Travellers the winners as airlines slug it out

The airline industry may be on its knees worldwide, but it seems there has never been a better time to fly.

From today the world's biggest airline Delta is crossing the Pacific Ocean, bringing more competition and lower fares, hopefully, to the traditionally protected US - Australia route.

Domestically the discount operator Tiger Airways has become the fourth carrier operating between Sydney and Melbourne.

It is trying to grab a share of the market, and even expand the market, by selling some seats for less than a taxi fare to the airport.

"It is going to be the battle of four brands and I actually think the cheap prices are going to last quite some time on what used to be the golden route," says Ben Sandilands, an aviation commentator on Crickey.com.

He has been watching on as aggressive no frills carrier Tiger Airways becomes the latest to take on the Sydney Melbourne route. Its hook is airfares from as little as $39 each way.

But he warns that the discounts of that extent cannot go on for ever.

"Well it is certainly not sustainable at those prices, but Tiger is not here to make money," he said.

"Tiger is controlled by Singapore Airlines, and Tiger's entire purpose in Australia is to participate in the ultimate rationalisation of the airline industry. So they are very patient and they are prepared to lose money."

Mr Sandilands says Tiger is one of a stream of Singaporean investments outside that country's tiny borders.

"I think in the long term, the entire purpose of Tiger is to help Singapore Airlines find effective investments outside of Singapore. That has been the strategy for a very long time at Singapore," he said.

They tried it with Ansett of course and it was a disaster, but Tiger Airways spokeswoman Vanessa Regan is optimistic that the airline will succeed where other ventures have failed.

"Tiger Airways is now entering the big league, and we are one of the major domestic players in the industry at the moment. I guess what we are trying to achieve here is new low fare travel options for people throughout Australia," she said.

She says the airline is different from competitors Virgin Blue, Qantas and Jetstar.

"Tiger Airways offers an absolutely true low cost business model which gives passengers access to the lowest fares in the market without having to pay for all the expensive add-on services if they don't want them," she said.

"We believe it is a proven business model which is based on the likes of Ryanair and EasyJet internationally which are two of the most successful airlines in the world."

Ms Regan says Tiger's strategy is not to compete with the existing carriers, but to lift the total number of passengers by attracting more air travellers.

"We actually believe we are quite unique in the market and that we are filling a void. We are actually growing the travel market and we are not really looking at cannibalising off other competitors," she said.

However, Sydney - Melbourne is not the only route currently undergoing a shake up.

Airfares on the Australia - United States trans-Pacific route used to be some of the least competitive in the world.

For airlines, there was a lot of money to be made on largely captive markets.

But Ben Sandilands says that has all changed since the number of carriers doubled from two to four in less than 12 months.

"The economy fares across the Pacific which most people are buying have been as low as $700, even $650 return," he said.

"Delta, which started flying today, that is the biggest airline in the world, hasn't actually been too active in the Australian market but it has been enormously active in the American market thereby making it quite difficult for Qantas and V-Australia to be successful on the other side of the Pacific."

And he says that has been a big revenue hit for the existing carriers.

"About a quarter in some cases, and this even applies to the premium airfares too, but in economy it has been down to about one quarter of the previous fare level," he said.

And Mr Sandilands believes that, while the very low introductory fares may go, fare levels will remain much lower than before when the route was operated solely by Qantas and United.

"I don't think it will go back to the bad old days. I think when we look at the history of this sort of operation now we have been seeing lots of new entrants come into markets over the past ten years," he said.

"They do permanently change the market into a more competitive market. There will be a lower fare benefit, there is no doubt about that, but will there be four carriers on the trans-Pacific, probably not."

However, while passengers enjoy the prices, there has also been a fall off in what customers can reasonably expect for their dollar.

"Service levels have gone down, and that is particularly noticeable on the short haul domestic flights. I mean on the Sydney Melbourne route, for example, you will see the premium business class cabins that Qantas fly now disappear," he said.

"I am absolutely certain they will be gone by the end of the year as Qantas itself realigns its product more to where the price is."

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Fri 3rd July 2009 - 04:20pm