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Nov 3, 2011

Qantas v Virgin: prepare to be bribed with bonuses

Qantas now has a real threat to deal with -- Virgin Australia, with its bigger, cheaper business-class seats, real meals in economy class, lounges with food and seats for everyone. With lower fares.

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Qantas now has a real threat to deal with — Virgin Australia.

The union threats are gone, quashed by the aftermath of Qantas locking out 100,000-plus customers over the weekend.

But as the bills mount up, more urgently than it ever expected because the ACCC says Qantas has to do more, do it quicker, and do it in writing at regular intervals so that it can be sure the airline fully compensates those it stranded for the true costs of their dislocation, the flying kangaroo faces something it seems to have been hell bent on avoiding.

And that is real competition. It isn’t that Qantas hasn’t been innovating of late, but it has to contend with a fresh new competitor in Virgin Australia, with bigger, cheaper business-class seats, real meals in economy class, lounges with food and seats for everyone, and lower fares.

It could be a re-run of what has driven the now 82% of overseas travellers away from Qantas on international flights, which is largely a consequence of expecting people flying to most of Europe to pay more to take an extra half day to do so through the welcome-to-hell London Heathrow experience and being shunted onto time-consuming British Airways connections.

That international failure of the Qantas brand now comes with frequent flyer risk too, because Virgin Australia is setting up points and lounge reciprocity with Etihad, Singapore Airlines and Air New Zealand, three carriers who have been carving up the Qantas long-haul market share, thus putting competitive stress on the loyalty link that Qantas offered across its domestic and international and code shared services.

It’s hard, but without unions to blame, Qantas has to actually start being competitive, and reconsider trying to cram its customers into Jetstar flights that, infuriatingly, can often cost more than a Qantas seat at short notice.

Last night Alan Joyce sent a rather late apology email to all Qantas Club members. But where were the double points that were being promised by Qantas sources? Where are the price cuts to match the discounts of up to 30% off business-class fares that Virgin Blue will apply to its new and much larger business-class seats on the Melbourne-Sydney-Brisbane golden triangle from January 18? (I’ve already seen these seats — from afar in from my discount economy seat, naturally — flying on Virgin Australia jets for soon-to-be abolished premium economy fares.)  Joyce’s email was empty handed, but expect more soon.

The messaging from Qantas on the Virgin Australia challenge has so far come with a curious reliance on incumbency. Qantas is known to prepare PR script lines for its apologists just as Virgin Australia has what could be termed talking points.  If you listen to its major retailers or apologists, the reliance they place on Qantas keeping rusted-on frequently flying business travel supporters on the premise that they suffer from  amnesia or a have a generous capacity to forgive the inconvenience of sleeping in airports or missing entire conferences seems to be a “coincidental” common theme.

But those assertions focus on managed corporate travel accounts used by the big end of town and the more widely travelled levels of public services.  To a degree, those travellers fly with the airline that has the account.  When John Borghetti at Virgin Australia talks about lifting his share of corporate accounts from less than 10% to 20%, he means those that come with a preferred carrier contract.  And he isn’t going to stop at 20% either.

However, there is a whole new category of business traveller that was enabled by lower domestic fares since Virgin Blue arrived and stayed (against the odds) in 2000. These are the small business travellers, sole traders, academics, and others who could suddenly travel far more than before, can exercise choice, have their own budgets and value trade-offs to consider, and will happily mix ‘n’ match one way on Qantas and another way on Virgin Australia according to price, convenience and the avoidance if humanly possible of Jetstar or Tiger.

This is the middle market, it pays about $100-$200 for a typical one-way fare, it generates most of the profits for domestic operations,  and it is what Qantas and Virgin Australia are fighting over more than managed accounts that may not come up for renewal for three or more years.

This is where Qantas and Virgin Blue are doing battle, for the equivalent of the swinging voters in politics.  They sit in preferred economy seats closer to the front doors and over-wing exits. They disappear into loyalty lounges at the airports, and they are about to be showered with offers of “bonus” frequent flyer points, upgrades,  free or reduced valet parking, and even, according to some rumors, airline subsidised credit card bonus points where the linked cards are used for non-airline purchases.

Prepare to be “bribed” if you are a middle-market prospect. And because of its size, and its predicament, this is going to cost Qantas a lot more than Virgin Australia.

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8 thoughts on “Qantas v Virgin: prepare to be bribed with bonuses

  1. nonscenic

    It should be pointed out that Commonwealth Public Service travellers, through their corporate travel providers have to fly on a Best Fare of the Day approach, rather than be wedded to a particular airline. Qantas have snared much of their travel base through providing flexible private fares (san FF points) at prices that match Virgin Go fares. Many corporate travellers want the cheapest flexible fares and that is another reason why Jetstar will never catch on.

