf partner. While that’s helped return the international unit to profit, margins are vanishingly thin.
Ultra-long-haul flights are best understood as a way for the likes of Qantas to reverse the disadvantage that this tyranny of distance engenders. It will never have the network and operations to compete with the geographic advantages of hub carriers in moving passengers between Australia, Europe and North America. However, if it can tempt the more profitable premium passengers away from hub airports with a more direct route, it at least has some ammunition on its side next time it enters negotiations with Emirates about how to share revenues from their flights.
You can see this even just looking at its aircraft seat maps. About 18% of the seats on Qantas’s Boeing Co. 787-9 that it uses to fly from Perth to London and on routes between Australia and the U.S. are in business class, with another 12% in premium economy. That’s a larger share of high-margin seats than on the planes that had previously been the workhorses of its international network.
It’s probably right to be skeptical that spending 20 hours in economy class can be as glamorous as Qantas’s elaborate pre-testing makes it sound. The only way airlines can make decent money flying to the far side of the world is by letting business class subsidize the rest of the cabin. If you’re flying coach, these flights aren’t really aimed at you.
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David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.