Tiger gets Qantas By The Tail

[Tony G]

I hope the lost cost carriers stay. If tiger cant make it with the backing of SIA, not sure if others will attempt a start up, unless demand grows. It does give the average person more oppotunity to fly within Australia. A few years back, It cost me $140 more (airfare) to fly to Malaysia and watch the Motogp there, compared to flying to Melbourne from Sydney and booking a hotel. Things have changed now, I find if you book domestic way in advance you usually can get a good deal. Now all we need is a decent airfare to Perth to watch the Red Bull Air race.

[Rhys Xanthis]

Originally Posted by Tony G

Now all we need is a decent airfare to Perth to watch the Red Bull Air race.

Jetstar is usually cheap (~$200)

And QF usually have 1 flight each way per day at ~$200-$230...not overly exhorbitant.

As for Tiger, well...i guess we have to wait and see. Daniel is right...how long can Tiger sustain $20 airfares? And with more planes coming...perhaps they might be a double-edged sword for Tiger? Depends how many more destinations and hubs they have planned that they think feesible.

[NickN]

Until Tiger can break into the Sydney and Brisbane markets they are just playing in the minor leagues. They can dabble all they want with their current routes but I doubt they will turn a serious dollar until they take the plunge with Sydney and Brisbane. And if they do decide to operate to those two ports, good luck staying as low cost as they are right now.

[Lukas M]

How long can Tiger sustain $20 airfares

$19.95 fares can be sustained as they are only offered on a few seats here and there, as we all know. The seat that is usually "empty" might as well be sold for something, better than being bare. Dont forget, add Baggage (20kg), pick your seat and the CC fee, your already up to $55. Dont forget their Cost Base, is very low (they work out of classrooms, use Second Hand furniture..as Davis seems quite proud of!)

Bit like what Ryanair do with those 1p flights, they cost a fortune in the end. But they do attract the customer...

Now all we need is a decent airfare to Perth to watch the Red Bull Air race

On terms of the Tiger, they are charging $129.95 for MEL-PER during the race

[Rhys Xanthis]

Haveng flown, but i have heard that the seats aren't too comfortable..anyone able to provide some feedback on that? Its a long flight to Perth!

[Justin L]

Originally Posted by Rhys Xanthis

Haveng flown, but i have heard that the seats aren't too comfortable..anyone able to provide some feedback on that? Its a long flight to Perth!

I've flown Tiger on NTL-MEL-NTL and CBR-MEL-CBR, and mind you while I had exit row seats for all four sectors, the seats themselves were comfortable. Family members have flown ADL-MEL-ADL in non-exit seats but said the seat pitch wasn't too limiting (mind you it's a short sector). I'm flying them (well TR) on SIN-HAN-SIN in the new year, so if I don't get exit seats I will be able to judge better on this longer sector in terms of pitch.

I find as a general perception that A320 seats on TT and JQ feel less cramped than B737 seats on QF and DJ from experience. It may not be the case, but it is what I have felt.

Also, there was this recent article on Tiger regarding them perhaps offering late check in fees to allow people to check in past the 45-minute cut off. I saw a couple of dramas for late check in for an ADL flight from MEL while waiting in queue for the CBR check in to open recently.

http://www.smh.com.au/news/travel/ne...217491675.html

Tiger is considering a late check-in ... for a price.
Mathew Murphy
September 26, 2008

TIGER Airways is considering allowing passengers to check in after its 45-minute cut-off time if they are willing to pay an additional fee.

The Age believes the proposal is being discussed in a bid to reduce the number of irate passengers being told they can't check in despite arriving at the terminal well before departure.

To keep costs low, Tiger uses the same staff member who checks in passengers to help those passengers board the aircraft.

A Tiger spokesman refused to deny the budget carrier was looking at the option. He said Tiger was keen to allow passengers as many options as they were prepared to pay for.

"If we were able to look at a way where that would be cost effective, then we would look at it," he said. "It's a process that needs to be looked at and gone through because the last thing we would want to do would be to increase costs for something people don't want.

"Our model is all about giving people choice for the bits that they want to pay for. If they want to take 30 kilos of luggage, that's fine by us, you just pay a little extra."

Tiger's check-in cut-off time is the strictest of the domestic carriers. Jetstar requires passengers to arrive no later than 30 minutes before departure. Qantas' policy is 30 minutes, or 15 minutes if passengers only have carry-on luggage. Virgin Blue's check-in time is 30 minutes but is flexible.

