Tuesday, 3 January 2012

Fares between Australia and USA – Up or Down?

The Sydney Morning Herald today reports that the increased number of flights since 2009 when Delta and Virgin Australia entered the route has kept fare prices low. However there seem to be two schools of thought on where fares will head in the future. Here are the reasons why:
  • Spare Capacity on Qantas
    Qantas is now making money out of the route, and not making money out of the 'Kangaroo Route' to Europe. It will cut its flights to Europe from 5 a day to 3 from April, so it could try to gain market share by scheduling more capacity between Australia and the USA
  • Only 10% of seats vacant
    Qantas, Virgin, Delta and United are all running at between 87% and 92% capacity on the trans-pacific route currently according the government figures
  • Australians Love the USA
    We love going to the USA, because Australians can get to the west coast in one 14 hour flight, instead of 2 legs to Europe usually taking about 24 hours
  • Low US Dollar
    Hotels, internal flights, not to mention fantastic retail shopping in almost every category is extremely attractive for Australians because of the better-than-parity exchange rate
Some analysts say that the 10% average vacant capacity is enough to absorb expected increases in bookings, while others suggest that Qantas might make a play to dominate the route as it has done traditionally. It also has the advantage of running the newer, quieter, roomier, and more fuel efficient A380. The other factor is the new approved alliance between Virgin Australia and Delta, which might lead to more efficiency. The SMH reports that Virgin made a profit on the route last financial year, after making losses.

My bet is that Qantas will make some kind of play to increase its market share on the USA route. Remember they need to restore confidence in their brand after the grounding the airline in 2011 as part of their their strike breaking strategy. They have the spare capacity, and they already seem to be using price as a means to regain customers on other international and domestic routes.

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