    Jetflex fares are expensive and don’t have the flexibility of Qantas and Virgin flexible fares. Add to this a range of IT issues thatprevents corporate online booking systems from working with the Jetstar booking engine, and of course the trauma of flying Jetstar (reliability, connecting flight issues, seating etc).

    It will only require Virgin to offer similar private fare deals to the corporate sector and AJ will be losing more market share from the corporate sector.

  2. Jack Stepney

    At last, I get to be taken seriously.

  3. Ricardo

    Totally agree Ben. this is the real issue for Qantas.

    I am one of those small business owners, spending my own money. I now actively choose Virgin, Qantas where necessary and have never (literally!) seen the inside of a Jetstar aircraft.

    Take the PER-SYD route, the new Virgin biz product is superior to Qantas and costs $2,800 versus over $4,000! Recently there have been a few QF FF on these routes (you can tell by the Plat/gold tags) and you can see that they are generally shocked on boarding the 330, as it is far better than they were expecting. Why pay almost 50% more for a (depending on your personal preferences) an equal or inferior product?

    It’s the same deal flying QF internationally. Singapore is far cheaper than QF at the pointy end and the service is sublime rather than subprime. Whilst you do get good crews on QF First (sometimes), you always get the same top service on SQ.

    What all of this has done, is expose more of the ‘rusted-on’ QFFF’s to Virgin and Singapore et-al. I suspect that those who pay their own way, won’t be back, and even some of the purchasing decision makers will change too.

    The end result can only spell disaster for Qantas mainline, which is what I suspect Alan Joyce is really after anyway.

    It’s sad, as even though I don’t fly them much anymore, I do have a soft spot for the brand and would have loved to have seen it survive in it’s previous incarnation.

    Vale Qantas

  4. Jaeger

    Ben: “Qantas has to do more, do it quicker, and do it in writing”… Maybe they should try a blood oath?

    NS: “It should be pointed out that Commonwealth Public Service travellers, through their corporate travel providers have to fly on a Best Fare of the Day approach, rather than be wedded to a particular airline.” Good in theory, but in practice the fares are booked through a Qantas agent, and – surprise – Qantas is the “BFotD”. (Perhaps not when they’re grounded, but I’m not holding my breath.)

  5. jj

    Best fare of the day is pretty much a furphy – with public service – you merely have to give a reason for not taking it like – requires flexibility – or not convenient etc and u can fly with QANTAS or Virgin regardless of cost. The reality is that QANTAS provide the most flexible and regular and believe it or not usually the cheapest service for economy travellers between the major cities – except in a grounding of course.

    So my point is QANTAS will survive quite easily domestically and with a few “rewards” coming to FFs it wont be hard to build on. Internationally well isnt that why AJ is expanding into the low cost asian market – makes sense to me

  6. nonscenic

    @JJ and JAEGER Yes, BFOD is a myth, and is easily defeated because the BFOD is often a non-flexible Jetstar flight at an inconvenient time, and one simply chooses a flexible fare at a suitable time. Depending upon the agency and the travel provider they use, there is meant to be some form of neutrality, but experience suggests otherwise. Examples of quotes for trips to the USA I have seen often show three choices, a Qantas itinerary, a Virgin/Delta option and a United option. They never show an Air New Zealand option unless you specifically force them to book.

    In most cases the international fares are far higher than what one could book online for the same flights. Whether this is due to the airlines setting higher fares for travel agents in order to bring on their demise, or alternatively is an arrangement between airlines and individual travel agents to increase the airline’s market share with a particular market segment, the government is missing out on minimising its travel costs.

  7. mrsynik

    I really hope that Virgin Australia consider applying for Star Alliance or SkyTeam membership in the future. If that happens that would definately break the need for anything to do with Qantas and their stingy frequent flyer schemes. As far as I’m concerned Qantas can get stuffed.

  8. Debra Silver

    Alan Joyce you have a great job of Public relations for Virgin Airlines.

    Qantas used to be the only domestic airline I would fly with , with all the safety concerns and more recently cutting of staff while the boss get a hefty pay rise. Now with the latest fiasco and lies from Qantas they have landed on my Telstra and Origin Energy list …never to do business with them again. I will not support a business who has little or no regard for their customers and their staff. Other businesses beware people are tired of the lies, money grabbing and lack of ethics .Who will be next company to monumentally stuff up?