All carriers have different policies for checked-in baggage, with Qantas the only domestic airline that has not yet introduced a charge to check in baggage.

[James Smith]

On terms of the Tiger, they are charging $129.95 for MEL-PER during the race.

Not much good for Tony who is in Sydney!

[Marty H]

Seems Virgin Blue have got QF by the tail eating into their Business market, there was a report in todays Herald Sun, cant seem to find a link to it on the net though.

[Torin Wilson]

Originally Posted by Rhys Xanthis

Haveng flown, but i have heard that the seats aren't too comfortable..anyone able to provide some feedback on that? Its a long flight to Perth!

I think the seats are pretty comfortable. They seem like old school seats, a bit bigger and the foam harder. But I find the 'not as soft' far nicer to sit in then JQ seats. The leg room is pretty much the same, or seems to be. I can fit in my seat length wise, and that pretty much all I care about after paying $10.

I think the standout for Tiger though is the attitude of the crew. They are very friendly, and seem to take a customer orientated approach.

I flew JQ 6 times and TT 3 times in 8 days, and the TT crew were brilliant each time and for the whole time.
JQ on the other hand were shocking on the most part, some pretty rude crew. One of the checkin girls was really good, but that was the only standout good part of the time with JQ.

I'm a price sensitive traveller, but I'm willing to pay more to fly TT than JQ.

On the point of TT not flying to Sydney and Brisbane, why would they fly in markets where they will undoubtably get slaughtered?
Sydney and Brisbane are probably too expensive to operate from in terms of airport costs. If they did fly there, it would be unlikely they would still offer $19.95 fares and push themselves from that market differentiator.

If they can make money by flying some pretty oddball routes, with less competition on them and have lower costs for the airline then whats the matter with that?

You don't have to fly all the major routes, some of which have the highest traffic volume of anywhere in the world to make money.

I should be writing my last 600 words for my research report instead of this, especially when this is half of all I have left

[Will T]

Originally Posted by Marty H

Seems Virgin Blue have got QF by the tail

Marty, I haven't seen the article in question, but I don't agree with that statement. We could write a 4000 word piece on the dynamics of the Australian domestic airline industry right now, but in summary (and with a bit of background)...

- Virgin Blue was conceived as a value-based airline at a time when the Australian domestic market was characterised by high-cost, high-fare insulated duopoly. VBA's initial business plan - in my opinion, the best-executed LCC plan of the last decade - deployed an airline with substantially lower unit costs than the incumbents. This cost advantage was achieved through simplicity of product, processes, fleet, operations and labour, and facilitated VBA's position as a 'price leader' (more correctly, a 'cost leader') through which it could use low fares as a prime differentiator from QF/AN. In product terms, it 'unbundled' the traditional network airline product (eg. hot meals), on the basis that - for their target market - getting from A to B was the most important part of a short, domestic sector. In these ways, VBA lured the custom of price-sensitive, high-volume leisure passengers for whom their unbundled product offering was of little concern. There were rapid inroads into the post-AN domestic market, with virtually linear market share growth from 0 to 30% over a couple of years, largely at the expense of post-AN QF.

- QF's initial responses to this included a major cost reduction drive (remember the boxed meals?), re-deployment of widebody fleet capacity (with a lower CASK) to trunk domestic routes, and aggressive re-negotiation of several key labour agreements. These substantially narrowed the cost gap between QFA and VBA, but QF's positioning as a full-service, integrated network carrier (vs. VBA's low-cost, simple point-to-point model) rendered the rest of this cost gap virtually unbridgeable for the time being.

- QF launched JQ as a competitive response to the rapid inroads being made by DJ into its domestic leisure 'volume business', and the plan hinged on achieving final CASK decidedly below VBA's. In this way, JQ became the new cost leader, which in turn enabled it to become the new price leader, which thus gave the QF Group a vehicle in which to truly compete in markets where the fare was the prime differentiator (ie. price-sensitive leisure). Furthermore, this gave QFGroup's full service airline - QF - the ability to focus on its high-yielding, full-service bundled network business, without having to worry about its Y-class cabins being cherry-picked by DJ on key routes. The QF Group effectively identified two distinct market segments (business and leisure), deployed two distinct and highly-aligned brands/products to serve these respective markets, and reinforced this position by effectively becoming 'best in class' in each segment.

- QF's deployment of the Two Brands immediately halted VBA's growth. QFGroup had the cost leader (JQ) and the high-yield product differentiator (QF), and DJ's cost base and product made it neither, and left it stuck in the middle.

