Customers the only winners from the air wars

August 29, 2012, 9:16 am Michael Pascoe Yahoo7

The irrational war being fought being Qantas and Virgin can only be good for one group, consumers.

Qantas reports a fat loss, Virgin reports a small profit that looks good compared with its previous loss and both airlines are stepping up their battle for the corporate dollar with discounts the public never sees while the cheap seats we do see are getting cheaper. Yes, the airline business remains a dangerous place for sane money.

Airlines are a bit like media companies in that they attract much more reporting than they deserve. From an investment point of view, the fate of Virgin and Qantas isn’t very important, but with so many of us travelling so much, there’s still something about aeroplanes that curries coverage.

The business itself remains cut-throat and precarious. The Flying Roo’s story is told more in sorrow than anger with past and perhaps present management effectively running the business down by making the wrong decisions about which aircraft to fly and not controlling costs when it had the chance. The suspicion remains that the present CEO, Alan Joyce, is happy to see the international Qantas brand subside into Jetstar. One can only wonder how Qantas can compete when it doesn’t and won’t have the new, more fuel-efficient aircraft being offered by its opposition.

And then there’s Virgin, run by the man who was passed over for the top job at Qantas and now causing maximum heartburn for his former employer by taking bites out of their corporate lunch. The evolution of Virgin Blue, a low cost carrier, into Virgin Australia, a full-service airline with credible international allies, is fascinating and a little scary – just like any high wire act without a net.

The bottom line is that combining the results of the two dominant local carriers doesn’t add up to much money when both are expanding capacity. It’s not a particularly rational war that’s being fought.

The only sure result at present is that airfares are being kept down by the competition to grab more of the market. Subscribe to both airlines’ emails and you can’t help noticing the specials on offer, but that’s not the main game at present.

With Virgin determined to grab a hunk of the Qantas business traveller, the real discounting is happening behind closed doors as the major corporate clients are duchessed by both sides. If you wonder who can afford to pay for the expensive seats up the front as you traipse down the back, a large proportion of those business class seats have been sold for a lot less than the advertised rates.

How big the discounts are and how widespread they have become remain mysteries – no-one’s disclosing such sensitive information in this competitive environment – but both corporate and mum-and-dad customers are the only winners of the present war.

The previous war was fought between Virgin and Jetstar, but now it’s more a matter of Virgin and Jetstar against Qantas – one nipping at the quality end while Jetstar cannibalises the budget customers. And there’s no sign of any let up.

And then there are increasingly ambitious international low cost carriers and the recovering Tiger. The winners there are local tourism operators as the likes of Scoot and AirAsia are predominantly in-bound businesses, bringing more foreigners into Australia than flying Australians to Asia, but also applying a competitive blow torch.

It adds up to a highly competitive industry, one that doesn’t make enough to justify the capital employed, but one that is giving customers good deals while the war lasts.

More from Michael Pascoe:
The bulls are getting frisky
BHP CEO under the microscope
The good oil from the Guvna

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