Emirates A 380 impact in Toronto

Dear All,

Many weeks ago, in the comments section of my weekly airline news email, I had mentioned that with Emirates bringing the A 380 into the Toronto market, major ramifications are in store for many airlines but mostly for Jet Airways. In this report, I will explain in detail as to why I feel 9W (Jet Airways) in particular to lose than any other carrier with not only EK bringing the A 380 to YYZ but also Turkish Airlines (TK) starting new flights and Etihad Airways (EY) increasing capacity on the AUH-YYZ sector with the B 77W replacing their A 346.

Please note that these observations and theories are of my own. Do feel free to write back with your feed back and 'constructive' criticism.

Synopsis on EK in YYZ:

Emirates has officially announced that due to its Dubai-JFK route seeing dismal loads and yields on it’s A 380 operated flights in particular, it will be taking the giant whale jet of this route and placing it on more higher demand sectors such as 3 weekly DXB-YYZ + daily DXB-BKK. By doing so, EK is increasing capacity on the Toronto route from 1074 seats per week to 1467 which is 397 more or 37%. EK’s A 380 seat 14 in first class, 76 in business class and 399 in economy. This will be effective from June 1^st 2009. To/from YYZ, EK’s main passenger base hails from LHE, ISB, KHI, DEL, BOM, DAC, CMB and South India. They also get a high volume of O&D passengers on the YYZ-DXB-YYZ route i.e. 7500 passengers approximately in 2008 which is a 30% market share.

When EK made this announcement, it shocked everyone and upset many especially its direct competitors who were wondering if it’s easier to jump off a cliff rather than compete head on against EK’s A 380 to the Indian Subcontinent region from Toronto. Currently, EK’s loads to/from YYZ, average over 83% and what is most impressive is their load factor in the high yielding premium cabin. Not only that even though their fares from YYZ to any where in the Middle East, Far East and Indian Subcontinent region are approximately $ 100-150 more expensive than 9W, EY, AF, KL and BA, they still get passengers on board their flights who do not mind paying a small premium to experience their on board product.

Toronto Summer 2009 capacity increases:

For the IATA Summer 09 season, 3 airlines in particular have announced major expansion plans for their respective flights to Toronto. Already EK’s expansion has been highlighted above; the other 2 airlines are Etihad Airways and Turkish Airlines. With regards to the former, capacity is being increased from a 3 weekly 286 seater Airbus A 340-600 to a 378 seater Boeing 777-300ER. This means that capacity has been lifted by 92 seats per flight or 276 seats per week i.e. a 32% increase in capacity. Like EK, EY’s main target markets are passengers bound to India, Pakistan and Bangladesh from YYZ. But unlike EK, EY does not attract as much the high yield paying passenger in economy or business class which is due to the fact that they are still a relatively new airline which doesn’t have the brand recognition in Canada that EK has due to the latter’s longevity in existence. The B 77W’s that EY fly to Toronto seat 28 in business class and 350 in economy.

As for Turkish Airlines, the state of Turkey and Canada have recently signed a new air bilateral agreement that would allow TK to operate 3 weekly nonstop flights to Toronto from Istanbul for which the carrier has revealed its intentions to start flights from this June onwards. It is expected that TK will operate a nonstop flight using an Airbus A 330-200 which will seat approximately 220 passengers in a 2 class configuration. However, due to TK’s IST hub having an excellent geographical positioning on the world map, its target market from Toronto will be varied. Its focus primarily will be the large O&D market segment that exists between IST and YYZ and secondary will be 6^th freedom traffic bound to AMM, BEY, CAI, DAM, THR, JED, RUH, DXB, KHI, BOM, DEL, ALA, TAS, GYD and KRT for which excellent connections are possible via its IST hub in both directions. The transit time in IST in each direction to these above mentioned cities ranges between 2-5 hours maximum in both directions.

So in retrospect effective June 1^st 2009 onwards, a combined total of 1329 seats are being added by these 3 carriers combined per week which is nearly as much capacity that 9W offers out of Toronto on a weekly basis!

EK's Summer 2009 special A 380 seat sale fares effect on the market?

Few weeks ago, EK released into the market its special seat sale fares for the shoulder (June 1-17) and high season (June 18-Aug 31) which has really bamboozled the market due to its attractiveness. Their fare in the peak summer season from Toronto to DXB, THR, BOM, DEL, HYD, MAA, BLR, CPT and JNB ranges between CAD$ 1460 to $ 1590 all taxes inclusive and that too in one of their highest inventories such as W and E classes. Finding seats in this inventory class should not be a big problem and passengers will be willing to pay to fly EK to experience the A 380 more now with such a great deal on offer. There are other airlines who have come out with cheaper fares to India in particular in June-July but in their lowest inventory which is very hard to get hence rendering it virtually useless as time flies by.

