Buenos Aires Ministro Pistarini International airport was hit with a double whammy this week after it became known that it would lose nonstop linkages to two continents in the coming months. South African flag carrier SAA has announced intentions to discontinue its 3-weekly service from Johannesburg to Buenos Aires in late March 2014, and Argentine flag carrier Aerolineas Argentinas will also axe its 3-weekly nonstop services to Sydney, Australia in April 2014.
Although they are unrelated decisions, both route cancellations reflect a number of difficult operating conditions which have made it nearly impossible for either airline to earn profits on these flights. Aside from this, Argentina’s woeful macroeconomic climate continues to erode the likelihood for state-owned carriers to retain legacy glamor routes for the sake of prestige when the market clearly cannot support them.
Interestingly, South African and Aerolineas share many similar traits as majority or fully state-owned national airlines beleagured by years of massive financial distress and ineffective management structures. Moreover, with hubs centered largely in end-of-line countries in the deep Southern hemisphere, their long-haul networks are very small and limited by nature, while also highly unprofitable and operated on aging four-engined aircraft.
Viewing these characteristics in context, it makes sense why both airlines are cancelling these services.
South African is akin to a cancer patient that needs to be rushed into surgery
SAA has been plagued by numerous restructuring attempts that have failed to gain any long-term traction. Amid constant leadership changes and new business plan proposals, nothing has been implemented successfully as a near-term solution.
Core to SAA’s operational turnaround needs are 1) a major next-generation fleet replacement order and 2) the gutting of its highly unprofitable long-haul network, neither of which have been tended to recently with much sign of hope. South African currently operates a long-haul fleet type of Airbus A330s and gas-guzzling Airbus A340s, which have high utilization costs (particularly on North – South flights to and from Europe which operate only during the night-time) and the carrier has not started a tender process for new widebody aircraft replacements, according to CAPA. The longer SAA holds off on making such a critical decision pertaining to its fleet, the more difficult it will be to steer the company back to profitability.
Meanwhile, SAA’s long-haul network performs exceptionally poorly. A business plan evaluation completed in April 2013 identified that neither of its two Latin American routes (Sao Paulo and Buenos Aires) nor its three Asian routes (Bejing, Hong Kong and Mumbai) are profitable.
As a fully government-owned carrier, SAA has to receive approval from authorities to discontinue routes that are unsustainable for the carrier. Of course, such a process runs into all kinds of political red tape, thereby delaying the process. South Africa is part of BRICS, a political trade block consisting of Brasil, Russia, India, China and South Africa. Since Buenos Aires is located in a non-BRICS country, the route received government approval to be discontinued. Efforts to chop services to Beijing, which is flown thrice weekly on an Airbus A340-600 ranging between 14-16 hours in each direction, has proven to be much more controversial given its importance in a BRICS country. Similar resistance will likely be met for Hong Kong and Mumbai for the same reasons.
While Buenos Aires was a logical cut, the Argentine response has not been favorable. Argentina’s ambassador to South Africa, Carlos Sersale di Cerisano, has allegedly criticized the carrier over this decision, accusing them of making a political move rather than a commercial one, despite the findings of the business plan that the route was losing USD $5M annually.
It’s these types of tug-of-war fall-outs that prevent airlines from moving out of the red and on a healthy road to recovery. In the end, Argentina must realize that it is not a high-growth country, and even though it must lose out to 1-stop connections to route existing traffic between the two nations in a 3rd-party country, that’s the way it has to be. Neither Argentina nor South African’s flag carriers can support a nonstop route between the two nations. Malaysia Airlines operated a bizarre route from Kuala Lumpur to Buenos Aires via Johannesburg and Cape Town on a 2-weekly 747-400, which it pulled in 2012 after citing unprofitability.
Moreover, localized in a largely end-of-line country, South African is not in a position to viably support an intercontinental hub out of Johannesburg that can compete effectively at a global scale. Aside from its own internal infrastructural concerns that need to be sorted out, the carrier does not have the bandwidth to take on its competition, namely in the form of the Big Three Gulf Coast Airlines (Emirates, Etihad and Qatar) and its nearby East African counterparts Ethiopian Airlines and Kenya Airways. The latter two, in particular, have launched ambitious growth plans to capitalize on their geographically-favorable hubs in Addis Ababa and Nairobi, capable of connecting valuable traffic flows between the BRIC countries as well as other high-growth nations across North, South, East and Central Africa. Also key to note is that their ownership styles, while also government-backed, tends to be more “pro-airline” rather than pro-government, thereby allowing the carrier to grow prosperously with less policing and intervention.
