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It is this obsession with 65 per cent market share - as well as some flawed strategies in Asia and a focus on Jetstar - that has got Joyce and the airline in the present situation. The concern is the 65 per cent market share line in the sand is based on the ''S-curve'' phenomenon, which measures capacity share against revenue share. The theory is there is a certain profit optimisation point where if you add more capacity, you get little in the way of increased revenue, but if you lose capacity, revenue can fall off a cliff. Joyce believes the figure that needs to be protected is 65 per cent.
According to a McKinsey paper published a few years ago, the S-curve is based on the premise that airlines providing a high frequency of flights attaining disproportionately high market shares. The high-margin corporate market flies with carriers that offer the most flights, lounges and loyalty programs.
There appears to be a subtle but deadly flaw in this logic if this argument is used above as the rational for the 65%
dual-brand strategy. The second paragraph (implicitly) assumes a single entity (lounges, FF, frequency). This is the flaw - it is not a single entity
but two entities offering a vastly different products (premium vs LCC)
& operating philosophies (network vs point-to-point). If the McKinsey paper quote is correct, the 65% will only work with a single entity, either LCC or premium.
What it does do in reality is forces a significant reduction in frequency of each entity
compared to its potential to prevent massive over capacity, and hence negates the rational for the 65% line in the sand logic. QF strong armed the punters by giving them no choice, simply pulling QF domestic out of certain ports.
Punters simply aren't going to jump on the next "Qantas Group"™ aircraft available - they are likely to want either the premium or LCC, not a mix and match of both, or walk to the "Group" opposition.