Tiger gets Qantas By The Tail

[NickN]

From todays The Age.

I found this interesting...

September 29, 2008

Against the odds, this airline is beating everyone in the price wars, writes Clive Dorman.

It wasn't meant to happen like this. When Qantas created Jetstar in May 2004 to counter the emergence of Virgin Blue, part of the unspoken strategy was to "lock up" the Australian low-cost airline market forever.

Jetstar's ultra-low fares were meant to poison the water for any other upstart airline hoping to compete in the local travel industry.

When Qantas arch-rival Singapore Airlines invented Singapore-based Tiger Airways just five months later, Qantas's response was to invent a new version of Jetstar and base it in Singapore to swim in the rivers of gold that were thought to be flowing towards the Asian low-cost airline industry.

But Tiger and Jetstar Asia hit a brick wall when neighbouring countries refused to grant them the air rights they had assumed would be readily available. Their ambitious plans stalled.

To break the deadlock, Tiger did what only an airline with Singapore's deep pockets could do: enter the lion's den and take on Qantas at home, exploiting Australia's ultra-liberal aviation laws. It is one of the few countries outside deregulated Europe that allows foreign-owned airlines to operate domestic services.

Fast-forward almost a year since Tiger began its first Australian domestic services and the unthinkable has happened - on the routes on which Qantas operates, Tiger has displaced Jetstar, Virgin and Qantas as the price leader.

Although it is still tiny, with just four planes operating from Melbourne, on almost all days of the week it is generally the cheapest carrier, although it aggressively applies a raft of ancillary charges, some of them hidden in the fine print, that can increase return air fares by $100 or more.

Tiger is to add three more planes to its Australian fleet by year's end and continues to talk about eventually basing up to 30 jets in Australia.

But it apparently plans to do this without two of Australia's most important cities in its network. It steadfastly refuses to accept the high costs of operating from Sydney airport and hasn't been willing so far to take on Virgin Blue's home-base fortress, Brisbane.

Qantas's fares, where available, are generally the dearest, followed by Virgin Blue, but Tiger is now usually cheaper than Jetstar on routes they contest.

On the hotly contested Melbourne-Adelaide route, where Tiger now has three services a day compared with Jetstar's one, Tiger has a regularly available one-way fare from $40, undercutting Jetstar's $49.

Compare this with the Melbourne-Sydney route, which Tiger doesn't contest. Jetstar's $64 (from Avalon) still leads the pack ahead of Virgin's $100 and Qantas' $125.

It is now often dearer to fly to the Gold Coast from Sydney ($69 Jetstar special but regularly from $109 to $159 for Jetstar and Virgin) than from Melbourne ($90 on Tiger, $99 on Jetstar booked a month ahead).

But odd things happen, so you should spend time web-shopping for the best fare. There are even some days and routes on which Qantas is cheaper than Tiger.

A recent trend, for example, is that fares booked a month out are often dearer than those booked just a week ahead, as the airlines more carefully juggle their inventories to make sure empty seats are sold at the last minute.

http://www.theage.com.au/news/news/t...330895135.html

[Radi K]

Things are not soo rosy @ Tiger. I'm not sure on the factual nature of the whole article. As far as being the 'price leader' on its routes. Even if true, this doesn’t guarantee you profits, especially if the 320’s are half empty!

[Brian Wilkes]

Originally Posted by Radi K

Things are not soo rosy @ Tiger. I'm not sure on the factual nature of the whole article. As far as being the 'price leader' on its routes. Even if true, this doesn’t guarantee you profits, especially if the 320’s are half empty!

If things are not that rosy at Tiger, there may try and lift some of there 100 or so stupid restrictions on passengers and fares!

[Lukas M]

Originally Posted by Radi K

Things are not soo rosy @ Tiger.

Do you work for Tiger Radi?, How do you know this, just general assumptions I suppose?. From what I have heard (tiger employees here), things are alot better then how the company was operating months back (especially in 2007), and the company is now facing the right direction.

I'm not sure on the factual nature of the whole article. As far as being the 'price leader' on its routes

Fact: Tiger is the "price leader" in Australia Radi, it always has been. Does Jetstar, Virgin offer $19.95 fares? Do they have everyday sales on their website?. Also, comparing Tiger against every airline that it serves on its Australian network(low-cost or not), are they the cheapest 70% of the time? Yes.
As usual, if a sector is reaching capacity, as all airlines do, they will not be the cheapest, but still close to the rivals price. However, even a full Alice Springs flight will still be cheaper than QF's everyday outragous $312 price.

especially if the 320’s are half empty!

Half empty now are they?? Personal Experience here?
I have flown Tiger more than a Dozen times, and yet to get below 75% load, and this is across their network, not just single destinations. For example, came back last week from Canberra, going out was 155 pax and coming back about 175 pax. I have heard of the odd Adelaide/Launceston flight that is at half load, and it wont get much worse than that.