So... DJ clearly needed to reconfigure its business to get out of the pincer. Or at least focus on a profitable niche within the pincer. But this is where I believe they tripped up....

- DJ embarked on what it termed a 'New World Carrier' strategy. While it never explicity defined this strategy to investors, it involved taking its low cost base (which was still very low, but just not as low as JQ), and incrementally adding key product ingredients identified as being important to the high-yielding business segment. These included lounges, frequent-flier programs, premium seating etc, each of which was modelled to deliver a given revenue benefit over and above the costs incurred by adding them (ie. value adding), and would in turn improve DJ's yield mix. The Embraers were also very much part of this strategy, enabling them to develop high frequencies on thin, but high-yielding business markets (eg. CBR), among other things. In any case, the strategy would theoretically improve yields and margins (and particularly margin quality/consistency), converging with QF at the higher-end of the market, and taking the airline away from the low-yield, more volatile leisure segment where it was no longer a 'cost leader'. So New World Carrier was a hybrid of low(er) cost base and high(er) yields, which of course would translate nicely into an overall margin/profit improvement.

What has happened since then?

- DJ's product has moved upmarket in a number of areas, but seems to have been unable to derive the necessary yield increase to justify the strategy overall. In particular, I question their decision to take their ENTIRE Australian airline (and its cost base) upmarket, rather than deploying a focussed and premium offshoot and working to improve the cost base of the incumbent airline, which was certainly not 'out of the ballpark' (and definitely not in the case of Pac Blue). They had also developed a strong, recogniseable and compelling leisure brand and low-fare mantra ('Keeping the Air Fare'). Instead, they have introduced significant complexity to their business in fleet, product and overheads at a time when successful airlines are refining and aligning their focus to specific and targeted market segments, and setting up additional airlines to do so if need be. Their crusade to sway high-yield traffic towards their unbundled, pay-per-use product frills would probably work nicely in the abstract, or in the old-world duopoly where the fare gap would've have been too compelling for even the bigger spenders. But in today's ever-globalising business travel market, premium product norms are informed by the large global players (EK, SQ, LH, etc), who in almost all cases are increasing their product bundling (limousines, premium lounges, corporate jets, concierge check-in, etc etc), and certainly not reducing it. Domestically, this is reflected in QF mainline's addition of Business Class Lounges, among several other things in the pipeline.

- DJ's designs on QF's domestic yield premium (Brett Godfrey has reiterated these a number of times) are well-intentioned, but represent an incredible challenge. QF is a large regional/small global player with an integrated full-service network (with international-domestic feed interplay) and is a member of a large global alliance. It has developed its brand, reputation, sales relationships and operations over decades. And while some of this is 'legacy' stuff, much of it remains central to their current success. As discussed, QF is the established 'differentiator' in the domestic market, and enjoys the yield premium flowing from that position. If DJ intends to capture even some of that yield premium (as Brett Godfrey has announced), it will increasingly rely on their ability to differentiate from Qantas mainline. Based on current and announced product initiatives, it seems unlikely that they'll be in any position to do this on product, which leaves 'value for money' (or even airfares) as the remaining lever. In this way, they could seek to offer most of the frills that Qantas do, but for substantially lower fares. This price-leader/differentiator hybrid is what I believe their NWC strategy is all about. But Qantas's recent public estimation that their domestic mainline unit costs would fall below DJ's 'soon' seems to render this position redundant, and it would seem that - even with on-line feed from VAustralia (which will be successful) - they will remain stuck in the middle for some time to come.

- For these reasons, and many more, Marty, DJ's effect on QF's corporate business has thus far been very minor (according to public statements), and QF is likely to continue to consolidate its differentiator position in the market through additional product initiatives.

- Lastly, in pursuing their NWC product strategically domestically, DJ have been unable to move up the curve fast enough to escape the reality that price-sensitive leisure remains a core component of their passenger mix. As discussed above, JQ and now Tiger have emerged as slightly better-configured players in this market, and are able to target DJ's lower-yield business by translating their lower cost bases into aggressive air fares on competitive routes. In all, DJ's present inability to command either end of the Australian domestic market is reflected in their profit guidance for FY08-09 (and of course fuel is affecting all players).

DJ is managed by shrewd and experienced players, and I'm sure will emerge with a modified course of action that will capitalise on their likely successes with VAustralia, and make better use of Virgin Blue's existing, significant brand capital and business strengths. They're one of the last players in the region that I'd be 'writing off' about now. Their quagmire will, however, take some time to fix.

I've exceeded my word limit now, Marty, and haven't even covered half of it!