Icarus2001,
The challenge of lies, damn lies and statistics could not resisted. I couldn't explain it, so I stuck it into figures instead. BTW I didn't have the actual starting pax/seats, so I used 10000 as a simple start, but the percentages and LF will hold true whatever the starting figure. First the input data:
Qantaslink figures headed south as traffic fell 19.1 per cent and load factor dropped 3.4 points to 70.7 per cent. The airline said the results reflected a 15 per cent reduction in capacity as the regional operation retired its BAe 146 aircraft.
Now the figures:
Code:
DATA PAX SEATS LF
Then 10000 13495 74.1
Now 8110 11471 70.7
Change 19% 15% 3.4
Seems to work out. Less bums, less seats, and less bums on seats. Hope no-one farts.
It's a catchy headline
Slick Qantas outstrips Virgin but IMHO it's too short because it sells both airlines short. It should have read
Super-slick Qantas outstrips slick Virgin. Mr Godfrey might indeed be having a few sleepless nights as the masterful QF strategies come into play.
What most analysts have missed is that DJ have now moved well into uncharted airline territory. This theme was started to be discussed before
http://www.pprune.org/forums/showthr...5&pagenumber=2 so let's take that and update it.
Step one for DJ was the classic low-cost model of Southwest, and DJ slavishly followed that. When DJ started off in Oz, they stayed rather clear of Sydney and avoided going head-to-head with QF. They looked for the 'undeveloped' routes. Their Southwest trained people did their strategic planning based more on bus and train timetables than airline timetables. They built their core business on these principles.
After AN fell over, QF got handed a massive market share in the domestic market. So DJ had to develop a new model for the sake of survival. QF was amassing money rapidly, and could use that to fund a long drawn out fare war that would eventually crush DJ. The Step Two model adopted was the spoiler - knock off the QF cashcows that gave QF the profits they needed to attack DJ with. Doesn't have to be a big spoiler or involve many flights – just enough to spoil the cashcow. By now DJ core business was well established, so a small percentage of flights could be safely thrown into the SYD-MEL ring to fight QF. Typically this was limited to about 5% of their capacity.
Step 3 came when the unexpected crawled out of the woodwork. Clutching their pillows in one hand and bubble gum in the other, the SYD-MEL flights filled up. Not with airline passengers – but with ex-bus and train passengers. This was predicted in the Southwest book, but not many people thought that it could really happen on an Oz mainline route full of business travellers, with no low-cost airline tricks like secondary airports to fly into. DJ could and did put on more aircraft, and they kept filling up too. The analysts couldn't believe it. Eventually it dawned on everyone that DJ had expanded into a genuinely new SYD-MEL market.
Step 4 was the DJ entry into the business market. The SYD-MEL new market is booming. DJ keep the SYD-MEL flights down to less than 10% of their capacity, so SYD-MEL is not the core of the business. If the buses or trains or QF ever get too tough, DJ can leave 4-5 flights a day on the route to spoil the cash cow, and go and play with the rest somewhere else or hand the oldest planes back to the lessors (Compass didn't have those options). Now, and I suspect this came from Chris C, if there are all these DJ flights going back and forth SYD-MEL, what about spending a few dollars on advertising and see if we can catch some of these suits. Since Sept 11, a shift in buying behaviour has been taking place among business travellers, and the trend towards low-cost airline travel by suits is accelerating. It’s the big thing in the US airline world, and Oz is no different. I reckon CC saw that the start-up cost for DJ in Step 4 was almost nothing. They already have the planes and crews and terminals and are already flying the routes. Start-up cost is the price of a few adverts. Worth a go.
Step 5 is now. It worked. A noticeable part of the business market has responded to the DJ initiatives. The Blue Room and the Blue Zone give that something extra to the business traveller. The pax and money pours in. New planes stream onto the line. Frequencies are way up and I venture to suggest that SYD-MEL is now a core route. The business traveller initiative is now firmly part of the DJ model. So we have a world first - a low cost carrier (LCC) growing to be a mainstream airline.
Step 6, tomorrow. Will it work? Can DJ avoid middle age spread (unlike I) and get top-heavy? Has DJ moved too far into the mainstream and lost sight of being an LCC? And just like all the mainstream airlines that tried to start LLC subsidaries and failed, will the DJ/LCC move to a mainstream carrier also fail?
It is too early to tell, but some idea can be had by looking at the fundamentals of what makes LCC work. Thomas C. Lawton in a 1999 article in Long Range Planning defines the LCC well. Using his definitions, let's test DJ before (step 1-4) and now (step 5) and tomorrow (step 6):
1. Secondary airports (lower charges and less congestion means airline can increase punctuality rates and gate turnaround times). DJ before = no. DJ now = no. DJ tomorrow = no. Avalon = amusing anachronism.
2. Standardised fleet (lower training costs and cheaper parts and equipment supplies). DJ before = yes. DJ now = yes. DJ tomorrow = probably.
3. Point-to-point services (direct, non-stop routes; through-service with no waiting on baggage transfers). DJ before = yes sort of. DJ now = yes sort of. DJ tomorrow = yes sort of.
4. Maximise aircraft utilisation (fewer aircraft used to generate higher revenue; leads to higher passenger capacity and greater staff productivity). DJ before = yes. DJ now = yes. DJ tomorrow = yes
5. Cheaper product design (no assigned or multi-class seating; no free food or drink). DJ before = yes. DJ now = yes sort of. DJ tomorrow = yes sort of
6. No frequent flyer programme (costs money to manage and to implement). DJ before = yes. DJ now = yes. DJ tomorrow = yes
7. Non-participation in alliances (code sharing and baggage transfer services lowers punctuality and aircraft utilisation rates and raises handling costs). DJ before = yes. DJ now = yes sort of (their alliance is a joke). DJ tomorrow = yes sort of
8. Minimise aircraft capital outlay (purchase used aircraft of a single type) DJ before = yes sort of. DJ now = yes in a funny post 9/11 way, they got 'em so cheap they meet the definition. DJ tomorrow = yes sort of
9. Minimise personnel costs (increase staff-passenger ratio; employee compensation linked to productivity-based pay incentives). DJ before = yes. DJ now = yes. DJ tomorrow = yes
10. Customer service costs (outsource capital intensive activities, e.g. passenger and aircraft handling; increase direct sales through telephone reservation system). DJ before = yes. DJ now = yes. DJ tomorrow = yes
11. Lower travel agent fees (reduce associated travel agent commission - 9 to 7.5% [sic]) DJ before = yes, and many commission free internet sales, and extra $10 for phone bookings. DJ now = yes, ditto, plus credit card surcharge. DJ tomorrow = yes, ditto
My summary of this is that DJ hasn't lost sight of what made it a successful LCC. It isn't going to implode from within, provided their cashflow management holds up. Godfrey's confidence in his airline seems well placed (see that great interview with him in the recent issue of Australian Aviation). So the battle for the future of DJ will be a head to head one: QF/Jetstar vs DJ.
Dixon has stolen a march temporarily, and his latest numbers look good, which is why Godfrey might be having a few sleepless nights. But it doesn't mean that the war has been won by either side.