In the last 24 hours Virgin Australia has been cleared to pursue growth in the low fare branded airline game through control of Tiger Airways (Australia) and gained a massive show of support from Singapore Airlines through its doubling of its stake in Virgin Australia Holdings.
But it is not just a case of what Virgin Australia will do with these breakthroughs, but what the Qantas group can do to further its ambitions in Asia, which despite the gloss, are now under serious siege from its own actions as well as those of its competitors.
Domestically, the key to Tiger making some of the current media analysis look remarkably uninformed is fleet utilisation. The reason Tiger has reported shockingly bad losses since 2 July, 2011, was restricted hours of operation following its being grounded for five weeks. It was flying each of its 11 A320s for as much as five hours less per day than the identical jet for Jetstar. It-was-never-going-to-make-money under such restraints.
Those caps on the number of sectors Tiger could fly each day weren’t lifted until the last quarter of last year. No matter what the airline did, it couldn’t achieve anything like the daily hours flown per jet than any other Australian airline, so all the harping about its losses in that period are framed on the basis of ignorance or avoidance of a basic operational fact.
The low cost carrier model, as well as the full service model, require maximum fleet utlisation,which was denied Tiger. Now that those restrictions no longer apply, Virgin Australia will have control of what is a very efficient, and much reformed low cost unit focused on the things Jetstar on its recent guidance is failing to do as well as it used to.
Jetstar seems divided in its attentions between domestic and international. Tiger is just domestic, with its minority owner Tiger Airways Holdings in Singapore, making no secret of the fact that is it is actively working with the 100% Singapore Airlines owned long haul wide body low cost brand Scoot, which is making major moves on the international network Jetstar had built up based on Singapore’s Changi hub.
Which means Tiger Australia will only have one thing to concentrate on in this country, which is Jetstar domestic.
Qantas knows this. What it will do about it is the important question?
Internationally Virgin Australia gets with Singapore Airlines and its single aisle brand Silkair, something Qantas shows no signs of getting, which is a network of full service connections over Changi to an extensive and rapidly growing spread of cities in India, Bangladesh, Thailand, and all of China.
The notion that Qantas keeps advancing, that its full service customers will change gauge to Jetstar misery in the middle of then night at Changi as an alternative to the Virgin-Singapore code shares is daft.
However over Hong Kong, Qantas has non-stop services Virgin can’t address, other than a daily Sydney-Hong Kong flight on Virgin Atlantic that must be one of the least enthusiastic relationships ever seen on the route. Will, or can, Virgin do a deal with Cathay Pacific, which is now in a code share relationship between Australia and London with British Airways, which detests the Virgins? That is such a fraught question, but it continues to be asked in travel retail circles.
The dismal representation of Qantas on SE Asia routes from Perth, including its abandonment of Hong Kong, and its being totally outclassed by Singapore Airlines to Singapore not just in Perth but every Australian gateway, raise serious doubts as to the judgement of Qantas management, as does its avoidance of non-stop services between Australia and Beijing.
Qantas has a promising commercial relationship with China Eastern, and not just as partners in the seemingly still born Jetstar Hong Kong venture. But China Eastern is Shanghai centric, which is great for northern China and Korea, but not on the map when it comes to much of southern and central China.
With a strong trans Tasman alliance with Air NZ, which also owns 20% of Virgin Australian Holdings, and with Delta across the Pacific and within the US, and with Etihad to central Asia and Europe, Virgin Australia has constructed a set of alliances that challenge the Emirates-Qantas strengths, and exploit its irrelevance or weakness in Asia in particular.
There is also one other factor in the new competitive environment in Australia. Qantas is largely owned by managed funds. Virgin Australia is dominated by successful airlines as shareholders. This makes the board room dynamics very, very and perhaps tellingly different from this day on.
Of course, if the aims of the Virgin stakeholders aren’t aligned, its board room could become intolerably toxic. There are many things Qantas might hope for, but they are not as important as the things Qantas will need to do when it comes to how Jetstar operates, and how it will secure a comprehensive full service network in Asia.