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]

27 Responses to Australia: The Most Interesting Airline Market in the World

  1. Bobber says:

    Good.

    Qantas suck. Crap service, at least on the legs that I flew with them. However, quality pilots, who were particularly adept at landing a 747-300 at Cairns airport halfway through a handbrake turn:)

  2. BJ says:

    The Australian domestic market is quite small. Tiger was always up against it entering this market (not to mention the politics and old boys club between the regulator and Qantas). Air Asia got it right – link the five or so large cities in Australia with Asia and forget domestic. Tiger also though Australians would embrace a Southwest model without any service and staff who couldnt give a toss – wrong!

  3. Sanjeev M says:

    What I think will be interesting is when Garuda makes Denpasar/Bali into an efficient hub. I believe Denpasar is in narrowbody range for most of Australia, so they could prove a serious challenge to Qantas.

    Garuda would be the Copa of Southeast Asia.

  4. How much of Tiger’s problems are true or just blow out of portion by the media? I’m sure there are many people in government and the press who favor Qantas over other airlines and do what they can to make Qantas look better.

    • Lewis says:

      Not 100% correct. Whenever Qantas has a major incident, for several weeks afterwards the media will blow up any emergencies out of proportion. ‘
      But part of Tiger’s problem is that Australians come in with the mentality that you will get full service regardless of the airline and the price. Hence, when they pay their $29 Sydney – Melbourne airfares and get hit with $100 of excess fees (making Qantas just slightly more expensive), they complain.

      The Australian people to some degree are overly sensitive to air incidents because there has never been a significant crash of any airliner in Australia.

    • CF says:

      There have been several incidents with Tiger lately, including two which had Tiger aircraft flying below the minimum safe altitude on landing. (I’m not sure exactly what the details are for that, but it’s happened twice.) I don’t think this is being blown out of proportion.

  5. RobRTW says:

    Maybe the international “losses” are due to competition – since they can now only command $6-10,000 for a business class round trip to the states instead of the $20-25,000 they used to charge. Their international fares used to be absurd, now they’re merely ridiculous. Premium economy service is a welcome addition for those paying their own way down under.

    I flew the A-380 SYD to LAX in February – it was nice – and fairly priced on
    a CircPac ticket originating in Hong Kong.

  6. We don’t come to my mind for well just about anything? mmmmmmmm Thanks
    “The airline is losing millions”. I initially was not sure which airline you meant here. Qantas overall profit is tipped to be $550million this year. They say that international will lose $200million. (Air New Zealand also loses money on international but its seen as being in the National interest to get people onto planes to New Zealand ).
    Virgin is slated for 20 to 80 million dollar loss. Qantas is making money overall but losing money on international services.
    Qantas decision to overlook Borghetti and take on Joyce followed by Borghetti’s defection to Qantas did indeed shift things dramatically. Qantas has gone a “downward slope” with as you note flights shifted to Jetstar and the Jetstar-isiation of many aspects of its customer service. This has been accompanied by a steady decline in the ratings Qantas International enjoyed dropping from 3rd best airline 2008 to sixth in 2009 and seventh in 2010.
    In the meantime, Virgin Blue’s transformation under Borghetti into a Qantas had some wondering when they announced a new name would it be “Ansett”.
    The August announcement has many of us (particularly those who are regular international commuters wondering what will be left of what was Australia’s “international airline”.

    (by the way Google Maps, the Bionic ear, the secret ballot, the Black Box and nice wine all came from Australia)

    • CF says:

      Never said you don’t come to mind – just said you weren’t “the first place to come to mind” for anything! That also doesn’t mean you guys haven’t created some great things (though the French will certainly disagree with your last one). But ultimately, it’s an out of sight, out of mind type thing. You guys have ash problems for days and it never registers as more than a blip in the northern hemisphere. When it happens in Europe, it’s the biggest news story around. That’s just the way things go.

      • Yeah, Aust and NZ get used to the US centric news! Witness the on going issues in Christchurch..not a blip
        I think the French are getting used to the Aussies wine situation now

  7. One more thing. There have been several comments in the media in Australia and New Zealand that Qantas grounded their planes during the ash cloud crisis because it was cheaper not to fly them!

  8. Alan says:

    I’ve just moved back to the US from Australia where I exclusively used Tiger for all of my domestic travel. They have a horrible reputation there, but in the half dozen times I flew them I never had any issues and I was very happy with the fares they offered – they were always significantly cheaper than Qantas/Virgin. Will be very interesting to see how this shakes out.

  9. Dan says:

    In terms of Virgin Australia’s alliances, you forgot to mentioned Etihad. John Borghetti dumped a link with Emirates to form a deep alliance with Etihad, where both Virgin Australia and Etihad fly to Abu Dhabi, from where passengers connect to a multitude of European destinations with just one stop. Singapore offers some of that, but not as much (meaning a second transfer on another carrier), and Qantas has always expected everyone to fly to London and then double back to European destinations on BA.

