Bloomberg BusinessWeek had a story a week ago about the brewing brawl in Australia over passengers which can be read HERE.  In Australia, a country of about 24 million people (about what Texas has) and the size of the United States, three carriers are starting fight for passengers.

You know two of them: QANTAS and Virgin Blue.  The third is a new entry named Tiger Airways.  QANTAS is fighting with Jetstar, it’s low cost carrier. 

What is brewing is a battle of LCC carriers over a market that, by population, should barely be able to support 2 carriers.  In fact, a third carrier almost never survives these battles. 

QANTAS is, by far, the biggest player.  Virgin Blue holds some status for having fought for ground and held it in Australia but Tiger Airways is coming in with lower costs than the othe two and hubs established in both Melbourne and Adelaide.

Melbourne I get.  Adelaide makes me scratch my head.  Adelaide isn’t a city of great commerce or international business.  Adelaide has a population of 1.2 million people but it falls in an awkward place for hub.  Situated in southern Australia between Melbourne and Perth, it remains distant from the traditional battlegrounds of Melbourne, Sydney and Brisbane.  It’s not even a logical stop on the way to Perth.

Bloomberg BusinessWeek reports that Tiger Airways’ costs are just about half of Jetstar’s on a per seat kilometer basis (2.75 cents Australian) and it would probably surprise you to learn that Virgin Blue has the highest seat-kilometer costs of 6.75 cents.

Who survives?  It’s anybody’s guess.  Tiger is definitely the underdog still until they gain more market share and more credibility. 

In the meantime, Virgin Blue’s new CEO (formerly of QANTAS) has decided not only to stay in the fight but also go head to head with QANTAS in business class.  With the highest LCC costs, I have to wonder if Virgin Blue isn’t the one that may get squeezed out of the market this time. 

Virgin Blue has good coverage of Australia but poor feed internationally despite operating subsidiary brands V Australia, Pacific Blue and Polynesian Blue since those serve routes that are predominantly leisure oriented. 

Each airline is going to suffer from excess capacity and fare wars to fill those aircraft.  Tiger Airways has just 9 Airbus A320 aircraft now but plans a fleet of 30 for Australia in the near future.  What’s worse, QANTAS will be adding capacity with the arrival of new aircraft from both Airbus and Boeing in the form of A320’s (31 orders), A330 (7 orders) and the 787 (15 orders).  Virgin Blue has 85 737-800’s on order and 3 Embraer E195 jets too. 

That is a *lot* of capacity.  Imagine all those aircraft serving Texas. 

Time will tell but unless Virgin Blue can operate with lower costs and keep their market share, Blue may go red.

Filed under: Airline News by ajax