Buenos Aires will see South African pull out on March 30, 2014. Current schedules will run as such until that date:
SA226 JNB0940 – 1610EZE 343 357
SA227 EZE1810 – 0825+1JNB 343 357
Aerolineas Argentinas cedes South America – Oceania corridor to OneWorld monopoly
South America will see one of its longest-standing legacy routes between the Southern Cone and Oceania vanish on April 2, 2014 once Aerolineas Argentinas discontinues its 3-weekly services operating nonstop from Buenos Aires to Sydney, Australia. AR 1180/1181 is currently flown on an Airbus A340-200, and at over 7,000nm in distance, it is unlikely that this route is earning a penny on such a long stage length with a high-CASM four-engine plane guzzling up fuel at today’s prices.
Current schedule is as follows:
AR1180 EZE0850 – 1140+1SYD 340 135
AR1181 SYD1830 – 1955EZE 340 246
Aerolineas first came to Oceania in 1980 with services to Auckland, New Zealand by way of a 747-200. The aircraft made a technical fuel stop in Rio Gallegos, located in the Patagonia region of the Southern Cone. Eventually, AR added a Sydney tag-on from Auckland operating as a 5th-freedom service, and the advent of longer-range Airbus A340 aircraft allowed it to fly nonstop from Buenos Aires to Auckland. In 2002, LAN Airlines of Chile similarly added a route to New Zealand and Australia from its Santiago gateway hub, flying direct to Sydney with a stoppover in Auckland. The route has been operated on an Airbus A340 since inception and codeshares with OneWorld partner QANTAS.
Qantas launched its own thrice weekly nonstop service from Buenos Aires to Sydney in 2008 using a Boeing 747-400ER frame and offering the first point-to-point service from Argentina to Australia. However, Qantas eventually moved the service to Santiago in spring 2012 as part of its international long-haul network restructuring, hoping to tap into LAN’s base in SCL as a fellow OneWorld hub to improve yields.
In light of this decision, AR eventually discontinued its stopover in Auckland in 2012 to fly nonstop from Buenos Aires to Sydney and fill the void, but come April, Argentina will once again remain without nonstop service to Australia after Aerolineas withdraws from Sydney, and lose access to the Oceania region altogether. Passengers traveling between Australia and Argentina will still have a 1-stop service via LAN/Qantas at Santiago.
The discontinuation of Aerolineas’ services to Australia likely reflects the inability of Aerolineas and SkyTeam to capture the deep South America – Oceania traffic flows relative to the OneWorld alliance. Innovata shows that the current schedule on Aerolineas offers roughly 1,000 weekly seats between Argentina and the South Pacific, versus over 4,500 split between Chile and the South Pacific. While the latter figure also includes LAN Airlines’ services to Papeete, Tahiti, in total, OneWorld offers 9 weekly services to Australia, 6 direct via Auckland on LAN, and 3 nonstop to Sydney on Qantas metal.
Functionally, the two airlines have discovered mutual benefits coexisting between the Chile and New Zealad/Australia. By virtue of its codeshare agreement with Qantas, LAN can connect traffic beyond its Santiago hub to multiple points within South America. Both LAN and Qantas arrive into Santiago from Auckland and Sydney, respectively, prior to noon, and this connects well to a major afternoon bank from Santiago to multiple domestic points within Chile, as well as intercontinental flights to Lima, Buenos Aires, Sao Paulo and Rio de Janeiro. The westbound flights from Santiago back to Oceania are also convenient as Qantas leaves in the early afternoon, supporting morning in-bound connections, and the LAN flight to Auckland leaves prior to midnight, supporting a full days’ worth of connections as a secondary option.
On the Oceania end, LAN arrives into Sydney around 8 AM, very well-timed for connections. The outbound departure on LAN isn’t as convenient since it leaves at 10 AM, but the service offered on Qantas nonstop back to Santiago leaves in the early afternoon, supporting inbound connections across Australia and beyond. LAN also has 5th-freedom rights between Auckland and Sydney, catering to point-to-point traffic between these markets.
To add to the mixture, TAM Airlines of Brasil, which recently merged with LAN to form LATAM Airlines, will also help contribute to traffic volumes on these flights once it joins the OneWorld alliance in the next few months.
Aerolineas has been less vocal than SAA for the discontinuation of the route, but it is not surprising to see the carrier make such a move. Also, as a decision made internally with the likely nod of approval from the Argentine government, the route cancellation is significantly less political and controversial than South African’s vote to axe Jo-burg – BAires. It is well known that Aerolineas offers an inferior on-board product to Qantas and LAN as well, rendering it a secondary preference for business travelers.
In the end, it is a blow for SkyTeam, but blood runs thicker than glamor, and until the bleeding stops, Aerolineas has to make these painful choices else face a long road to recovery.