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Australia's Qantas restarts direct flights to Beijing after eight years

By Sue-Lin Wong

By Sue-Lin Wong

BEIJING (Reuters) - Australia's Qantas Airways <QAN.AX> relaunched daily non-stop flights from Sydney to Beijing on Thursday ahead of the Lunar New Year break, resuming the service after an eight-year gap in a bid to buoy Asian growth as competition increases elsewhere.

An intense price war as more planes fly international routes has been eroding earnings for airlines globally. But making matters worse for the Australian flagship carrier are challenges on the hotly contested "kangaroo route" between Australia and London on which some 30 airlines operate.

Qantas' European market has shrunk to 12 percent of its total international business from 30 percent eight years ago, while Asia's share has jumped to 50 percent from 30 percent.

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"We think now is the perfect time, the market's very different from when we were last in Beijing which was 2009, just after the global financial crisis," Chief Executive Alan Joyce told Reuters in an interview in Beijing.

"We've seen huge growth in this market," he said, adding the Sydney-Beijing route would also help underpin the airline's domestic business by bringing in more tourists.

Qantas, however, is expected to face stiff competition from China's state-owned carriers, such as Air China <601111.SS> <0753.HK>, that aided by generous state subsidies have been spending billions on new planes and offering cheaper fares.

The fare for an Air China Sydney-Beijing flight is around A$350 ($264.50), while Qantas charges A$650 because "people are willing to pay a premium for Qantas" brand, Joyce said.

Analysts believe the Qantas fare takes into account stronger demand for Australian business into China.

"A lot of the economics of this service into Beijing will stack up for Australian travelers to and from China," said Anthony Moulder, Sydney-based Citi analyst.

"I would guess the vast majority of Chinese nationals are still going to stay on Chinese flag carriers."

FANTASTIC FOR BUSINESS

Qantas is, however, hoping the Sydney-Beijing route will help add to the growing number of Chinese visitors to Australia, boosting domestic business for the carrier.

The relaunch comes just before China embarks on its most important festival of the year, the Lunar New Year holiday that starts this weekend, when 6 million Chinese tourists are expected to travel abroad, with Australia one of the most popular destinations.

Last year, Chinese visitors to Australia grew by 23 percent to 1.2 million. Some estimate China will be the biggest source of visitors to Australia by 2018, Joyce said.

Chinese tourists typically take two to three local flights when they visit Australia and Qantas has 65 percent of the domestic airline market.

"The more tourists we can get in, the more they can travel around the country, that's fantastic for our business," Joyce told reporters.

(Reporting by Sue-Lin Wong; additional reporting by Jamie Freed in SYDNEY and Brenda Goh in SHANGHAI; Editing by Himani Sarkar)