The headlines ‘screamed’ that cheap international air fares are over last week following the half yearly profit announcements by Qantas and Virgin Blue.
Wrong! Cheap airfares have been over according to the major airlines, here and abroad, at every financial results press conference for at least the past five years.
Since it is unthinkable that Qantas or Virgin Blue would actually get something as fundamental as the price outlook for their product wrong, it’s worth examining the throw away lines about fares going ‘up’ in the context of what really happens in air fares.
Pressed for details about what they really mean about the end of ‘cheap’ fares, airlines always start talking about ‘yields’. The yield is the profit margin of a fare, and yields plural refers to the average return they intend to make from dozens of different fares for the same seat being flown between any two places on their network.
In the last year to two years yields have been very low, or negative, on key routes because too many seats might have been sold for well under $1000 to Los Angeles, let’s say, instead of at or near the notional fare of say $2800.
When an airline says ‘cheap’ is over and fares are going up, it means it intends to sell more of those seats at more than $2000 than under $1000. They are sending signals to each other that ‘hey, this hurts let’s back off and offer fewer really low fares.’
They are not thinking for a moment that they won’t be putting cheap fares out there, because if they did that, the competitor will capture sufficient revenue from them to drag them into more losses as a handful of higher fare payers failed to compensate for the loss of sales in the middle spectrum of fares on offer for a particular route.
So don’t be put off by stories about the end of cheap fares. Just be more vigilant. They are always out there. And they will also be abundantly available on domestic routes, but that is another story.
The only fare ever set in granite by the airlines these days is the maximum published fare, the one that tends to be on the right hand side of the booking screen for consumer’s playing the game of snakes and ladders when it comes to buying on price more than times of departure and arrival, or other factors.
On the left hand side of the screen are the lowest fares. This is the ‘real’ world for the swinging voters of the air travel constituency, consumers who are either paying with their own money, or allowed to pick and choose by the company in so far as they can verify that they obeyed the travel policy rule that the ‘best fare of the day’ had to be chosen.