With exquisite timing, Tiger is hitting the sales screens today with voluminous Australian domestic fare offers at just over $29 one way.
The advance travel sale comes on the day after Qantas lashed out at its own shareholders with an appallingly late profit downgrade, with the share price continuing to sink in morning trading.
In its guidance issued yesterday, Qantas spoke of domestic discounting, which it has inflamed by posturing last month about how it would greatly increase scheduled flights and cut fares to curb the Virgin menace.
So, surprise, Tiger now responds with an offer that will slash into Jetstar’s low price attractions and load factors, and earnings, all of which will diminish the Qantas group domestic performance as a whole, since they are aggregated by Qantas in its disclosures.
Tiger operates A320s with either 177 or 180 passenger seats, identical to the format flown in Jetstar A320s. A $29 fare as a rule of thumb includes about $19 in airport, navigation and other charges of no value to Tiger, meaning it gets to keep around $10 per sale.
There is no way Tiger is either flying with per hour costs of $1800 excluding those services included in the taxes and levies and so forth, or flying full. There is also no way it is collecting enough ancillary charges for buns or beers or late check-ins or checked luggage to get itself anywhere near to breaking even on a 100% booked flight either.
But Tiger, like all its competitors, doesn’t set out to fill its jets with $10 net fares, and only makes the sub-set but headline grabbing fares available in restricted numbers.
The important thing that Tiger really says to Jetstar, Qantas and Virgin Australia, is that if it averages a net $70 per seat, per hour, across a more typically 75% booked flight per hour, it may well break even or have a few dollars left over depending on how much damage fuel prices do to it.
Those are fare levels that would really harm the other airlines, if they had to match them in significant volumes. And they will harm them, even if they don’t directly match them, by diluting average load factors even at good fares, to a level where neither Qantas nor Virgin Australia can make enough money to stay in the game without parking jets, and even that is a strategy with finite durability.
For these reasons, not even fares in the $70-90 one way level can guarantee that Tiger will survive in Australia. No airline has any guarantee in this respect in Australia anymore, and Qantas would be ill-advised to think its political or iconic capital reserves haven’t been damaged in recent years.
Tiger remains on its own, without at the moment, any benefit from being stabled within a larger grouping, as Jetstar is in relation to Qantas. It’s only selling point is price, and if it proves to be a ruinously low price sold too often to too many people on its flights, it won’t be a beneficiary from a long anticipated rationalisation of the sector, but a casualty.