There is much uncertainty about where the low fare airline case is headed in Australia even though it is closing in on nine years since Jetstar started services as its first such carrier.
Will the ACCC approve Virgin Australia taking control of Tiger? Does Virgin Australia hope it doesn’t? Might the ACCC approve it and Virgin Australia then let it die? How could the ACCC force Virgin Australia to lose money expanding Tiger’s fleet or cut its own throat try to keep a toxic brand and a dying business model alive?
These are all serious questions, and no claims are being made here as to what the answers will or should be. The issues are genuinely challenging, and what may have been the right answer a few years ago may be a dead set formula for ruin in the next few years, because when people chase value, what they value in air travel may not be what they previously valued.
What was Jetstar supposed to be? Putting aside what it was supposed to do to the Virgins of course, which was to eradicate them from the skies.
Jetstar was supposed to be a very low fare experience, providing lower fares for less room, no service with a capital ‘S’, and providing sustainable air travel to destinations that couldn’t find enough higher paying passengers to make them profitable instead of a drain on the rest of a full service carrier network.
Jetstar would not ‘cannibalise’ the parent full service Qantas brand.
But today Jetstar is in Qantas’s face on key routes like Sydney-Melbourne, which often returns the favour by posting cheaper fares at times than those offered by Jetstar, and it has almost since the day it launched, both curbed the expansionary impulse (!) in the Virgins while giving them a rich new source of disaffected customers vowing never to fly Jetstar again.
Jetstar has also become an international franchise, with mixed results. It is difficult to imagine how it might profitably deploy 14 Boeing 787 on routes where a smaller number of borrowed Qantas A330-200s do not at times seem to be well supported even once the Dreamliners revert to being aircraft rather than an electrical conundrum.
The weak point is that the Jetstar experience is supposed to be acceptable to Qantas full service passengers mid trip and midnight, to complete journeys into Asia or China in particular. Which is nonsensical.
Why would Virgin Australia want to go down the Jetstar route with a controlling stake in Tiger Airways (Australia) other than to make new Virgin Australia Holdings equity partner and part Tiger franchise owner Singapore Airlines happy?
Virgin as Virgin Blue and as Virgin Australia made much of having a one brand strategy in which every flight offered a premium, a mid range value, and a low range price offer to all comers.
But good though both Qantas and Virgin Australia are in terms of lounges, courtesy and (well sometimes) catering, if you are an economy passenger your spatial experience onboard is increasingly one approaching the worst discomforts inflicted in a Tiger or Jetstar cabin.
The more the full service carriers adopt low cost standards of cabin amenity the more damage they do to the consumer value perceptions, a sense of confusion added to when the Qantas fare is actually cheaper than the available Jetstar fare.
However the more Qantas and Virgin Australia improve their economy offers, the more they detract from the salability of their business class products, which while generally outstanding, are falling out of favour among some corporate customers who are punting more of their executives into full fare economy, or even discount economy, aided by all sorts of travel account deals agreed between airline and company.
The end game in all this may be the one that has been played out in Europe and America, where the full service carriers have attacked their customers with so many extra fees or conditions that it is often only possible to make a rational choice between say Ryanair and British Airways by adding up all of the fees you will pay for a particular flight on either (and the pluses and minuses of the airports they use) on a particular day.
There are tipping points coming up in low fare air travel world wide. Once the dominant driver of choice in an expanded air travel market becomes price for say 90% of buyers the question becomes not whether Qantas or Virgin Australia need a second brand like Jetstar or Tiger, but whether the latter operations could afford to support the former.
This occurs despite some city-pairs have uniquely high demands for higher yielding products. Network carriers, like Qantas and Virgin Australia, cannot usually afford the inefficiencies of a handful of specially outfitted jets for routes where demand while strong has been diluted by low cost growth elsewhere.
Ryanair and Southwest, and between 2003-2005, Virgin Blue, demonstrated that the margins on keenly priced air fares could exceed those that could be made off the full apparatus of running incredibly costly but superbly indulgent product offerings like those of Ansett, before it died.
It just went to show that when it came to making money, the bus beat the Royal Barge any day.
For Qantas and Virgin Australia, some doubts must still exist. Is it better to concentrate on one strong brand with something to offer everyone, or have two brands, only one of which will engender any real brand loyalty based on quality?
But surely there would be little doubt as to the main structural benefit of the low fare model, which is the low cost structure. Full service carriers everywhere are adopting low cost ‘efficiencies’. Some of them are embraced by industry professionals, especially if they create faster career paths, or skills developments, or seriously good employee rewards, as happened in Southwest.
However other points of friction have been over safety, pilot training standards, and quality of maintenance. Those are places where if it goes wrong, low cost can cost the customers, and the brand, their lives.