Only a week away from D-day when the ACCC decides whether or not Virgin Australia can buy control over Tiger Airways, the airline has gone on sacrificial sale for $10 one way everywhere it flies, subject to all sort of fine print you must read on its website.
The fares are not for use until much later in the year, must be bought by midday Friday, and are like all fare sale offers by any airline in Australia, bait pricing exercises more about getting you on site than on flight for $10 with **conditions and provisions and so forth.
Tiger doesn’t and isn’t required to disclose how many such seats are on offer on each flight. But at $10 inclusive of all fees, taxes, levies and other charges, but not $8.50 for making the wrong choice of credit card, the airline is actually paying you at least $9 just to board the flight, since on most flights those compulsory extras that the airline must pass on to the airports, or government, come to at least $19 per sector.
And if we make a guess that the direct operating costs of the A320 being used will be somewhere around 6 to 7 cents per kilometre flown, Tiger is actually offering to spend maybe $70 of its money to collect $10 from you for a short flight.
It might be hoping that you will spend $200 on the return leg, and try to fly with 50 kgs of checked luggage, which will cost you the price of a small new car in some neighborhoods, but you aren’t that dumb are you?
Australian domestic air fares are sold as single sector fares. So you can mix and match, or play air fare snakes and ladders, trading off a cheapie one way for a higher fare the other way, coming out on top when the fares are averaged.
You can even pretend that your el cheapo deal on any airline justifies lashing out on their more costly fare back, even cross subsidising a sector in business class on some days, since both Qantas and Virgin Australia do actually run discount offers on their premium seats as well as the rest.
This $10 offer from Tiger is heart rendering, no, really it is! It is a desperate sign that in the Australian domestic market, with Qantas and Virgin Australia clobbering each other with really good if less ruinous discounts close to $100 for a short inter city flight, there is no head room for ultra low fare offers.
When the difference between say Tiger and Qantas is less than $30, and the latter flies every half to quarter hour on some routes, offers free snacks and coffee, tea or water, a checked bag, and a noticeably more pleasant cabin comparatively speaking, and your parking alone is going to cost you close to or more than the airfare at a major airport, you would have to be daft to ‘save’ money on the former.
Note that no mention has been made of Jetstar until now. Jetstar may just be a large scale behavioral experiment in price and brand sensitivities. May be! There are times when Jetstar sans food, checked luggage and the normal courtesies of everyday life, is more expensive than the widely available Qantas fare on the same route and at about the same time.
It has to be a large scale out of lab test of market behavior. (Well maybe not, but at least it proves that no-one is really paying all that much attention in Jetstar and Qantas as to what the other is actually doing.)
Just what the ACCC could, or should, or even can do, when it ponders such competitive behavior in Australian airfares would make an interesting speech one day if its chairman, Rod Sims, could be persuaded to address the National Aviation Press Club and reveal all.
On the surface, Tiger ought to be a shining light on the hill, illuminating the way for airlines to donate stake holder wealth to the broader competitive benefits of air fare giveaways which is what airlines around the world seem best at doing.
But under the surface, such behavior inevitably leads to market collapse and consolidation, in that an airline either exits the market, or finds a new capital structure and new stakeholders prepared to renew the sacrificial cycle.
One thing that is clear so far is that Virgin Australia, while it may well want to control Tiger, has no intention to perform such a sacrificial role as far as its shareholders are concerned. If there is going to be any sacrificial blood spilled when it comes to the future of Tiger, it seems that the knife has been handed to the ACCC, to use as it sees fit, of course.