Qantas Banks On Sunrise’s Premium Offering

Australia | 11:15 AM

Project Sunrise is moving from a strategic goal to reality over the next 18-months with analysts cautiously optimistic but awaiting more details.

• Qantas aims for a premium service with less flying time for aircraft upgrade
• Successful historical long-haul cases underpin the business case
• Analysts looking to August FY26 results for more colour around aircraft transition 
• Consensus positioned for 6.4% EPS growth next year

By Danielle Ecuyer

Is long-haul non-stop travel the key to success?

Qantas Airways’ ((QAN)) Sunrise Project has been almost nine years in the making.

Then CEO Alan Joyce threw down the gauntlet to Boeing and Airbus in August 2017 to develop an aircraft capable of flying non-stop long-distance prime routes from Sydney to London and Sydney to New York.

The proposition behind the project is relatively simple. Management has made an investment decision based around passengers being willing to pay a premium to shorten travel times between Sydney and the world’s two dominant long-haul routes, as well as financial, cultural and business hubs, London and New York.

The business investment case is predicated on a targeted $400m in earnings (EBIT) contribution by around FY30 when the twelve aircraft are in operation.

For the historical buffs, Project Sunrise is a tip of the hat to the airline's famous "Double Sunrise" flights during World War II.

These were ultra-long-haul Catalina flying boat services operated between Western Australia and Ceylon (now Sri Lanka) that remained airborne for so long, typically 27 to 33 hours, that passengers and crew saw two sunrises during a single journey.

The Sydney to London route is already one of the major routes for Qantas, as aptly indicated by flight tags QF1 and QF2.

Equally, the evolution of long-haul air travel from Australia to the UK and US has seen major competitors develop larger-scale services to compete in the ‘once’ necessary stopover hubs.

Think of the growth of high-end Middle Eastern airlines and the popularity of the Dubai and Doha stopovers, or Singapore and Hong Kong hubs, as transfers or stopovers on the way to London.

Post-pandemic travel has been transforming to what the analyst at Citi describes as “premiumisation”. The consumer has become more disposed to the experience and is willing to pay more.

The Sunrise opportunity is equally supported by Australia’s tyranny of distance, Qantas proposes. Our location is both a blessing and a curse (speaking proverbially).

For Qantas’ longer-term vision, the Sunrise innovation, as observed by UBS, is unlikely to be replicated by competitors. Only the distance afforded by the Australia/New Zealand geographical locations can make an ultra-long-haul fleet viable.

For northern hemisphere carriers, there are insufficient use cases to monetise the aircraft investment.

What analysts discovered, or not, in Toulouse

Those analysts lucky enough to attend the launch were hosted by both Qantas and Airbus, where the new Project Sunrise A350-1000ULR aircraft was showcased, with Morgan Stanley pointing out the intangible, yet significant, relationship between the airline and the aircraft manufacturer.

Twelve aircraft are expected and will form the basis of the Project Sunrise fleet, with delivery from late 2027.

The Sydney to London route would start in October 2027 and be ‘on sale’ from February 2027.

Apart from the $400m EBIT target, details were limited, with Jarden noting a lack of more colour around how the earnings goals would be achieved against a backdrop of higher fuel costs and strong premium cabin demand.

Management did explain Qantas is aiming for a circa 20% yield premium relative to the existing operating fleet.

UBS observes management’s business case assumes over a 30% uplift in RASK (Revenue per Available Seat Kilometre) compared to the circa 20% RASK premium achieved on the existing long-haul Perth-London service versus Sydney-Singapore-London.

The 30% RASK premium will be underpinned by the seat configuration, with the 41% premium cabin mix contributing two thirds and higher ticket prices contributing one third.

The case implies to the UBS analyst that passengers will be willing to pay over 10% more for non-stop versus one-stop trips on the two major long-haul routes.

Citi points out this is an 11%-point increase to a 41% premium mix (non-economy seats) versus around 30%, currently.

A load factor of some 85% is assumed, which is presumed by Citi to be better or at least in line with the current larger A380s with 485 seats versus the A350 at 238 seats.

From a physics perspective, to achieve the 20-22-hour flight time in the air, the weight-to-fuel ratios had to be changed, i.e. more fuel needed and less weight, which equates to smaller capacity.

The business case also assumes a relatively negligible response from competitors.

For those not accustomed to the financial metrics of airlines, the fleet capex is particularly large and must be monetised over a period to make it viable.

Business case assumptions

Reading between the analysts’ commentary, to make Project Sunrise viable, several assumptions have been made, like load factors and price rises, as well as the ongoing trend in premiumisation, to make the investment case work.

Citi, notably, points out management’s aim to nearly double international profit is viewed as a “somewhat material hurdle”.

UBS observes the Qantas International segment has generated an average EBIT rate of around $500m p.a. over the last ten years, ex Covid, albeit earnings were boosted by fleet impairments, which lowered depreciation and amortisation charges by around $200m per annum.

Qantas is aiming to double international income post a rise in capacity of 15%-20%.

Project Sunrise also coincides with a yet undecided retirement plan for the carrier’s aged A380 fleet. As the UBS analyst ponders, “how much Sunrise capacity is growth versus replacement remains an open question”.

Management is expected to detail its full international fleet strategy at the August FY26 earnings results announcement.

Morgan Stanley focuses on the potential value proposition for consumers, a travel time saving of some three-to-four hours in exchange for a circa 15%-20% ticket price premium.

This analyst considers the product to be far more curated, with the premium offering focusing on jet lag reduction (custom lighting for adjusting to new time zones), wellbeing (dedicated space for stretching, hydration and refreshments), comfort (spacious, ergonomic cabins), as well as entertainment, including WiFi.