One dollar flights gone, but business travellers have it good

Air fares are the economy’s bellwether, long experience of analysing them has told us, and what is going on now is a measure of the country’s turbulence. If retail is suffering, so is air travel as it goes up and down with other household discretionary expenditure. Well, retail is doing it hard after a turbulent year and air travel, normally locked into a strong upward trend, is faltering into negative territory on the latest months’ data.

But fares are all over the place, at least in the domestic flying business. Fairly rudimentary data compiled by the Bureau of Infrastructure, Transport and Regional Economics shows “best discount” fares are higher that they have been for eight months, while full economy fares are at a four-year high.

But, at the front of the plane, business travellers have rarely had it so good, with the cheapest fares since 1994, according to the BITRE index.

It’s all about competition, which ebbs and flows. In business class, Qantas now has its first formal competition since the demise of Ansett, with Virgin unveiling its first separate premium cabins and wooing business with low entry fares to get them to cross the road from its rival. Virgin will soon have new two-class widebody A330 jets on three of its most important routes (Melbourne-Sydney, Melbourne-Perth and Sydney-Perth), while its smaller 737 and Embraer 190 are also being reconfigured with two-class cabins.

But the past few months have also featured reduced competition at the budget end of the market, with Tiger Airways’ problems allowing competitors to cash in with higher average fares and less pitching for first-time travellers with one-off specials.

In fact, Tiger is now saying it won’t be until the second half of the year before all its A320 jets will be in the air again, with three of the 10 local A320s still parked in Melbourne because of continuing restrictions imposed by the Civil Aviation Safety Authority after the six-week grounding of the airline last year for safety violations.

The airline’s new boss Andrew David reckons the days of the gimmicky $1 fares have gone for now, but, on its skeleton route network, Tiger is still the price leader, with sub-$50 one-way fares regularly available between Melbourne and Sydney and one-way fares from Melbourne to Perth starting at around $118, including credit/debit card fees.

There will be no thawing effect on air fares around Australia until Tiger starts resuming more of its axed network and that is likely to be the subject of the airline’s next flurry of announcements. Tiger can’t grow until it nominates a new aircraft/crew base and I expect Brisbane to be named in the next few weeks, opening up more Queensland holiday and business routes to Victorians, New South Welshpersons and Queenslanders alike.

I don’t expect Adelaide to be back on Tiger’s menu until much later in the saga; ditto Melbourne’s second airport Avalon.

With Virgin putting all its energy into rolling out its domestic business class product, Jetstar, similarly preoccupied with its Asian expansion, has been giving bottom priority to its Australia and New Zealand domestic networks, which leaves the field open to Tiger as soon as it can negotiate its release from CASA flying restrictions.

In the meantime, I don’t think it’s a bad thing that crazy-cheap fares have disappeared. Fares of $1 or $10 were only ever designed to get first-time flyers into the industry in the expectation that they would pay $50 to $100 next time.

I reckon $50 fares – and $100 fares to Perth – are sensationally good. They’re also close to the break-even cost of providing the seat, which means they are sustainable. In fact, when $39.95 or $49.95 becomes $59.95 or $69.95, you can take that as a sign that competition is disappearing.

Have rising fares put you off travelling around Australia or have you been able to find fares you’ll pay for? Are you hoarding your money because of the economic situation? Are you simply saving up to use cheap international fares to take your holidays overseas?