  10. Tony says:

    Great read!
    I had traveled throughout the country and New Zealand on Qantas, Virgin Blue and Virgin Pacific. The most enjoyable segments were on Qantaslink affiliate Cobham Aviation. Where they served meals on a 40 minute flight between Alice Springs and Uluru (Ayers Rock) with fantastic views. At Uluru, the flight attendants doubled as boarding gate agents.

    As a regular Virgin America passenger, I was somewhat dissappointed with Virgin Blue and the brand’s consistency. I hope that with the merger of Virgin brands will rectify this situation. I also hope they will consider flying to SFO and create better connectivity with Virgin America flights. (SFO is a better connecting airport than LAX).

    A major issue in Australia is the privatization of airports and its failure to keep up with airline and passenger demand. I was very dissapointed in having to walk down on stairs at major airports. Or negotiate a labryinth of construction walls to reach my ticket counter.

  11. Jetstar seem to be on a hiding to nothing in the NZ market at the moment, PR disaster after PR disaster.

    Qanta’s JetConnect NZ arm also doesnt seem to keep the AU based workforce too happy either: http://www.youtube.com/watch?v=kji8arr7l0U

  12. David says:

    And a bit more history for you. It was Compass (Mark 1) that first took on the Ansett/TAA duopoly in the 90′s with the first Australian domestic low cost carrier (LCC) model here flying A300′s. Ultimately they failed, as did Compass Mark 2, which flew MD80′s that were acquired by Impulse Airlines. Impulse Airlines was subsequently acquired by Qantas and its MD80′s formed the original Jetstar fleet (Jetstar is now an all-A320 airline).

    It’s not quite correct to state that Ansett’s collapse created an opening for Virgin Blue – in fact Virgin Blue commenced prior to Ansett’s demise and followed the LCC model. As you’ve noted, Virgin Blue (now Virgin Australia) has since morphed into a full service carrier competing head-to-head with Qantas.

    One carrier to keep an eye on is Strategic Airlines. They were originally a charter carrier (having formerly held the Australian military contract) and now offer full service scheduled flights into SE Asia (Phuket and Bali) as well as some growing domestic services using a fleet of A330′s and A320′s.

    • CF says:

      David – Thanks for chiming in with the additional history. I still stand by my statement that Ansett’s collapse created an opening for Virgin Blue. Yes, it existed before, but without Ansett’s collapse, I don’t see Virgin Blue being nearly as big or successful as it has been over its life. In fact, it would probably be just another regional Virgin airline that lost money and didn’t work.

      My hopes aren’t high for Strategic, since I can’t figure out what the heck they’re actually doing. They tried that French subsidiary and that was shut down. Not sure if they ever got that back up again. I can see limited success if everything goes right, I suppose.

  13. Jim says:

    The bottom line is that Australia is too spread out and thinly populated for it to truly have a competitive airline market. No more than one, or maybe two, airlines will be able to serve the domestic market profitably for any length of time.

    • Stef says:

      True, but on the other hand there is no real alternative to air travel either. I don’t know if there are buses, but if there are they probably take forever. And it will probably never pay to build a bullet train.

      • David says:

        Yes there are buses. Greyhound is the dominant player. And trains. But these are largely utilised by the leisure, VFR, retiree and backpacker markets. And there is a lot of debate about the need to plan for high speed rail between Sydney, Canberra and Melbourne. Jim is right; at the end of the day Australia is a large land mass (slightly larger than the USA – if you exclude Alaska and Hawaii) but at 22M people, less than 10% of the US population (300M+).

        • Stef says:

          Considering how little I actually know about Australia, the feeling grows that I will actually have to go there one day on a “fact finding mission”! (But I’ll probably rent a car before I ride the bus…)

  14. Jenny says:

    I am an employee of Qantas for 15 years.How many jobs do you think will be lost if they set up this Qantas Asia base?
    Will it affect flight attendants,pilots ,telephone sales staff?
    Please advise if you know anything

  15. Janet says:

    I have flown Qantas twice to Australia and found Air New Zealand a much better airline. I just booked another trip with Qantas to Brisbane from Seattle, but was shocked when I tried to book my seat online and was told it would cost another $20/each way to book in advance. I was really given the run-around from customer service about why they were doing it. The fact was it’s another revenue generator and they should have added the $40 into the original fare.

  16. David says:

    “Tucked down in the corner of the world, Australia is usually not the first place to come to mind for, well, just about anything.”

    Hard not to take exception to that comment!

    You’re right though, locally Qantas is forever in the news – decent profit reported last week too despite shares hitting a record low

    http://www.theaustralian.com.au/news/nation/chief-executive-insists-on-value-of-one-qantas/story-e6frg6nf-1226121571732

  17. Pingback: Virgin Australia Goes on a Buying Spree, Singapore Joins the Fun - >> The Cranky Flier

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