PDA

View Full Version : Why don't all Airlines compete on a route?


praa
5th Mar 2012, 11:55
I've just booked a return flight from Munich to Hong Kong. There is a non-stop with LH but generally I don't mind changing planes if there's an advantage in price or comfort. Most booking websites listed the usual suspects (either via London or the Gulf states) but what surprised me was the complete lack of competitive prices from Thai or Singapore Airlines. Perhaps, because both are Star Alliance, they want to keep out of the way of LH, but Air China and Turkish (also *A) were making competitive offers.
As there was a discussion on this forum recently about non-direct routings frequently being cheaper, is there any obvious reason why Thai and Singapore don't want to compete aggressively on such a route? Perhaps they're doing so well...

PAXboy
5th Mar 2012, 13:22
My guess on this has always been:- Money.

The cost of setting up a long haul route is enormous. Some items:


Assess the route for capacity now and in the future - paperwork and research by clerical staff.
Financial planning for aircraft, crew, fuel, supplies, marketing etc. Do you have spare a/c and crew or would you need to wet/dry lease for the first year?
If considered viable then you have to commit to, say, one or two weekly rotations for, say, a summer season or a year.
Then apply for the route and get slots.
Set up the marketing and package deals with tour operators.
Set up ground handling, fuel and supplies, maintenance and get credit and accounts for all that into place. This includes stop overs for crew at destination etc.
Allocate a/c and staff, train staff for the route. Route proving flights which are non-revenue.
Now market the route and hope someone buys a ticket ..!!

The above could easily take half a year and, in this day and age, the market could have changed. So you pick routes that you KNOW are going to work. Trying to find new city pairs and seasonal routes is better than going against an existing carrier, who has already spent all that money and can easily adjust their marketing price to retain the pax.

When the current recession/depression in the Western world is over, we might see new things but that is a minimum of five years away.

The SSK
5th Mar 2012, 13:57
I think you're missing the point, PAXboy, SIA and Thai already serve Munich, and presumably both have decent onward connections to Hong Kong.

The decision to match or undercut other carriers' fares will be a commercial one, with a lot of input coming from the airline's regional sales managers in (in this case) Germany and HK, who will have one eye on their sales targets and their load factors and the other eye on what their competitors are doing.

If they ask Head Office for a matching fare, Head Office may or may not take into account their competitive relionship with their alliance partner.

PAXboy
5th Mar 2012, 16:04
Beg pardon in a too rushed reply.

If it's a question of making an onward connection public, that is where the pax does not have to book the two separately, then the answer is Money and Politics! The politics might be internal, govermental or Alliance. But politics usually wins. :hmm:

Rollingthunder
5th Mar 2012, 23:49
I relish the day when airlines don't have to stop in a gulf state.

PAXboy
6th Mar 2012, 00:38
Methinks you have a long wait Rollingthunder, for their modern era is only just beginning ...

Pom Pax
6th Mar 2012, 18:23
I just played pretend bookings and Turkish well & truly undercut LH with Air China and a Middle Eastern carrier also below LH. However these were for the most basic of fares. But for more flexibility and greater comfort the price range between carriers evens out allowing SQ & TG to become competitive.
For praa's chosen route for TG & SQ to offer the competitive fares he seeks would involve undercutting their own Munich > home base fares for an extended journey through their own hubs. As these companies must know the market on their own spokes this surely answers praa's question.

RevMan2
7th Mar 2012, 17:16
Why would they want to undercut LH significantly in the first place? f that's the market price, they'll get traffic either through preference or overflow and HKG wouldn't necessarily be the primary destination of many passengers on non-direct flights.
From a network perspective, a sensible move.

jabird
8th Mar 2012, 01:17
I relish the day when airlines don't have to stop in a gulf state.

They don't, but one or two routes operate that way, mainly to countries in Asia beginning with B.

As a passenger starting in the UK and heading east, you have a choice - fly direct with BA, Virgin or the destination-based carrier; or transfer through a hub in mainland Europe, eastern Asia or the Gulf.

Long may it remain that way!

praa
9th Mar 2012, 13:08
Thanks for all the responses that have thrown a little more light on an almost impenatrable subject. Interestingly, SIA had a large advert in the local Munich paper this week with very attractive economy fares to Singapore ... and places beyond! Admittedly most of these were more exotic destinations in Inonesia etc and Darwin in Australia. I guess that's where they see an advantage.

