Turbantime and Tourismman
You guys are dreaming....and clearly you know nothing about airline economics. In competitive markets the key to success is having the lowest 'unit costs' and unit costs roughly equate to how many seats you have to sell, the fixed costs per seat (monthly lease rate or not, accruals or not, insurance, etc.) and the direct costs per seat (fuel, crew, maintenance, ramp and enroute charges, etc.). Unit Cost is the basis for the margin you can charge per passenger in order to make a profit and in competitive markets margins are squeezed very tightly through competitive mechanisms.
Qantas through the CityFlyer program is operating a mix of mostly wholly owned widebody and narrow body aircraft on a mix of long and short haul sectors using sophisticated yield management tools to minimise their 'unit costs' and maximise profits. Jetstar and Tiger and at the regional level REX does the same with an even lower cost base.
Virgin's fleet is leased and not owned which when it comes to low unit costs is a big MINUS and because Virgin's fleet seats fewer passengers than their competitors (NG at 155 seats, EJet 170 at 78 seats, EJet 190 at 109 seats, A320 at 177 seats, 767 at 269 seats, A330 at 250 to 293 seats, 747 416 seats), Virgin's Unit Costs will always be much higher than the competitor's and when this is combined with the double whammy of historically high fuel prices, Virgin is operating in a very dangerous region of it's performance envelope.
If Virgin puts up prices to ease the cost burden (as announced on Friday), it's competitors can afford to reduce prices (courtesy of lower unit costs) and keep them 'on the ropes' until something major occurs. Unfortunately in Australia there are many historical precendents for this, starting with Compass Airlines, then Southern Cross Airlines and finally Ansett and globally the financial press has very recently reported the failure of a significant number of airlines due to this phenomenon!
As a further confirmation of the magnitude of this problem, earlier this evening 'ninemsm' listed a story heralding what could well be the catastrophic failure of the airline industry in the U.S. due to fuel price induced insolvencies. Virgin's announcement on Friday shows they are only 'fiddling at the edges' of their problems. Time will tell what happens next in Australia!!
Last edited by THE ORACLE; 14th Jun 2008 at 10:13.