V Australia’s 777 buy-up will bite Qantas

Virgin Blue has really shown how it can punish Qantas for its absurd resistance to acquiring Boeing 777s.

The announced ‘phase two’ expansion of its V Australia fleet which rises to only four of these jets by December is going to be an enormous headache for Qantas.

And especially considering it holds orders or options for up to 13 Boeing 777-300ERs.

Qantas made two incredibly inept decisions concerning its fleet needs in recent years, in choosing to buy a large fleet of Boeing 787 Dreamliners, and not buying Boeing 777s.

In its defence, it was as easy a sell for the ‘plastic fantastic’ 787 sales pitch from Boeing as many other carriers, just more so considering the order peaked at 65 units and was recently trimmed to 50.

But when Geoff Dixon, then CEO, and Peter Gregg, then CFO, gloated over the wisdom of that deal in December 2005, their major competitors, Singapore Airlines, Cathay Pacific and Emirates, saw clearly the merits of the latest versions of the 777 and swooped.

The 777 is a product of a Boeing that knew how to design airliners and deliver on its promises, not the latter day Boeing that spread a truly promising concept in the 787 far and wide among sub contractors and risk sharing partners, some of them unequal to a task that the new management of Boeing wasn’t effectively supervising anyhow.

Hobbled with an aging fleet that Qantas for a period neglected to even maintain in a clean and reliable manner, it p*ssed more than a billion dollars in excess fuel consumption into the wind by not having 777s in its fleet. Money it will never get back. The 777-300ER is the most fuel efficient 300-400 seat sized longer range airliner available until at least 2014 and perhaps well beyond.

Qantas lost. Singapore Airlines, Cathay Pacific and Emirates gained. And now V Australia is gaining too, even by using the 777s on routes that are really too short in some cases, such as to Phuket or Nadi, to deliver the best economics of the jet.

These short routes give V Australia the chance to play havoc against the likes of Jetstar or Air Pacific at times when the 777s would otherwise be idle between long haul flights, racking up parking fees at the major Australian airports.

Much the same way that Emirates punts its A380s and 777s across the Tasman daily to take advantage of the big cargo container market that Qantas and Air NZ neglect with their smaller single aisle jets, plus passengers as a bit more cream on top, rather than do nothing while waiting for the right time to fly back to Dubai.

Being optimised for long haul, the 777s also have much better economy class amenity than shorter haul jets (despite Emirates going for 10 across seating).

Anyone who is familiar with the crammed condition of economy class on a Qantas 747 to Johannesburg is going to be pleasantly surprised by a V Australia 777. The difference will be very noticeable over the 12-13 hour long flights.

Using 777s, V Australia will be able to offer very attractive alternatives over a range of shorter as well as longer haul flights, cutting across the territory of both Jetstar and the Qantas full service offerings.

This takes the Virgin Blue subsidiary out of its until now total exposure to the cut throat environment of the trans Pacific routes where the A380 does give Qantas a cost per seat per kilometre advantage, as well as an even nicer airliner. And it allows V Australia to diversify into markets where the giant Airbus is some years away from being a force, which it won’t become until sustained growth returns to international aviation.

And the Qantas answer to the 777, the slightly smaller 787, isn’t coming any day soon, maybe never. Qantas can use A330s very effectively over medium distances where that Airbus is the efficiency leader, but as it turns out, those who use the 777 against it in Asia, Singapore Airlines, Cathay Pacific and Emirates, also have large A330 fleets for just that reason. They have the long and medium haul routes covered with A330/777 strategies that eluded Qantas, to its costly disadvantage.

In fact out of its better equipped major competitors, Emirates is the largest A380, 777 and A330 operator in the world, with Singapore Airlines also flying large numbers of all three types.

On Wednesday Qantas has allowed extra time for its always important financial year results announcement and briefings.

There are whispers. Some say it has cancelled the 787. Others that it has come to an agreement with Boeing to replace some or all 787s with 777s.

If it is a case of the latter, better late than never, but rather sad considering the squandered opportunities.