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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27 Comments on "Australia: The Most Interesting Airline Market in the World"

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Bobber
Guest

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:)

BJ
Guest

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!

Sanjeev M
Guest

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.

David SF eastbay
Member

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
Guest

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.

rob
Member

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.

martin
Member
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… Read more »
martin
Member

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!

Alan
Guest

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.

martin
Member

I flew Tiger twice…they were not that much cheaper for me most of the time when you add all of their less than transparent fees —I thought them horrible If something went wrong for a pax, Tiger had a reputation for abandoning the pax

I blogged about one trip with them http://mjtravlife.blogspot.com/2010/07/more-on-cheapies.html

Heres my post re their recent grounding: http://mjtravlife.blogspot.com/2011/07/unsafe-tiger.html

Dan
Guest

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.

Tony
Guest
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… Read more »
AirEnthusiast
Guest

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

David
Guest
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… Read more »
Jim
Guest

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
Guest

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
Guest

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
Guest

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…)

martin
Member

Buses in Australia and NZ are a dream compared to their US counterparts!

Jenny
Guest

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

Janet
Guest

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.

David
Guest

“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

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[…] full service model, that left room for ultra low cost carriers, but Tiger has tanked. Last year, Tiger Australia was even shut down the authorities for being unsafe. It has not performed as planned, and you can imagine that Singapore is not happy […]