Tiger can’t give away free seats, or get free publicity, in these hard times, as reported in Crikey today.
In ‘good times’ this is how ‘free’ or ‘nearly free’ fares are supposed to work, and how carriers like Tiger, Jetstar, AirAsia and Ryanair can sometimes outperform the so called full service or legacy airlines.
Tiger and Jetstar jam 180 seats in their single aisle Airbus A320s. Or around 40-50 more seats than Ansett used to and British Airways or Lufthansa or Virgin America still do in their two class configurations in the same type.
Let’s take Melbourne to Maroochydore (the Sunshine Coast airport) as an example. The straightest possible flight path between them is 1452 kilometres. The cost per available seat per kilometre for Tiger is somewhere near 6.5 cents but commercial-in-confidence.
So assuming every single seat is occupied by a paying passenger, the average fare on this full flight to break even and pay all direct operating costs would be $92.63 before GST of $9.27 which doesn’t count. The airline needs a hypothetical $16,673 to pay for the jet’s two hours long trip cost, or $18,342 including the GST it passes on to the ATO and it will also recover additional levies or charges which vary over various routes and airports that do not add to its revenues but will cost you more in your air fare.
What the low cost airlines try to do is also make money from selling you a meal or a drink, getting a commission off your purchase of accommodation or rental car deals that will be offered to you at the time of booking, and by adding fees for extra baggage, or for more leg room if you qualify to sit near an emergency exit.
The Tiger reality looks very tough however given that it yesterday claimed that it was selling almost four flights out of five for less than $100 one way during its first year of operation in Australia. In good times, offering free seats, or 5 cent seats, plus the levies, charges and taxes, would work as a promotional expense by being spread thinly across flights that were likely to be well booked by customers paying regular or very high last minute fares.
Long term successful LCCs like Southwest, easyJet and Ryanair, can make much more money than their multi-class competitors by having higher productivity, using newer more fuel efficient jets that are often leased and off balance sheet, and easily returned to lessor in hard times, and by attracting business flyers prepared to pay more than rock bottom to get a convenient flight.
But the geography and population density of Australia do not replicate the trading environment of these successful LCCs. Tiger is know to have lost significant sums during its first year in this country, and has little to offer business flyers who may not like Jetstar, but see it as part of their entitlement to Qantas frequent flyer points, or as having more frequency than the Singapore owned carrier.
Now that hard times have come, the ‘free’ Tiger flights stunt only proves that its shareholders are prepared to hang on to a loosing proposition for other reasons. No-one knows for sure what those reasons are. Is Tiger part of a plan to participate in the future rationalisation of airlines in Australia and the Asia-Pacific hemisphere in general? Do they believe it can cause enough pain to Qantas to make it withdraw its Jetstar Asia operation from Singapore in some sort of mutual back off? Could Tiger change its spots and become a Virgin Blue type of operation, single cabin, but upmarket and relevant to business travellers?
The depth and duration of the economic slow down will no doubt influence the real answer and its timing.