Tableview
10th Mar 2012, 11:24
Passengers are not meant to understand the complexities of network carrier pricing strategies. Making this transparent would be giving up a huge competitive advantage.

In addition to the points mentioned by others, you also have to consider the way that yield management systems work to optimise revenue for every seat. This means that at the time when a request comes in for a seat the system engages in a bid/offer process which looks at the point of sale, the value or cost of inbound/outbound connections to and from the primary longhaul segment, and other factors. It then has to evaluate whether it should release the seat/s or hold on to them in the hope of obtaining a higher yielding sale closer to the time of departure, or possibly ending up with an unsold seat.

The number of seats allocated to the various yield management 'buckets' (subclasses) are constantly updated according to complex and mysterious algorythms designed to baffle the customer!

ExXB
11th Mar 2012, 20:13
Most international routes are still governed by the principles contained in the first 'bilateral air service agreement' - the agreement between the US and the UK made at Bermuda in 1946. (aka Bermuda I)

(The Chicago Convention the previous year had failed to reach any agreement on 'economic issues' and left this to States to agree these terms bilaterally. However in Chicago it was agreed that States had an exclusive right to the airspace over it's soil and no airline of another state could fly to/from or over it without a specific agreement. This meant that all airlines had to have a nationality)

Bermuda I set out the requirement that airlines possess the nationality of the those that owned it. In other words an "American" airline must be substantially owned and effectively controlled by US nationals and a "British" airline had to be substantially owned and effectively controlled by UK nationals (or the UK government).

When two governments sit down and negotiate an air service agreement the are talking about the rights to be granted to airlines of the two states - and not rights to be given to airlines of a third state. When Germany and Hong Kong talk they discuss rights to be given to German and Hong Kong airlines (HKG is a little special given their special status in China, but for the purpose of this discussion pretend that HKG is a State.) They could agree, for example that HKG airlines could fly non-stop or direct services to 5 German points, and German airlines could fly non-stop or direct services from 5 German airports. Germany could also agree to allow HKG airlines to provide services from Germany and an intermediate point (e.g. HKG-VIE-FRA with traffic rights on the VIE-FRA sector) or a beyond point (e.g. HKG-FRA-LON with traffic rights on the FRA-LON sector).

In order to actually use these '5th freedom' authorities CX would also need the agreement of Austria to carry traffic VIE-FRA and the UK to carry traffic FRA-LON. Yes it's complex.

However if a country in the middle has an agreement with Germany and with Hong Kong to carry local traffic, these can be combined to provide it's airline with connecting service via their home airport. Many years ago governments tried to regulate the prices these 6th freedom carriers could charge, but that is no longer the case. (impossible to control).

As it is very unlikely that Germany would agree with the UAE to allow their airlines to provide non-stop services between Germany and Hong Kong (or anywhere else other than the UAE) EK and EY cannot offer such services. (In any case they would also need the agreement of HKG as well.

Some ASAs now allow variation on the ownership and control rules. For example the US-EU ASA allows any EU airline to operate between US airports and any EU airport. For example AF did operate from LHR to the US for a while. However, for other reasons, this is not popular with airlines who find it difficult to make money operating these kind of routes.

In case you don't know:

1st Freedom the right to fly over a foreign country, without landing there.
2nd Freedom the right to refuel or carry out maintenance in a foreign country on the way to another country
3rd Freedom the right to fly from one's own country to another
4th Freedom the right to fly from another country to one's own
5th Freedom the right to fly between two foreign countries during flights while the flight originates or ends in one's own country.
6th Freedom the so-called right to fly from a foreign country to another one while stopping in one's own country for non-technical reasons
7th Freedom the right to fly between two foreign countries while not offering flights to one's own country
8th Freedom the right to fly between two or more airports in a foreign country while continuing service to one's own country
9th Freedom the right to fly inside a foreign country without continuing service to one's own country.

6th is 'so-called' because it is almost never mentioned in an ASA - it is taken, not given.
7th freedom is common for all-cargo operations - almost unheard of for passenger. (The AF LHR-US flights were 7th)
8th/9th exist only in principle. I'm unaware of any operations that take advantage of this today.