Virgin Australia keeping powder dry on Hong Kong details

Virgin Australia plans to lodge its application for a commercial alliance with Chinese shareholder HNA in the coming days with a view to starting nonstop flights to Hong Kong in “mid-2017”.

While the airline first raised the prospect of flying to Hong Kong as early as May 2016, there has been little detail about the nature of its proposed operations to North Asia beyond the fact the services would be mounted in partnership with HNA.

On Friday, the airline put a “mid-2017” start date for nonstop flights to Hong Kong from a yet-to-be-announced Australian city, and flagged a series of codeshares on HNA carriers’ flights between Australia and Hong Kong, Australia and China, as well as on the carriers’ domestic networks.

The tie-up would also involve reciprocal frequent flyer benefits and cooperation on route planning, sales, distribution and marketing, Virgin said.

The airline would seek interim approval from the Australian Competition and Consumer Commission (ACCC) as a first step, which would allow ticket sales to begin, ahead of a longer-term authorisation.

Virgin Australia chief executive John Borghetti said the application to the ACCC would highlight the domination of the Australia-Hong Kong market by two carriers – Cathay Pacific and his former employer Qantas.

And he estimated that the process to secure interim approval would take about four weeks.

“We are hopeful it will be very quick,” Borghetti told reporters during the company’s first half results presentation on Friday.

“The reason for that is that Hong Kong is really just a route that is covered by two carriers. Cathay and Qantas have got it by the throat and we intend to break that duopoly and bring real competition on the route.”

Virgin said it planned to serve Hong Kong with Airbus A330 aircraft. Borghetti said the airline had secured all the necessary takeoff and landing slots for its flights.

However, the airline has not confirmed the aircraft would come from its existing fleet of six A330-200s, which are predominantly used on trans-continental services from Perth to Australia’s east coast capitals.

Also, the A330-200 will begin flying Perth-Abu Dhabi three times a week from June 9.

Borghetti described the question of aircraft deployment for Hong Kong as “quite a complex tapestry” and declined to comment further, citing competitive reasons.

Any removal of A330-200s from the Perth route would represent something of a downgrade in the passenger experience for business class travellers, given the Airbus widebody features recently installed B/E Aerospace Super Diamond reverse herringbone seats with direct aisle access compared with standard business recliners on the Boeing 737-800.

Borghetti acknowledged this was a consideration when mulling over fleet options for the new Hong Kong service and the impact on flights between Perth and Australia’s east coast.

“Don’t assume that if we take an A330 from that route we haven’t taken into account what product will be available on the 737,” the Virgin chief executive said.

While Virgin’s announcement of May 2016 had also mentioned daily nonstop flights to Beijing would begin from June 1 – indeed the airline has secured the necessary traffic rights from Australia’s International Air Services Commission (IASC) – on Friday Virgin said it now planned to start those flights “in further stages of the agreement”.

And Borghetti raised the possibility that Beijing may not be Virgin’s first destination in China.

“Slots at Beijing and Shanghai and a lot of the what I would call Tier 1 Chinese cities are not easy to get and so it’s a balancing act between where you want to fly, where you can get the slots, how do you get the feed,” Borghetti said.

HNA Group owns or has partial stakes in 19 carriers, including Virgin.

Of those, Beijing Capital Airlines, Hainan Airlines and Hong Kong Airlines currently serve Australia with their own aircraft. A fourth, Tianjin Airlines, was scheduled to begin nonstop flights between Melbourne and Chongqing in September 2017.

Currently, Virgin places its VA airline code on Singapore Airlines (SIA) and SilkAir services from Australia to Hong Kong and numerous points in China via Singapore. SIA/SilkAir and Virgin have an extensive alliance and frequent flyer agreement that was extended for a further five years in 2016. SIA is also one of Virgin’s major shareholders.

Borghetti said there would be no impact from the proposed alliance with HNA on Virgin’s arrangements with Singapore Airlines and SilkAir.


Australian Aviation