Qantas turbulence minimal for commercial property

It has been billed as the dog fight of the century and, in the latest round, Qantas is finishing dead last – both in its financial results and in the political manoeuvrings in Canberra.

The flying kangaroo’s run of troubles highlights the impacts that the war for market share in the air travel business is causing in the commercial property market.

Impact number one is the steady decline of aviation engineering in Australia, with more maintenance and servicing being shifted offshore. Qantas has been shedding staff and facilities almost continuously for the past decade, with the impact falling hardest at Avalon in Victoria, where the Boeing 747 maintenance facility is set to be scrapped.

Impact number two arrived with the announcement last week that Qantas is selling one of its leaseholds to Brisbane Airport Corporation for $112 million and is seeking a buyer for its Tullamarine terminal.  In Brisbane, Qantas will retain rights to the infrastructure and lounges at the north terminal, with BAC taking control of the high yielding retail space.

These sales are the latest twist in ‘the battle of the lounges’, with airlines combining increasingly lavish clubs and onboard cabins with frequent flyer rewards to attract business travellers, the most profitable segment of the market.

Qantas has held the upper hand in this fight for more than a decade, but under boss and ex-Qantas executive John Borghetti, Virgin has proved a successful poacher of top-paying frequent flyers.

Sky Wars impact number three was highlighted to me by Oliver Lamb, Managing Director of Pacific Aviation Consulting, when he told me that the rise of well-funded, often sovereign-owned airlines from the Middle East and East Asia was finding its mark.

“They are offering flights to destinations like Europe at two-thirds the cost Qantas can and consumers are voting with their feet,” Lamb said.

“For carriers like Qantas, it is difficult to compete with these airlines that are leveraging economies of scale from their large orders of aircraft and a larger, more cost effective pool of engineering labour in Asia.

“Qantas was able to rely on its profitable domestic business, but with the success of Virgin in the business market of late they have, in effect, lost the profit centre of their business.”

So what does the future hold for the Australian air market and how will it affect property owners?

According to Lamb, the 46% increase in international capacity since 2009 from the fast rising new carriers is something of which we can expect to see more.

“These large, low-cost carriers find their success in stimulating the price sensitive, discretionary traveller and I think we will see more people prepared to fly more often,” he said.

“That could lead to a doubling of passenger movements over the next 30 years.”

For property owners in the tourism industry that looks like good news and Lamb points out that the long-term benefits extend to anyone with property in and around major air gateways.

“Look at the success of Brisbane airport, also Melbourne, and then consider these centres could be home to 10 million, 20 million, 30 million passenger movements a year. That is a great opportunity for retailers and property developers who hold large tracts of land which, with the exception  of Sydney and Canberra, is in fairly open spaces with less restrictive planning regimes.”

And how will Australia’s airlines cope?

“They’re smart people at Qantas and Virgin, experienced in this business which runs from crisis to crisis. They have dealt well with similar problems before and I expect they will do so again.”