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The dam wall on cheap fares on the world's longest air routes from Australia to Europe has finally broken after years of stubborn resistance. Illustrating that there are many conflicting dynamics in a competitive market, there have been dozens of airlines pitching for business on these routes for decades without driving down the price. A decade ago, the top-of-the-line brands like Qantas and Singapore Airlines were complaining about how cheap fares were when they were above $2000 return. At one stage, when high-season fares were around $2300 return, there were warnings that lead-in rates would have to rise to nearer $3000 because the route was uneconomic at then-current levels.
Well, the world has changed since the 2007-08 global financial crisis. Since then, the US and European economies have been in or close to recession, which has hit long-haul business travel for six. With the Cheap Airline revolution proving that the best money is to be made from wall-to-wall budget seating, supplemented with ancillary fees for everything that used to be free, airlines like Qantas have begun to shrink their premium cabins in favour of more premium economy and economy seats.
Two years ago, the queen of the Asian skies, Singapore Airlines (SIA), which had also been knocked sideways by the GFC, shocked the industry by starting its own low-cost long-haul brand, Scoot, after sitting back and watching carriers like AirAsia X and Jetstar hoovering up the demand for no-frills travel. Last week was a landmark when SIA moved aggressively into the market with what it acknowledged were its first real el cheapo fares in its 2014 Earlybird offerings between Australia and Europe.
Our Earlybird 2014 offer is by far the lowest fares we have offered to date, a spokeswoman for SIA south-west Pacific vice-president Subhas Menon said. Earlybird has long been a cornerstone of our pricing strategy, as it helps ensure we have strong base loads for the year ahead. This is why we have never hesitated to be bold and grab the market's attention and reinforce our superior product and service offering. Actually the folks at SIA are stretching it with that last sentence. Because of SIA’s service excellence and, importantly, the consistency of service excellence, where competitors have struggled to make service standards uniform they have always had the brand strength to park their rates up to $1000 return more than the price leaders on the long haul from Australia to Europe.
Not any more. Super-aggressive discounting from Chinese carriers like China Southern has forced SIA to drop its Earlybird rates to Europe to below $1500 return from Australia for the first time. China Southern’s rates are starting to look a bit like those of AirAsia X, which grabbed the headlines three years ago with rates from Australia to Europe of less than $1000.
Of course, the AirAsia X option no longer exists because the cheap pricing model of offering fares below cost as a market stimulant doesn’t work unless there is enough demand to fill most of the seats at much higher rates. China Southern this month dropped its fares for travel from Australia to Amsterdam to around $1287 quoted by some agents from Melbourne and slightly more from Sydney. But that offer was seasonal, applying only to the low season through the northern winter and into spring, expiring in June. SIA upped the ante by making its Earlybird rates non-seasonal, applying right through until November 2014. Not unexpectedly, Qantas and its new partner Emirates are more or less matching the SIA rates on key European destinations for advance-purchase buyers travelling in 2014, dropping last year’s lead-in fares by up to $300 return.
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