Unleash Singapore Air on the Pacific

KOMPAS.com - Singapore Airlines should be given a chance to fly on the Pacific route. Not because Singapore Airlines deserves something back in return for allowing Qantas to start up a premium airline in Singapore, but because a public benefit test says so. The move would improve the welfare of Australians. Here's how:

Extra passengers

Fact 1: a daily Singapore service from Sydney and Melbourne to Los Angeles on a 471-seater Singapore A380 aircraft will add 344,000 seats to each city pair. At a 77.3 per cent seat factor this means an additional 532,000 passengers a year.

Currently there are around 968,000 passengers on Sydney and 400,000 passenger movements on Melbourne to Los Angeles. Singapore Air's entry therefore increases Los Angeles passengers by around 39 per cent.

Lower airfares

Fact 2: adding more seats to the market will lower airfares. The exact size of the airfare reduction depends on a parameter that describes how demand changes as the airfare changes - the airfare elasticity of demand.

On the basis of a conservative estimate of this parameter, airfares could fall by as much as 39 per cent, more so on the Melbourne-to-Los Angeles route.

According to Tourism Research Australia data, the average airfare paid by inbound tourists on the US route fell by 26 per cent between September 2008 and September 2010 (the period over which V Australia and Delta started on the Los Angeles route) so falls of 40 per cent are conceivable when a large dump of seats is added to the route.

If a booking were to be made on a Qantas flight today for a Sydney or Melbourne flight to Los Angeles that departs in three months' time, the average airfare that would be paid for a mix of economy through to first class travel is about $1,410 one way. A 39 per cent reduction in Los Angeles airfares represents a saving of $550 one-way for the average passenger.

Consumer benefit

On US routes into and out of Australia (including Honolulu), about 63 per cent of passengers are Australians flying to the US while the remaining 37 per cent are US residents flying to Australia.