Expect fierce fare wars to break out in the domestic market following this morning’s reinvention of Singapore-owned and listed Tiger Airways as a low-fare carrier focused on Melbourne and Sydney.

Tiger will based three A320s at Sydney Airport from July. By the end of the year it will have a further eight of the 180/177-seat jets based at Melbourne’s main airport at Tullamarine.

These moves follow a decision by CASA to progressively removed all flight limitations from the Australian division of the Tiger low-cost airline franchise with full effect from October.

Before it was grounded as “an imminent threat to public safety” for five weeks in the middle of last year, Tiger not only trifled with the regulations but the market, favouring secondary cities that were relatively less important to Qantas, its low-cost subsidiary Jetstar, and Virgin Australia.

But not this time around. This morning what might be termed “Tiger uncaged” said it would make Sydney its second jet base after Melbourne’s main airport, after dropping bases in Avalon and Adelaide. By October it would have at least 11 A320s in service including one standby jet versus eight plus two on standby.

It will be a high-frequency competitor on routes such as Melbourne-Sydney, where Qantas and Virgin Australia get their cream, and it will make the sharp price rises, since its grounding last year, seen in Jetstar fares as well as the those of the two full-service carriers very difficult to sustain.

Expect a fares bloodbath to occur, no matter how serious rises in the cost of fuel become.

This will be driven by an acute understanding by Qantas/Jetstar and Virgin Australia of what has happened in Europe and the US, where the low cost carriers offering high frequency on short distance routes like Sydney-Melbourne have broken the grip the high fare full service brands thought they had over corporate and government accounts.

The notion of a fare of more than $200, in some cases more than $400, to fly one way on Qantas or Virgin Australia, as being “value” for a 70-minute flight between the main south-east Australian cities, when there are 10 or more opportunities to fly such flights each way each day on a carrier such as Tiger for under $100, is one that has crumbled in North America and Europe, partly because of down trading by large corporate accounts and commonsense consumer responses to bargains.

There is no reason Australia will be any different. While all Australian carriers keep their exact operating costs commercial-in-confidence, a Jetstar or Tiger A320 crammed with passengers paying fares of well under $100 net of compulsory airport and air traffic control fees will make more money than a full-service flight grappling with additional costs and poor off-peak demand for business-class fares.

A handful of ultra-high fares do not make more money for an airline than 180 cheap fares bolstered by extra optional charges for refreshments, preferred seats and checked luggage, all of which are bundled into high fares by higher-cost carriers. Those additional charges are claimed by Jetstar and Tiger to yield more than $3000 in extra “cream” over and above their fares income on some of their domestic flights.

This low-fare zone, which is now about to see high-frequency service by Tiger, makes it a battleground on which all price points from cheap to costly will come under pressure.

Peter Fray

Get your first 12 weeks of Crikey for $12.

Without subscribers, Crikey can’t do what it does. Fortunately, our support base is growing.

Every day, Crikey aims to bring new and challenging insights into politics, business, national affairs, media and society. We lift up the rocks that other news media largely ignore. Without your support, more of those rocks – and the secrets beneath them — will remain lodged in the dirt.

Join today and get your first 12 weeks of Crikey for just $12.

 

Peter Fray
Editor-in-chief of Crikey

JOIN NOW