AirAsia versus Jetstar: budget battle looms

For price-obsessed travel consumers – that is, most of us – it has been a fantasy to imagine what would happen if there was ferocious head-to-head competition, not just between full-service carriers and low-cost carriers, but between low-cost carriers and low-cost carriers.

As they have gained popularity around the world in the past decade, low-cost carriers (LCCs) have always targeted the easy pickings first – the high-fares markets that full-service carriers have had to themselves.

But the LCC phenomenon is now so pervasive that increasingly LCCs are having to compete with each other.

That now threatens to extend to the long-haul low cost market, where there has been little head-to-head competition between the LCC brands.

Traveller’s Check reported last year on the possibility that Jetstar and AirAsia X would go head-to-head in Bangkok, with AirAsia X’s new Thai subsidiary set to launch services sometime this year between Bangkok’s Don Muang airport and AirAsia X’s existing Australian destinations.

Jetstar runs three return services a week between Bangkok’s Suvarnabhumi airport and Melbourne.

AirAsia X’s multi-hub strategy is now advancing at such speed that the possibility of head-to-head competition between Jetstar and AirAsiaX is now a certainty – but this time in Bali, which AirAsia X announced last week would become its latest hub by the end of 2014.

In a year’s time, AirAsia X’s 377-seat A330-300s are likely to be going head-to-head with Jetstar’s new 335-seat Boeing 787 Dreamliners on key Australian routes like Denpasar-Sydney and Denpasar-Melbourne.

That’s only half the attraction for AirAsia X, which wants to introduce many new non-stop flights from Bali to China, which has overtaken Japan as the second-biggest source of foreign visitors to the Indonesian holiday island behind Australia.


As I’ve written previously, one of the reasons such routes are attractive to new airlines is that the enduring popularity of Bali and the low-cost of the “ground content” once you’re there means there’s not as much pressure as there otherwise might be to come up with ultra-cheap fares.

At $700-$900 return from Melbourne, Sydney or Brisbane (though cheaper specials are sometimes available), regular fares to Bali from the Australian east coast are in the same ballpark as popular destinations much further away, like Hong Kong and Bangkok.

When it comes down to it, Jetstar and AirAsia X are as uncomfortable as each other for the vast majority of holiday-makers in economy class and the only thing they can compete on is price.

Meanwhile, on the other side of the world, we’ve seen, in the past week, an example of what happens when airlines are able to use lack of infrastructure to restrict supply and raise prices.

The case of Reagan National Airport in Washington, DC, is important because it illustrates what may happen at Sydney Airport if no new competing airport is built – or even if there is one.

Like Sydney, Reagan National is the downtown airport just 10-15 minutes from the city and there is no prospect of another one so convenient ever being built. Dulles International Airport is in the boondocks to the west of the city and low-cost carriers like Southwest Airlines have always served the capital mainly via Baltimore airport, about 40 kilometres northeast.

However, American Airlines and its new merger partner US Airways have been ordered by competition authorities to divest “slot pairs” (pairs of takeoff and landing times) at Reagan National and a number of other airports to be given permission for the marriage.

As a result, budget carrier JetBlue and Southwest have both increased their presence at the downtown with the promise of much greater price competition.

"Reagan has long been a convenient but high-fare airport,'' says Gary Kelly, chief executive at Southwest, which is now America’s biggest domestic carrier. "Southwest plans to change that by bringing much needed competition to the nation's capital.''

Australian airlines are now at the point where they allow up to $10 extra on one-way fares to Sydney because of the high price of access they’re charged by the airport.

And the airport wants eventually to begin charging airlines a premium to land in the most valuable times of the day – the morning and evening peaks, which are saturated with aircraft movements.

When Singapore budget offshoot Scoot launched its first route to Sydney in June 2012, it was forced to leave Singapore around 2am because it couldn’t land in the New South Wales capital any earlier than lunchtime as all the earlier morning slots were taken.

Eventually, restricting the supply of airport slots leads to higher prices for consumers as airlines are forced to pay higher prices for access and have to get involved in costly slot trading.

Qantas famously had to pay another airline around £20 million ($A30 million) for a slot pair at London Heathrow about a decade ago to gain access because all available slots had been taken – just another impost that eventually shows up in the ticket price.

If it came down to a choice between Jetstar and AirAsia X, who would win your business? Have you used Scoot to fly from Sydney or the Gold Coast to Singapore?