Fri "The Australian"
Hard lessons as Concorde exits
Robert Gottliebsen
October 24, 2003
When the Concorde flies between London and New York for the last time today, it signals the failure of an air service that was based entirely on demand from upmarket passengers.
Yet in theory it should have worked because, based on what happens in the Australian market, traditionally around 2.5 per cent of the passengers provide about a fifth of the revenue.
While Concorde has shown that it is difficult to rely solely on business and other upmarket travel, a string of global discount operators have shown that you can do the reverse and make money offering a commoditised, low-priced airline service.
So it is no coincidence that, as the Concorde heads to the museums, Qantas is not only planning a discount airline but is recruiting executives from Ryanair, which in Europe provides a discount service that makes Australia's Virgin Blue look like it's running the Concorde.
Ryanair's expertise is stripping out all but the basic essentials of airline travel. But, as so often happens in Australia, the future structure of the airline industry will revolve around the enterprise agreements of each of the players.
Many other industries, including banks and manufacturers, are also shaped by the enterprise agreements that companies negotiate with their staff.
In the last century, Qantas and Ansett operated from the same enterprise agreement. What changed airlines in Australia was the ability of Virgin to secure a totally new enterprise agreement.
Under this agreement, counter staff could be swung into helping people board the aircraft and cleaning it. The first officer would be prepared to assist cleaning if it was necessary to get the aircraft away on time.
This flexibility is the essence of a discount airline. But Virgin claims that it also enables it to achieve a far greater "on time" score.
At the moment, Qantas dominates the 2.5 per cent of airline travellers who generate a fifth of the revenue by providing an array of value-added services. But the surveys are showing that, while the add-on services are very welcome, what the business passenger needs more than anything else is on-time travel.
And, when labour agreements are not flexible and the former upmarket competitor Ansett is out of the game, it inevitably leads to planes being delayed or cancelled - particularly during a cost-reduction phase.
Virgin must see its on-time record as its greatest potential opportunity to seek business travellers. The great danger to Virgin is that as it increases market share so its people will look enviously across at the Qantas work practices. Qantas has more people doing what is essentially the same job. Inevitably the gap will narrow.
But a Ryanair-style discount airline will require work practices and systems that are even more flexible than Virgin's. If such an agreement is reached, it will make the next Virgin enterprise bargaining session - due in about two years - a lot easier.
Whether Qantas can succeed in the discount airline business will depend on whether it can arrange a totally different enterprise agreement. But, of course, in the next few years it is going to be much easier for New Zealand aircraft to operate in Australian skies and vice versa.
In New Zealand, Qantas has the sort of enterprise agreement that it will need in Australia, and it is conceivable that, if Australian talks fail, the discounter could be based across the Tasman.
What Concorde showed was that an airline needs each flight to be filled with people from various segments of the passenger market. For domestic airlines the risk is that the service is going to be commoditised as discount fares become a bigger and bigger part of the industry - at least in the short-haul business.
Robert Gottliebsen writes for The Australian and hosts Business Daily on ABC Asia Pacific TV.
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