Are LCCs in Australia a failed experiment?

[a330j]

I suppose another way of asking the question is what have J* and Tiger brought to domestic aviation industry. For the consumer the answer is obvious - lower fares and more frequent flights.

However from an airline business perspective, the airlines have never been less profitable since they were established.

I still don't understand how increasing the seat availability in the Australian market (and in the most expensive way possible, by setting up new airlines) can do anything other than white ant the 'parent' airline, especially when they fly to the same destinations. In effect the parent company is competing against itself. Just defies logic.

Someone explained to me the they (eg QF/J*) target different markets, but there must be a huge overlap in passengers who would have flown QF if J* weren't flying the same route, for example. I mean if J* didn't operate domestically would the yield on QF flights increase - I can't see how it couldn't. Not that all would migrate to QF, some would fly VA, but you see what I mean. Wouldn't it be simpler and cheaper to have an additional fare class on existing parent airlines to cater for the LCC segment of the market. Wouldn't it be simpler and cheaper to buy/lease another aircraft to service a new destination(s) rather than creating/duplicating a new company to service those markets?

In effect there are now 4 players in the market which history has shown can only support two.

The current arrangement is clearly unsustainable and it must only be a matter of time before capacity reduces. Whether that results from the LCCs disappearing, or the full service carriers cutting services or a combination of both who knows but something has to give.

Maybe some who knows about the aviation industry can explain it to me.

 

[serfty]

Before J* was introduced, I regularly used to be able to purchase QF economy tickets between MEL and SYD for under $60.

By 2006 this was no more as QF were then using J* pricing to compete with DJ - this was pre-tiger.

 

[eastwest101]

Yes its a fair enough question, as you say there are now 4 domestic operators (each with their own overheads/AOC/head office/support staff/training costs etc etc) although some people argue that a lot of the costs that would be attributed to JQ are paid for by QF.

I think in JQ's case - QF management made the decision to do a LCC with an existing Impulse AOC and set of employment conditions either because they could not or chose not to do anything about the overhead costs built into QF, that is - rather than fix or expand their business they chose to establish a lower cost competitor to their own business. Also had something to do with trying to put DJ out of business when DJ was in its infancy. Also Industrial relations reasons why JQ ended up with A320s and not QF mainline? First mover advantage also would have played a part in establishing JQ although you would be naieve to think there wasn't at least some "union busting" adgenda in it as well.


In the case of TT - I am not familliar with the business case and history, but presumably they thought they had a business case that would make money, or maybe a business that would cost QF more money in lost revenue than they expected to lose running TT.

You may be right in that TT JQ VA and QF may target different markets but maybe they all overestimated the importance of brand and loyalty and underestimated the "commodification" of airfares, after all, for a large proportion of people flying a short domestic flight it really comes down to price and sucking up/ignoring the tight painful seating, rude staff and the nickel&diming fees.

That is not to say that everyone shops on lowest price point alone - the existence of a variety of full service cabins and classes, timings and different fares certainly show that some of the market is still more nuanced/sophisticated than price alone. It is also a false narrative to divide the market into purely business and leisure categories - and if you do so then you risk alienating half your market! As the QF withdrawal from OOL and then grudging re-entry into the OOL market showed. Setting up divisions of an airline that deliberately ignore status and loyalty also works against your own loyalty scheme/business.

As you say - its also a capacity issue as well - simple supply and demand would say that the more seats that anyone puts into the market then the lower the yield will be for everyone, regardless of what colour the tail of the aircraft is. The US experience may show us that competition is good for pax but bad for shareholders and eventually a proccess of consolidation or emerging niche airlines and other forms of commercial adaptation will bring the overall market back into a state of equilibrium where pax can still afford to fly but sharholders can make $$ and replace aircraft (ignoring the effect of Ch11 bankruptcy laws that we don't have here in Australia).

But its a good question as to why an existing airline didn't go down the path of trying to cater for the LCC market using existing managmenet/structures and just filling the back of the plane with low fares without food and drinks and haing high ancilliary fees. It couldn't have been AN as they were already dead by then so it could have only been QF who could have taken this option - and for whatever reasons they didn't.

 

[dajop]

In effect there are now 4 players in the market which history has shown can only support two.

The current arrangement is clearly unsustainable and it must only be a matter of time before capacity reduces. Whether that results from the LCCs disappearing, or the full service carriers cutting services or a combination of both who knows but something has to give.

Well there aren't really 4 players in the market, there are now only 2 players in the market again, each operating with 2 separate brands. I think you are right, that capacity will be reduced, as the money is running out to continuously expand capacity in the market. As VA fine tunes it's planning with TT, and QF continue to work closely with JQ I think you will see fine tuning and coordination within both camps. I think one of the main reasons both airlines are bleeding is that one of them as drawn a line in the sand at 65% market share, and the other has owners with deeper pockets than the other predicted.

Oddly there are only a handful of routes, low traffic ones, that have 3 genuinely independent competitors - the three that come immediately to mind are MEL-MQL, SYD-BNK and SYD-ABX.

 

[yohy?!]

I see the day coming that the multiple brands operate similarly to the way CX and KA do - close alignment between short haul product (in this case domestic), full code-sharing on all flights, wet leasing crews and aircraft etc

before that happens there will have to be a lot of IR work to flush out the legacy agreements

either that or the LCC brands are closed altogether...