From time to time, all airlines will experience below average loads. In July I came from SYD-AVV with about 25 people on board.

Tiger certianly are a player in this market, once their fleet builds up, and enter ports like Sydney (Bankstown?) and Brisbane, they will be quite a dangerous target to their opposition.

[David B.]

Originally Posted by Lukas M

Fact: Tiger is the "price leader" in Australia Radi, it always has been. Does Jetstar, Virgin offer $19.95 fares? everyday on their website?, Do they have weekly sales like TT?

What drivel...

You must have been bitten by a Tiger to not realise that Virgin Blue have a "Happy Hour" sale most days, low "Go Fares" and permanent "Mid-week mini" fares.

Tiger to Brisbane? Like to see that... from what I've heard they are far too demanding and won't start services until they get their own way (i.e. a tin shed setup in Brisbane like in MEL).

[Lukas M]

Originally Posted by David B.

You must have been bitten by a Tiger to not realise that Virgin Blue have a "Happy Hour" sale most days, low "Go Fares" and permanent "Mid-week mini" fares.

Tiger to Brisbane? Like to see that... from what I've heard they are far too demanding and won't start services until they get their own way (i.e. a tin shed setup in Brisbane like in MEL).

David,

Virgin or any other competitor do offer very competitive Happy Hours and so on, but these only last for what, a hour or as per "JetMail only sale..between 8pm to midnight!" . A search of the "Go Fare" reveals fares on quite a restricted basis but still are competitive. Plus dont we all know about Jetstar and their low-fare gimick sales(ie- only Tuesdays, Wednesdays and Saturdays before 8am and after 6pm!! Complete Rubbish)

Where as TT has a sale 24hours each day, 365 days a year, and choices are alot greater in terms of flight choices, basically on a "every flight, every day" basis. Without doubt they are a price leader (Remember $9.95 fares' availability and travel periods)

Chances of this airline entering markets like Sydney or Brisbane might be low now, but there is always possiblilty in the future.

[Andrew McLaughlin]

Originally Posted by Lukas M

Do you work for Tiger Radi?, How do you know this, just general assumptions I suppose?

Don't you just hate it when people make general assumptions based on no personal experience Lukas? God forbid that should happen on THIS board...!

[Will T]

I agree with Radi's assessment of both the article and the issue at hand.

Tiger have adopted a price leader strategy. In this way, they use a low unit cost (marginally lower than JQ in this case) to achieve sustainably lower fares, thereby attracting the most price-sensitive leisure travellers and stimulating additional demand at the 'bottom end'. This strategy - effectively one of low yield, high volume - works well in buoyant economic times (when disposable income is high), or when capacity is constrained (and a fare-based point of difference can be made against the 'majors', whose yields generally improve during these periods).

On the flipside, the price-sensitivity of its target market makes yields and loads - and therefore profitability - particularly volatile, especially when economic conditions (=disposable income) deteriorate, or increased unit costs (eg. fuel, fx) necessitate a fare increase. When seat capacity significantly exceeds demand, all airlines will attempt to maintain a minimum market share through discounting and fare reductions, reducing the ability of the price leader (Tiger) to achieve a substantial - or sustainable -fare-based point of difference.

Tiger's Australian operations are leagues away from the 'critical mass' required to minimise unit costs, and their progress to date is likely to have been significantly hampered by current economic and trading conditions, as well as the recent oil spike. To that end, and for a number of other reasons, I find it incredibly hard to believe that they're breaking even right now, let alone profitable. Lukas's assessment of their network load factors may or may not be valid, but is meaningless as an indicator of success unless the yield being extracted from those loads is taken into account. Only where the average yield per passenger exceeds the average cost will profitability occur.

Will

[Radi K]

Excellent summation Will, many thanks for better clarifying and articulating my original point.

Lukas, for the record no I don’t work for Tiger but do, like Will, have very much exposure to the industry in our region.

Can I reverse the question: Lukas, do you work for Tiger? No you don’t.

To then make flippant remarks like : “From what I have heard” I don’t see how you can validate your comments versus mine?

Like Will, based on their leisure driven business case I can’t fathom them making a profit in the current environment.

Originally Posted by Lukas M

For example, came back last week from Canberra, going out was 155 pax and coming back about 175 pax.

Lukas, one thing you will learn, if you ever gain some formal business and/or commercial qualifications in aviation or you are lucky enough to work in the industry one day, is that load factor doesn’t equate to yield, revenue and ultimately profits. As an example, last week was school holidays, of course loads were quite high but these are low yield leisure passengers. Don’t judge a book by its cover.

Finally, of all the Australian airlines to struggle and to stay viable with the threat of a worldwide downturn and recession it would be Tiger due to its leisure based business plan.

[Daniel M]

great detailed answers Will and Radi.

I think a big point to make is that, yes, Tiger is being supported by Singapore Airlines, but just how long do you think they will keep pouring cash into a sinking ship? There's only so long you can sustain $19.95 airfares...