More cheap fares, to more places, coming

Tigerair's chief executive Rob Sharp.
Tigerair's chief executive Rob Sharp. 

For airline passengers, especially within Australia, the news just gets better and better.

The battle for market share between Qantas and Virgin, which has spilled over from the big chairs at the front of the plane to the cheap seats at the back, now promises to be widened as the Virgin group searches for a profitable future for its newly acquired no-frills arm, Tigerair.

At Virgin’s announcement of a $98 million annual loss last Friday week, chief executive John Borghetti was anything but gloomy, reckoning that he had finally put his operation in the correct position to compete with Qantas at both the top (business) end of the market and the bottom (budget) end.

Part of the strategy, he said, was to break into more "monopoly markets".

"I could tell you what they are - but I won't," he told one journalist. "You will hear soon."

The truth is there are few new domestic markets available to a reinvented business airline like Virgin Australia. Most of the "monopoly markets" are leisure markets with few business suits to be seen, which suggests Virgin is going to deploy Tigerair against Qantas monopoly routes with high fare levels.

Most of them are to or from the Red Centre. Compare, for example, Qantas’s introductory Red E-deal of $235 one-way on the two-hour Darwin-Alice Springs route (1301 kilometres) with Tiger’s regularly available best fare of $84.95 on the 1379-kilometre Melbourne-Brisbane route. (To all Tigerair quotes you must add $8.50 per sector - $17 per return journey – compared with $7 per booking at Qantas for the priviledge of using your credit card to save the airlines the labor of a manually processed transaction. Don’t get me started.)

Without competition, Qantas can extract $245 one-way from travellers on the Alice Springs-Perth route (1979 kms) compared with Tigerair’s introductory $109.95 on the Sydney-Cairns route (1966 kms).

Faced with new competition from Tigerair, Qantas fares to Alice Springs from Sydney have fallen from $250-$300 one way to $189 compared with Tigerair’s $99.95 specials.

Qantas’s monopoly on the Melbourne-Broome and Sydney-Broome routes means its best lead-in fare is $329 one-way, compared with Qantas best fares of around $200 on the similar-length but contested Sydney-Perth and Melbourne-Perth route and Tigerair’s best fare from Melbourne to Perth of $149.95.

The complicating factor is that a cost-conscious budget carrier like Tigerair can’t just dive into a new set of destinations without carefully evaluating the airports they’ll be dealing with. Privately owned airports are natural monopolies and most in Australia behave like corporate pirhanas charging high fees that are anathema to low-cost carriers.

For every return fare to Alice Springs, for example, the airport charges around $45 – almost 25 per cent of Tigerair’s introductory round-trip fare from Melbourne or Sydney.

The same company runs Darwin airport, whose high charges are one of the factors behind Jetstar’s reluctance to put on more services from the Northern Territory capital to Asia.

Broome has also been run for decades by a private company charging high rates, while Cairns airport, owned until recently by the Cairns Port Authority, a government agency, has kept its charges relatively low.

For two years after its arrival in Australia in 2007, Tigerair refused to fly to Sydney because of its high charges, but relented in 2009 so it could add Australia’s biggest city to its catchment.

Now Tigerair’s new Australian CEO Rob Sharp appears to face another difficult evaluation of high-cost airports to see whether they can be added to his network and expand the number of competitive air routes across Australia.

Borghetti likes to continue the boast of Virgin Blue founder Brett Godfrey that Virgin Australia will cut fares by 30 per cent on new routes it takes on.

Similarly, Tigerair for years has boasted that it increases passenger traffic on any route it enters by about 30 per cent.

But Tigerair has never made money in Australia because low-cost airlines have been around in one form or another, on and off, since 1990. Australia isn’t the profitable virgin (no pun intended) ground that Tiger’s Singapore parent has helped open up in south-east Asia.

But there are still some plumb Qantas monopoly routes available for Tigerair alone or in concert with Virgin Australia. The festival of el cheapo fares looks like not only continuing, but expanding their coverage across Australia.

Are there routes you’ve wanted to fly in Australia, but have been put off by the expense? What are the destinations you want to see made cheaper?

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