From Europe to Asia: A tale of dreamers, tweeners and other trans-Siberian schemers

A tale of dreamers, tweeners and other trans-Siberian schemersWhen Europe’s airlines look west, they see a transatlantic market buzzing with joint ventures, LCC new entrants and carriers like Air Canada, SAS and Aer Lingus all growing rapidly. But when Europe’s airlines look east, they see a landscape no less dynamic.

Indeed, the airline market between Europe and East Asia is busy, competitive and changing, so much so as to heavily influence the broader corporate strategies of some of the world’s largest airlines. The Europe-East Asia market is also a front row seat to some of the industry’s most important developments: the war between established carriers and Gulf carriers, the emergence of longhaul LCCs, the rise of Chinese carriers, the formation of joint ventures and so on. Now, moreover, these developments are unfolding in the context of cheap fuel, itself a new and powerful force sure to bring additional change and disruption.

To be sure, the trans-Siberian market, as some call it, is neither as large as the transatlantic market in terms of total capacity (not even half as large, in fact) nor growing as rapidly right now. According to an Airline Weekly analysis of Diio Mi schedule data for next quarter, total seats from Europe to East Asia will rise just 3% y/y, less than half the 7% growth in seats flying from Europe to North America. This growth gap, in fact, grows widens as the year progresses. That’s no surprise given the current strength of the U.S. economy relative to the weakness of many Asian economies.

The Lufthansa Group is the largest player in the trans-Siberian market, and its capacity plans there reflect one of the central thrusts of its restructuring efforts: downsizing high-cost mainline capacity while expanding with lower-cost platforms. IATA’s latest report on traffic trends by class, for the month of November, shows premium travel between Europe and Asia down by 2% y/y, which gives Lufthansa another reason to shrink its premium-heavy mainline operation. Next quarter, its Lufthansa-branded seats to East Asia will shrink 2% y/y. But Swiss, by deploying its large new B777-300ERs to cities like Bangkok and Hong Kong, will grow 6% (and then 16% in Q3). Austrian, for its part, has a new route to Shanghai starting in April.

This, however, only tells part of Lufthansa’s story in East Asia. To build on its strength in northeast Asia, it’s forming a joint venture with Air China, supplementing a JV it already runs with Japan’s All Nippon. And in southeast Asia (in other…

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