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Qantas may target 'premium economy' segment in Dreamliners due next year

Wednesday 16th November 2016

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Qantas Airways' International boss Gareth Evans says the new Dreamliner Boeing 787-9 aircraft due in October next year will include “brand new premium economy”, pitching seats at the growing market between economy and business class. 

Speaking at a Trans-Tasman Business Circle lunch in Auckland today, Evans said the new premium economy seat hadn’t been announced yet but would be world leading. “It’s been built in conjunction with the University of Sydney – ergonomics, wellness, sleep research, very much focused on rest,” he said.

The Australian airline, which celebrated its 96th birthday today, deferred its initial order in December 2005 for 45 Dreamliners while it struggled with poor performance from its international division. Last year it announced an order for eight of the aircraft to replace its ageing Boeing 747-400 fleet and Evans said the new aircraft opens opportunities for ultra long-haul flights such as Perth to London (7,839 nautical miles), Melbourne to Dallas (7,814 nm), and Sydney to Chicago (8,022nm).

Currently, 30 percent of Qantas's seats are business and premium economy, a segment where it competes with Air New Zealand and Singapore Airlines for fares with add-ons such as extra seat width, more recline or a bigger TV screen. 

Evans runs the international division which includes trans-Tasman flights and Jetstar’s operations within New Zealand. He was previously group chief financial officer, a role he described as "character building" until around 18 months ago when its transformation restructuring programme started to deliver faster-than-expected returns. It posted an A$1.5 billion profit before tax in August, the best in its history,and resumed paying dividends after a seven-year hiatus.

Airlines executives are cagey about releasing figures for the highly competitive trans-Tasman route and typically revenue isn't broken out in their accounts. Evans said Qantas had helped bring “competitive tension” within New Zealand and also on the trans-Tasman route where it had grown services and capacity by 10 percent over the past year. The tourism boom has sparked overall demand up 7 percent on the Tasman over the past 12 to 18 months “which in a big market is incredible”, he said. Qantas now flies 11 routes between the two countries and is about to start direct flights from Christchurch to Melbourne early next month.

Qantas also partners with American Airlines which this year started direct flights on the lucrative Auckland-Los Angeles route in direct competition to Air New Zealand and that was “performing extremely strongly”, he said. About 30 percent of tourists from the US want to visit New Zealand as well as Australia. “We have seen great patronage from the New Zealand public of that service, great awareness, and also a huge leverage of the American distribution system up there to increase awareness and penetration of travellers coming out of the US to New Zealand.”

Evans said there’s huge opportunity for both Australia and New Zealand from rising tourist numbers in Asia. In China alone there were 435 million flights in, out, and within the country this year and within ten years that’s going to be 1.3 billion trips. Today in Asia Pacific there are 1.3 billion passengers and by 2035 that will be 3.1 billion, he said.

“We in Australia and New Zealand are brilliantly placed to take advantage of this huge world growth in travel and tourism because it is going to happen on our doorstep, in our region. Asia Pacific will be almost half of the global market and bigger than North America and Europe combined.”

The aim was to double the current 1 percent of Chinese outbound tourists (1 million) that currently visit Australia annually by being smart about marketing, having the right links through its partnership with China Eastern, and through the government making it easier for them to visit through better visa processing, he said.

When asked what disruptive technology Qantas saw coming to aviation, Evans said management spend a lot of time thinking about that and recently met Uber management “which scared the pants off us and inspired us”, he said.

He doesn’t think the aviation industry is likely to get “fully Uberised” because of the amount of regulation and safety considerations but there was potential in the distribution space for airlines to be disintermediated.

"You could have Apple or Google or Uber flights where those companies bring technology to leverage their data and brands and rob the airlines of their brands – that’s a potential threat to the industry”, he said.

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