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Australia: The Most Interesting Airline Market in the World

Tucked down in the corner of the world, Australia is usually not the first place to come to mind for, well, just about anything. But right now, it’s by far the most interesting aviation market in the world.

I’m not just talking about the Chilean ash cloud that has wreaked havoc on the Continent but rather airline shut downs, shifting strategies, and unlikely partnerships. It is incredibly exciting for airline industry dorks like me.

For years, the Australian market has survived as a duopoly. On one side, we had Trans Australia, which became Australian Airlines before being merged into Qantas in the 1990s to form the domestic and international powerhouse we know today. On the other side, Ansett was the counterbalance until its collapse in September 2001. Ansett’s collapse created an opening for upstart Virgin Blue, and the hole was quickly filled.

Tiger Airways Unsafe

Plenty of airlines have tried to form a third challenger over the years. Most recently, it’s been a subsidiary of Singapore-based Tiger Airways that has tried to squeeze in with an ultra low cost service. That service is now in serious trouble.

Tiger was just shut down for a week by the Australian authorities because the regulatory agency “believes permitting the airline to continue to fly poses a serious and imminent risk to air safety.” This only impacts the Tiger subsidiary in Australia; the other Tiger operations in Asia continue to fly but the damage could be widespread.

Tiger is fighting this, but such terrible press is bound to put a serious dent in bookings regardless of whether it flies again or not. It’s going to be very hard to recover from something along these lines.

But that’s not the only blow to low cost flying in Australia. After years of acting like a low cost carrier, Virgin Blue has decided to go upscale. It’s combining its Virgin Blue, Pacific Blue, and V Australia brands into the new Virgin Australia.

Virgin Australia Grows Up

Virgin Australia is focusing on competing with Qantas. It’s introducing new onboard products to compete with what Qantas offers and it’s trying to form partnerships in order to expand its reach for its customers.

One of those partners is Air New Zealand, which actually owns 15 percent. This may seem eerily similar to Air New Zealand’s last venture across the Tasman when Ansett collapsed under its ownership, but this is a very different Air New Zealand. Instead, the two airlines can come together to compete against Qantas instead of each other.

Internationally, it’s a different story. Virgin has hitched its wagon to Delta in the US with a joint venture between the two over the ocean. Since they both currently fly between the US and Australia, this will allow them to cut capacity and share traffic. But this is where it gets weird.

Over in Asia, Virgin Australia has joined up with Singapore Airlines in a broad alliance partnership that includes codesharing, frequent flier benefits, and more. Why is this weird? Because Singapore Airlines owns roughly a third of currently-grounded Virgin competitor Tiger Airways.

Will all these changes, Virgin Australia loyalists can get just about anywhere in the world on the airline and its partners. They can also get the same level of service on domestic flights as they’ve come to expect from Qantas. Qantas can’t be happy about this, but in a way, Qantas did this to itself.

Who’s running the show at Virgin these days? It’s John Borghetti, a 30+ year veteran of Qantas. Why did John leave Qantas? Well, he was in line to take the top job but he was passed over for Alan Joyce. Now he’s got Qantas in the crosshairs.

Qantas International Profit Crash

What is Qantas doing about all this? Well, as it has in the past, it’s complaining a lot about its business being under attack. Recently, its international business has been suffering the most with big losses while its domestic operation actually makes money. Makes sense that Virgin Australia would focus on taking Qantas’s profitable domestic business, huh?

While Virgin Australia chips away domestically, international is about to become a bloodbath. The airline is losing millions, and CEO Alan Joyce said in a speech last month that a major restructuring would be announced on August 24.

You can expect to see some cuts and some strengthened partnerships with other airlines. I imagine that as usual, much of the focus will go on to its low cost subsidiary Jetstar. Jetstar is one of the few “carrier within a carrier” experiments that has been called a success, though not everyone is convinced that the numbers are telling the whole story.

Jetstar has taken over more and more of the airline’s business, and now there is word that a joint low cost carrier will be started with Japan Air Lines in Japan. This is on top of the Jetstar Asia brand that already flies within Asia. There has also been interest in starting a full service airline division based in Singapore. This all seems strange since Asia is so hotly contested right now. You would think Qantas would prefer to focus on its home turf and doing that right, but the only thing on the menu for that region seems to be cuts.

As you can see, this market is truly fascinating and it’s changing quickly. I imagine that what we see next summer will look very different than what it looked like last year.

[Original tiger photo via Wikimedia Commons user Monika Betley/CC 3.0]
[Original Virgin Australia photo via Wikimedia Commons user YSSYguy/CC 3.0]

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