Singapore Airlines Group Part 3 – The Canberra-Wellington “Capital City” route highlights the SIA-Virgin-Air NZ partnership discords

26 April, 2017

Singapore Airlines’ initial performance in the Canberra market has been above expectations with the load factor between Canberra and Singapore particularly encouraging. The average load factor on the Canberra-Singapore and Singapore-Canberra sectors in the first five months of the operation was above 80%, fuelled by strong local demand.

By contrast, the load factor on the Canberra-Wellington sector has been significantly lower, at approximately 62% in the first five months to 31-Jan-2017. One reason is that it’s not a daily operation, which reduces its value as a business service. In a case like that it can help to have alternatives for the off days; for example, like using a partner airline with alternative routings. That should be easy, as SIA, Air NZ and Virgin Australia all have some form of linkage, but….

Today, airlines increasingly rely on route-specific partnerships to give them a competitive edge. But all too often they can overlap, and that creates complications. Australia and New Zealand are important markets for SIA, so understandably it has partnerships on both sides of the Tasman.

In the case of Virgin Australia, SIA actually owns 23% of Virgin Holdings and has an extensive partnership with the Australian airline. Likewise, SIA has a partnership with Air NZ, which covers international routings. The triangle was more or less complete until 2016, when Air NZ sold out of its Virgin shareholding, although the two retained their trans-Tasman partnership.

Today, airlines increasingly rely on route-specific partnerships to give them a competitive edge. But all too often they can overlap, and that creates complications. Australia and New Zealand are important markets for SIA, so understandably it has partnerships on both sides of the Tasman.

In brief, that means Air NZ and Singapore Airlines codeshare on the through routes Wellington-Singapore – but not on the Wellington-Canberra segment, because the Australia-New Zealand market is covered by the Air NZ-Virgin Australia agreement.

That leaves SIA all on its own in selling the trans-Tasman sector. Hence one reason it is struggling. Meanwhile helpful subsidy tailwinds are most likely easing the airline’s pain.

SIA launched services to Canberra on 20-Sep-2016 with four times weekly flights on a Singapore Canberra-Wellington-Canberra-Singapore routing. The new route, called the “Capital Express”, provided Canberra with its first scheduled international services, a first in linking the ANZ capital cities. Singapore and Wellington currently remain Canberra’s only international destinations but Canberra Airport recently secured Qatar Airways, which is preparing to launch services from Doha in early 2018.

Canberra Airport has stated the new SIA service has so far performed above expectations. SIA also has said it is so far pleased with its performance in the Canberra market.

For the time being SIA needs the through traffic it is generating from Wellington to Singapore to support the Canberra-Singapore sector. However, local Canberra-Singapore demand could grow to the point that a dedicated turnaround service can eventually be sustained.

BITRE data for the first months of the operation – Sep-2016 through Jan-2017 – indicate the Canberra-Singapore sector is performing particularly well. The average load factor during this period for Canberra-Singapore-Canberra was 83%. This is slightly higher than SIA’s overall average load factor on Australia routes for 2016.

During some months, there has been a directional imbalance – as there often is on many routes due to seasonal fluctuations in demand. However, over the entire initial five month period the average load factor on Canberra to Singapore and Singapore to Canberra is similar.

On the Canberra-Wellington sector, again there were monthly directional imbalances – in some cases a significant imbalance with load factors below 50% in one direction in certain months. However, the average load factor across the entire five-month period was similar for Canberra-Wellington and Wellington-Canberra.

The higher load factors on the flights to and from Singapore compared to Wellington indicate there are significantly fewer passengers travelling across the Tasman. On average across over the first five months, SIA is carrying 90 passengers per flight from Singapore through to Wellington, 133 local passengers from Singapore to Canberra and 75 local passengers from Canberra to Singapore. On the return sectors, the averages are very similar.

All these figures are based on BITRE data from 20-Sep-2016, the day the route launched, through to Jan-2017. This includes a total of 76 or 77 flights (depending on the sector), providing a sufficient sample to make some early assessments on how the new route is performing. BITRE has not yet released monthly data for Feb-2017 or Mar-2017.

Business travellers need daily connections Canberra-Wellington – not easy without an Air NZ/Virgin codeshare

Local traffic between Canberra and Wellington has been relatively limited, despite SIA offering low fares. This is hardly surprising because it is a very small market and the service is not daily, a disincentive to higher yielding passengers.

When SIA announced this route independently of Air New Zealand (and apparently without consultation) it caused some angst with its Star Alliance partner. Although it’s not a big market, the SIA service does divert traffic away from Air New Zealand’s (and uneasy partner Virgin Australia’s) connecting services over eg Sydney and Melbourne routings. And, despite some polite public words, the prospect of a codeshare with Air NZ (or Virgin) on the Canberra-Wellington sector seems too hard for now.

The option for a codeshare would help improve on the less than daily operations, as Air NZ and/or Virgin could then pick up one way return sectors on the other days of the week.

Both SIA and Air NZ are on the Whole of Australian Government corporate travel procurement lists, and so are eligible for government travel contracts, but another factor is how the relevant FFP plans affect individual travellers (Air New Zealand has a special relationship with its own government). So for example frequent flyers can easily be attracted onto airlines on whose programmes they have higher status. Qantas frequent flyers will often suffer the lower convenience of a one-stop service where it means gathering more points and enjoying stays in the respective lounges; the more so where there is any shortage of return options.

The service has stimulated Canberra-Wellington travel

Prior to the launch of the new SIA route, the Canberra-Wellington market had an average of only approximately 15 one-way passengers per day while Canberra-Singapore had an average of approximately 45 one-way passengers per day.

There has already been a solid increase.

Canberra-Wellington monthly local passengers: Sep-2016 to Jan-2017

Note: based on city pair data and therefore passengers flying from Singapore through to Wellington or vice versa are excluded
Source: CAPA – Centre for Aviation & BITRE

Perhaps it’s time for Canberra and Wellington Airports (and their respective tourism authorities) to whisper sweet nothings to the three airlines to encourage them to provide some stimulation to the route. A coordinated approach could help support one of the relatively few city pair route initiatives between New Zealand and Australia.

(In the next part of this SIA Group review, we look at how sustainable the Singapore-Canberra sector could be as a standalone.)