High stakes poker is now being played by Qantas/Jetstar, Virgin Blue and Tiger Airways over the Tiger’s plans to develop a significant Sydney hub.
Tiger, controlled by Singapore Airlines as its major shareholder, is adding an Adelaide spoke to the Sydney hub from the end of July after launching into the country’s biggest intercity market, the Melbourne-Sydney route, on July 3.
More route announcements from Sydney for Tiger are expected. The focus on Sydney is catching Qantas and Virgin Blue off balance as they are locked into capacity cuts just as Tiger, which is already growing strongly off a small base, adds a potent mix of extra jets and larger volumes of very cheap seats into their most valuable domestic markets.
They are retreating while Tiger advances. It’s classic jungle warfare.
The only thing Qantas/Jetstar and Virgin Blue can do in this situation is ruin their yields by pouring their own cheap deals into their most valuable domestic routes.
It is also a huge challenge for the Qantas two brand strategy, which is already driving disaffected Qantas customers over to Virgin Blue in reaction to having their full service routes or frequencies taken over by Jetstar.
Everything is under pressure for the Qantas brands and Virgin. Qantas is particularly vulnerable to lower corporate account activity, but lower business activity is also hurting Virgin Blue.
Tiger, which had set out to be irrelevant when it launched in November 2007 on obscure routes, is coming into the prime routes just as the established brands face their most adverse trading conditions.
In fact it is adopting the same strategy in Australia as the Virgin Blue/Pacific Blue combination and Jetstar are enacting in New Zealand, which is to exploiting open access to domestic routes to rip into an established domestic carrier, in that case, Air New Zealand.
The biggest casualty in Australia could be Qantas main line services, because of inherently higher costs and a product that may no longer be sufficiently relevant to survive even in better times.
But there is another element to Tiger’s moves out of the shadows.
This is also a show down between the trans border low cost airline franchise ambitions of Tiger, directed by Singapore Airlines; Jetstar Asia (Singapore) and Jetstar Pacific (Vietnam), run by Qantas; and Kuala Lumpur based AirAsia, which is the most successful of the three Asia-Pacific low cost franchises, with a long haul AirAsia X brand that is already muscling in on the Australia-Europe routes.
Qantas picked this fight when it launched Jetstar Asia based into Singapore Airlines’ face in November 2004. Shortly before that happened Singapore Airlines CEO, Chew Choon Seng, told me over breakfast in Singapore “We will make sure Singaroo (the venture hadn’t yet been named Jetstar Asia) goes hungry.”
Chew knows Australia and Qantas very well. He ran its affairs in Australia for many years and grew its market share strongly against Qantas before taking the top job.
He has long term strategic goals for Singapore Airlines, which, on the record, include its desire to fly the Australia-America market directly and to come out on top of any rationalisation that he sees as inevitable in the region. Chew has expressed a strong preference for acquisitions rather than mergers.
Launching the Tiger brand here in response to the Qantas “invasion” of Singapore was a consequence that Qantas didn’t see coming and it looks like it could hurt, quite a lot.