Who will you be flying with in 2014?

The 2014 is likely to be a year of upheaval in the Australian travel market, in part due to the challenges faced by Qantas.
The 2014 is likely to be a year of upheaval in the Australian travel market, in part due to the challenges faced by Qantas. Photo: Jim Rice

Along with all those who work in manufacturing jobs, air travellers are wondering what the landscape will look like this time next year – or this time next decade.

The air travel map is being redrawn by the constant, even accelerating change being wrought both by technology – which is dramatically improving everything from the quietness of the ride in aeroplanes to the ability to watch live TV or send emails at 40,000 feet – and the fast-changing financial systems driving the airline industry.

After being invented by Southwest Airlines in the 1970s, low-cost no-frills flying really took off about a decade ago. It is changing the face of the flying business because, for the first time, it offers people stumping up the money to start and buy airlines a model for healthy financial returns.

The average full-service airline earns less than the interest rate you can obtain by parking your money in a bank account. Well-run low-cost airlines can offer returns of 20 to 30 per cent.

This is the world that Qantas is trying to reinvent itself to successfully inhabit with all its so-called legacy problems and high costs imposed on it through having to survive in modern Australia.

The next year will say as much about air travel to, from and within Australia as the 13 months from August 2000 to September 2001, when Virgin Blue first appeared and Ansett disappeared.

In what I rate as the best recent analysis I have read on the trials of Qantas, airline safety website airlineratings.com on Friday gave some perspective on the world Qantas came from, where it controlled more than 40 per cent of the international market to and from Australia, and the one it now finds itself in.

“Government policy (in the 1980s) was to protect the national carrier from foreign competition; an airline which taxpayers owned and which was selling tickets at a premium to adoring travellers at a time when well-known airlines like Pan Am, Alitalia, Korean Air, and Continental Airlines were having many accidents. In 1989 there were 231 accidents and incidents, which made Qantas’ unblemished record shine,” the website said.

“The landscape is starkly different today. For 2013 the number of fatal crashes involving IATA (International Air Transport Association) members is likely to be zero.

“Today only about 25 per cent of travellers list safety as a major consideration when choosing a flight, with most citing price and frequency as the two most important aspects. These are factors in which Qantas is behind, particularly on the international front. As a result only 16 per cent (it’s actually 17.1 per cent on the latest monthly figures for September) of international travellers into and out of Australia are choosing Qantas.”

Ironically, Qantas now relies for its survival on the domestic flying business, the former government-owned Australian Airlines (nee Trans Australia Airlines, TAA), which was sold to Qantas in 1992 as a prelude to its 1993 privatisation.

The TAA part of Qantas and Ansett were both bloated dinosaurs with costs of about 15 cents per seat per available seat kilometre (ASK) compared to Tiger Airways’ costs of less than six cents per ASK. In the absence of published figures because they’re “commercial in confidence”, Jetstar’s are thought to be around eight cents, Virgin’s 10 cents and Qantas domestic’s 12 cents.

As airlineratings.com points out, the death of Ansett relieved Qantas domestic of the imperative to reform its cost structure and rewarded Qantas with 100 per cent of the domestic business market, which has been underwriting its global operations for more than a decade, especially after the 2007-08 global financial crisis, that destroyed Qantas’s international profitability.

When John Borghetti left Qantas to run Virgin Australia after being passed over for the top job at Qantas, he took all that knowledge with him – along with an acute strategic brain, which has now started doing to Qantas what Qantas did to Ansett.

If Virgin had not become a business airline, with all the extra costs that entailed, it would still be able to compete with Tiger and Jetstar (although some doubt that), but it would not have the “rivers of gold” – business travellers – who have given Qantas a free ride since 2001.

They’re now crossing the road in increasing numbers to try brand B, while Virgin finances the losses necessary to fight the capacity war with Qantas with cheap capital from government-backed Etihad Airways, Singapore Airlines and Air New Zealand.

Into, out of and around Australia, there will be few spare seats in the next month. If you’re travelling, you will be helping the airlines bank profits that, for most of next year, look like they will be meagre or non-existent.

That is because Qantas and Virgin are locked into the capacity war Virgin started in 2011 by buying widebody A330-200s to fly from the east coast to Perth. It’s a good time to be a consumer.

Have a safe and happy festive season and thank you for reading the blog in 2013.

Are you flying over the Christmas-New Year holidays? Is the controversy over Qantas influencing which airline you will travel with? Which airline are you likely to choose for your travels next year, whether domestic or international? Post your comments below.

Travellers' Check will return on January 6.

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