Price of going up on the way down

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This was published 12 years ago

Price of going up on the way down

A new crop of low-cost airlines are on their way to Australia and the good news is that they are less at risk of failure than you might imagine.

By Jane E. Fraser
<em>Illustration: Michael Mucci</em>

Illustration: Michael Mucci

WITH AirAsia X starting Sydney services in just over a week and Scoot following soon after, it is going to be raining cheap flights.

Heavily discounted launch fares and plenty of competition will see passengers heading to Asia from as little as $99 one-way in economy, or $499 one-way in lie-flat premium class seats.

But will travellers be wary of low-cost carriers in the wake of Air Australia's collapse - and while the memories of the grounding of Tiger Airways are still fresh in the mind?

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For years now we've been hearing about the great success and potential of low-cost or no-frills airlines, yet even the fast-growing AirAsia has been cancelling routes in the face of rising costs.

How sustainable is the low-cost airline model? Should we be wary?

An aviation consultant with CAPA Consulting, Ian Thomas, says travellers should not have too many concerns. "Air Australia was a one-off," he says.

AisAsia X is about to start Sydney flights.

AisAsia X is about to start Sydney flights.Credit: AFP

"It was clearly a business that didn't work; it wasn't so much a reflection of the low-cost carrier model. It was an operation that, in my view, expanded too fast and in the end it couldn't pay its debts."

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Thomas says the problems affecting Tiger Airways could also be put down to management decisions, regarding maintenance and training, rather than a problem with the low-cost model.

"It's about the way the business is run," he says.

"There will be a perception amongst travellers that low-cost carriers do bear a risk but I think in reality there's probably a greater risk with some of the full-service carriers because of the overheads they carry. And we haven't seen too many others go down."

Former airline executive Stephen Pearse agrees, saying the collapse of Air Australia came as little surprise to those in the industry and should not reflect on other low-cost airlines.

Pearse, who is now a senior associate with Athena Aviation, says there will be some travellers who are once bitten, twice shy but for the majority, the cheap fares will override any concerns.

He says low-cost carriers are no more likely to fail than full-service airlines. "There are plenty of examples of failures and successes for both," Pearse says.

"It's all about having your costs and your revenue in balance."

Pearse says the problem with airline collapses is that they make bigger headlines than other types of businesses. "Have you ever bought a product or service and then wanted to get follow-up to something later and found the company was no longer in business?

"Airlines are high profile and the impact of going bust is very public due to travellers being stranded. It makes good media but at its economic core, it's no different to being left without other goods or promised services when those companies go bust," Pearse says.

Ian Thomas agrees that while problem airlines may have tarnished the image of low-cost carriers to some extent, cheap flights will nearly always win through. "If you can get a reasonable service at a low cost then it's not a big risk to take," he says.

Thomas says AirAsia, which has waited a long time to get access to Sydney, has lost some of its attraction to Australian passengers by cancelling its onward services from Kuala Lumpur to Europe.

But it is possible the airline will reinstate these routes when circumstances change.

"Low-cost carriers are very sensitive to cost increases," Thomas says. "Fuel for a low-cost airline can represent anything up to 50 per cent of its overheads."

Thomas says Singapore Airlines' low-cost carrier Scoot, which is due to take off in the coming months with Sydney as its first destination and the Gold Coast as its second, will offer a different sort of product.

Scoot will offer cheap fares but will operate wide-body aircraft rather than the narrow-body, single-aisle aircraft normally used by low-cost airlines.

Thomas says there are also many other low-cost carriers coming into play in the region, such as Thai Airways International's Thai Smile and Air Asia Japan.

"All of this adds up to good news as far as consumers are concerned; there will be a lot of competition out there," he says.

Always carry protection

If you're concerned about booking travel with a low-cost carrier — or any airline — the best protection is to pay with a credit card.

You may have to pay a fee for doing so but in the case of an airline collapse you can apply for a reversal of the transaction.

Australia also has a consumer protection scheme, the Travel Compensation Fund, but it is important to understand that you are only covered if you purchase your flights as part of a package, including other travel components, and only if you buy from a licensed travel agent.

jane@janeefraser.com.au

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