Jet Airways market demographic in Toronto:

9W in YYZ is heavily dependant on passengers bound to BOM and DEL filling up their flights from YYZ. They also get a decent amount of 5^th freedom traffic on the YYZ-BRU-YYZ sector and also a good chunk of the market bound to MAA. However, their market share to key interior points in India such as AMD, COK, TRV, BLR, HYD, ATQ, CCU is limited compared to EK in particular. With EY’s new summer schedule having all Indian cities connect within a 2-3 hour transit at AUH to/from YYZ, whatever market share 9W had to these cities will further evaporate as EY will provide a hassle free direct option for these passengers who don’t like to go via BOM/DEL/MAA to these cities as it involves clearing customs/immigrations and sometimes a change of terminal.

What about Air India as a threat to 9W?

According to various media releases in India and across the world, AI is expected to re-route its Toronto flights from October 26^th via Frankfurt on a daily basis from Amritsar using the same Boeing 777-200ER. This would allow AI to offer YYZ based passengers for the first time ever, hassle free one stop options via FRA to DEL, BOM, AMD and ATQ thus further encroaching into 9W’s market share of BOM/DEL.

It is also worth pointing out that AI will be using their new Boeing 777-300ER on the DEL-FRA and BOM-FRA sectors which will definitely give them a lot of positive PR with the passengers that fly it as the in-flight product in all cabin classes on board is very good. Until this change comes about officially on the GDS, AI’s main market to/from YYZ is bound to ATQ and they also get reasonable 5^th freedom + interline traffic on the YYZ-LHR-YYZ sector.

In Toronto, there are thousands of passengers who would prefer flying Air India than any other airline to DEL/BOM/AMD from YYZ due to their nationalistic pride of flying the state flag carrier and getting a feeling of “home” on board which is also why PIA is successful in YYZ especially after introducing its B 777s on this sector.

Could all of this lead to 9W possibly being forced to suspend Toronto?

After reviewing the above mentioned points, it is safe to say that 9W is largely dependant upon traffic bound to BOM and DEL from Toronto to fill its direct flights and any airline that adds flights or capacity to YYZ from the Middle East and Indian Subcontinent region will want a larger slice of the pie. What this means is that they will aggressively go after the BOM and DEL passengers thus further eroding 9Ws market share and also the revenue yield that it is been to able to generate thus far.

More competition, means a bitter fare war + lower yield in low season especially and market share diluted on the core route. We are already seeing definite signs of that happening on the YYZ-DEL/BOM-YYZ sector currently with net fares for May being $ 680 + tax on 9W and AF followed by KLM at $ 730. In the summer peak season when you usually expect net fares to BOM/DEL to be $ 1500 + taxes, it is this year $ 960 + taxes on 9W and LH where as AF is $ 805 + taxes followed by EY at $ 900 + taxes.

All these factors combined could result in 9W having no choice but to suspend YYZ bound flights within a year’s time because the route may not be commercially and financially viable to operate particularly in this lean economic time. One other key factor that everyone should consider is 9W’s access to “capital funding” and its company portfolio of being a “privately owned company”. What the latter means and refers to is that due to it not being controlled by the state of India, it stands to gain nothing from a government bail out in a time of crisis nor will the state inject some capital into the carrier to keep it afloat.

Unfortunately for 9W, its direct competitors on this route i.e. EK/EY/TK/AI enjoys this form of immunity, protection and financial clout that it does not possess as it’s not a government controlled entity. Eventually, 9W’s creditors will be pressurizing the airline to get its act together by initiating a thorough restructuring of its international route network by suspending or reducing flights to cities that suffer losses of a size able magnitude.

Conclusion:

The bottom line is this, to/from YYZ to India, 9W offers nothing unique for its passengers apart from its brand name recognition and good in-flight product/service. It is like everyone else offering “one stop” flight options to BOM/DEL/MAA. It must look at diversifying its passenger portfolio base by targetting passengers bound to SIN, KUL and BKK more aggressively from YYZ via BRU/INDIA as the connections on offer are very good. On the YYZ-BRU/BKK/SIN/KUL-BRU-YYZ sector, 9W's inability to attract passengers stems largely from its "pricing structure" on this sector which is higher than the competition by $ 200-400 even though the distance flown is virtually the same. They should look at how successful EY in particular has been in the past 2 years getting passengers from YYZ bound to BKK/SIN/KUL. Diversification allows them to be less dependent on one main market segment to fill up the flight and only through playing with a variety of "cards" does it have a good chance here! This is why EK has been so successful in YYZ more than any other Arab or Indian sub continent airline!

Rgds

Behramjee

PS: Once again, I would like to state the above mentioned view points are of my own and no one else's. Your feedback is always welcome and appreciated :)