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May 21, 2007

Asia airlines a double whammy for Macbank and Qantas

Things have turned fugly, as in fast and ugly, for Qantas, Jetstar and their ex-bidder Macquarie Bank’s investment in Sydney Airport in the aftermath of the failed APA bid that distracted Dixon and Jackson since last November.


Things have turned fugly, as in fast and ugly, for Qantas, Jetstar and their ex-bidder Macquarie Bank’s investment in Sydney Airport in the aftermath of the failed APA bid that distracted Geoff Dixon and Margaret Jackson since last November.

Three low-cost long-haul carriers, AirAsia X, Viva Macau and Oasis Hong Kong say they will start flying to Australia, but not necessarily Sydney, in the next 12 weeks.

Suddenly, despite full flights, Qantas is slashing up to $1600 off some return fares to London and Europe — compared with prices during the past 12 months — as it recognises that the challengers have their eyes on the sacred kangaroo route as well as cheap deals to Malaysia, India and China.

And while Oasis Hong Kong hasn’t posted an application for Australian flights in Canberra, it has told Hong Kong they will start flying to Melbourne or Sydney on 21 August, with plenty of cheap options for clever travel agents to link them to its onward bargain services to London and Vancouver.

Canada was supposed to be an early focus for Jetstar flights next year. It will be months behind the Oasis crowd, who offer a full-service product, including a discount business class, and also run into a reborn Air Canada product with non-stop services in Boeing 777s between Sydney and Vancouver starting late this year.

And Malaysia Airlines takes its home-grown rival AirAsia X so seriously that it has returned to discounts seldom seen in recent years, as in $770 return flights to Kuala Lumpur, including free gourmet meals and drinks, versus Jetstar’s introductory offer of $990 plus meals and drinks extra when it launches its KL flights on 9 September.

There is a pattern emerging here. Oasis Hong Kong, like next year’s Virgin Blue flights to the US, are full-service offers in brand-new jets for low fares, while AirAsia X, Viva Macau and Jetstar, charge extra for everything save visits to the toilet, and in some jets cut legroom and seat-width to levels where Amnesty International might want to get involved.

All this excitement for Qantas comes with the extra domestic challenge of Tiger Airways, which could be ready for first flights this September rather than December as earlier announced.

For bargain hunters, it also means extreme volatility. The prices that appear in print are liable to change at a moment’s notice as the ‘fare jockeys’ or yield managers of each airline track what the competition is up to on the shared computer reservations platforms, and constantly adjust the price and availability of their offers.

For Macquarie Bank, it means a revenue bypass. The founder and group CEO of AirAsia and its designated AirAsia X long-haul division, Tony Fernandes, says he is more interested in Adelaide, Avalon and Newcastle than Sydney.

Fernandes thinks there is no reason why anyone visiting Australia from Europe on a budget needs to land at Sydney Airport, when they can arrive in Adelaide, for example, and do all the sights including Melbourne and Sydney before leaving from low-fee airports like Newcastle or the Gold Coast.

If the idea — and carriers like AirAsia X — catch on, Sydney Airport is going to miss out on a lot of revenue, not just from landing fees, but terminal retailing where it gets a slice of all sales.


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