With a combined population of 275 million, GDP of US$2.9 trillion and annual outbound tourism growth in excess of 15% per annum, the former Soviet republics which comprise the Commonwealth of Independent States (CIS) represent a largely untapped, yet significant, source market for another growing market – Australia – should direct air services be established.
While the opportunity to launch connections has been there for some time, there are a number of critical factors which airline operators would need to consider when assessing the potential for direct air service between these two regions.
CIS outbound travel
At least 19 cities within the CIS have a population in excess of 1 million inhabitants. It is these cities which provide the bulk of outbound travellers fuelled by the growing prosperity of the middle classes and economic development.
Russia alone is the ninth largest outbound travel market in the world in terms of expenditure (UNWTO 2009). Russian citizens made 25.5 million trips to non-CIS countries during 2011, while outbound travel has grown at an average of 15% per annum since 2005 (Russian Federal State Statistics Service data).
Turkey is the most popular non-CIS air destination for Russians, followed by Egypt and China. The popularity of Turkey’s Anatolian coast on the Mediterranean Sea and Egypt’s Red Sea destinations is indicative of the significant demand for destinations offering warmth, sunshine and beaches.
CIS–Australia traffic volumes
During 2011, an estimated 48,000 return passenger journeys were made between Russia/CIS and Australia, equivalent to 930 return passengers per week. Passenger volumes grew more than 10% on the previous year.
Demand between the Russian Federation and Australia is the single largest O&D market, estimated at two-thirds of passenger volumes. The second largest market is between Ukraine and Australia, contributing approximately 20% of passenger volumes.
With a population of 11.5 million, Moscow dominates as the preferred port of entry and exit within the CIS, utilised by an estimated 50% of all Russia/CIS-Australia travellers. As major gateway cities for air travellers, Sydney and Melbourne are the main points of entry and exit in Australia and are estimated to be utilised by 70% of current passenger volumes.
Australia has more than its fair share of natural beauty, magnificent beaches, and a warm and sun-filled climate. It also has other iconic attractions, such as the Great Barrier Reef, which are major drawcards for CIS travellers.
However, Australia must compete with short-haul destinations, such as Turkey, Egypt, Greece and Spain, for a share of the CIS market.
Australia’s long-haul destination status for northern hemisphere travellers may further impact on its competiveness owing to perceived holiday affordability, journey comfort and travel times.
For CIS travellers specifically seeking long-haul holiday options, alternative long-haul destinations in the Americas, Asia and Africa will compete with Australia.
CIS/Russian travellers to Australia require a travel visa. The process, time and cost are also potentially constraining demand for an Australian holiday experience. In contrast, competing destinations in Thailand and Turkey experienced significant increases in CIS tourist numbers when visa-free regimes were introduced.
Airline competition from sixth freedom carriers
In evaluating the viability of direct air services, airlines will consider the extent of existing competition on routes between CIS countries and Australia.
Despite the lack of direct/same aircraft services, multiple airlines connect CIS and Australian ports of entry and exit via sixth freedom/on-line services to their respective hubs in Asia, the Gulf or the UK.
In addition, CIS and Australian-domiciled airlines offer multiple connections to the sixth freedom airlines at their respective hubs and these airlines offer a high frequency of service and multiple entry and exit ports within Australia and CIS countries.
In an average week, there are close to 40,000 seats available on sixth freedom airlines from CIS ports to Australia, while more than 125,000 seats are offered from their respective hubs to Australian ports.
Dominating the market in terms of connectivity and frequency are the Gulf-based sixth freedom airlines. Total seats are estimated at 11,000 each week in each direction from the CIS countries. A further 23,000 seats are offered each week in each direction to Australia from the Gulf.
Emirates dominates in total seat capacity and frequency offered, followed by Etihad and a rapidly expanding Qatar Airways.
China-based sixth freedom airlines generate an estimated 8,600 seats each week in each direction from the CIS countries. A further 15,000 each week and in each direction are offered from China to Australia, making China the second largest routing in capacity terms.
China Southern represents almost two-thirds of the CIS–China capacity and offers 10 destinations within CIS countries.
Other significant routings include CIS–Korea, with an estimated 6,400 seats each week in each direction from the CIS countries, and 6,200 seats from Korea to Australia, with Korean Air dominating the two routes.
Sixth freedom capacity offered by British Airways from CIS countries to the UK is estimated at 6,000 seats each week in each direction. A further 2,500 seats are offered by British Airways from the UK to Australia.
Aeroflot and Transaero Airlines
With two Russian-domiciled airlines ordering long-haul aircraft, Russia will have the capability to operate non-stop services to Australia in the medium-term; Aeroflot has B787-9 and A350 aircraft on order, while Transaero has orders for B787s.
Based on current and anticipated demand levels, destinational competition and alternative airline and routing options, these aircraft types are considered a good fit for long and thin routes such as Moscow–Melbourne or Moscow–Sydney.
Today, both airlines enjoy interline access to Australia via respective airline partners that operate on-line services into Australia. Aeroflot has access to the Australian market via its SkyTeam partners Korean Air and China Southern, while Transaero is a codeshare partner with Singapore Airlines and Japan Airlines.
Both Aeroflot and Transaero also have existing aircraft types capable of operating to Australia via an intermediate point in Asia (subject to traffic rights).
Operations via an intermediate point in Asia would de-risk the services due to both airlines having extensive operations to and familiarity with Asia. By ensuring higher passenger and airfreight payloads could be carried, and by increasing the number of O&D markets that could be sold, airlines can thereby increase passenger and airfreight volumes, and potentially smoothing seasonal imbalances in traffic volumes.
Qantas has access to oneworld partners offering extensive Russia/
CIS networks, including British Airways, Japan Airlines, Cathay Pacific and Russia’s S7 airlines.
Furthermore, Qantas is at the time of writing rationalising its on-line UK/Europe network with London and Frankfurt operations to be focused on routings via Singapore only. It is therefore considered unlikely that Qantas would consider on-line services to Russia/CIS in the short-to-medium-term.
Similarly Jetstar is also likely to remain preoccupied with other priorities at least in the short-to- medium-term, as it continues the development and consolidation of its intra-Asia network.
However, with 50 B787-9 aircraft deliveries to commence from mid 2013, Qantas and Jetstar are likely to use some of these aircraft to launch new long-haul routes within Asia, the Americas and potentially Europe, including to Russia or other CIS countries.
Virgin Australia’s international network strategy centres on the development of its strategic relationships with Etihad and Singapore Airlines to provide UK/Europe and Asia/Japan access.
Both Etihad and Singapore Airlines have an on-line presence in Russia. It is therefore considered unlikely that Virgin Australia will seek to launch on-line services in its own right.
A charter launch strategy
The introduction of a scheduled air service almost inevitably involves significant risk for an airline operator and this risk is often greater for long-haul routes.
A programme of seasonal charters to build market awareness provides a lower risk entry strategy, and is considered the most likely option for the launch of Russia/CIS–Australia services in the medium-term.
Both Aeroflot and Transaero have a history of operating seasonal charter programmes, while Jetstar may also adopt this strategy as a means of testing new routes upon the arrival of its large B787 fleet.