go_dj
"How is this so?" Well they came in through the back door. That's quite a stack of Big Planes that you list on the route, against the DJ smaller planes. Makes a mockery of the small planes vs big planes theory if DJ were taking on Qantas. But they haven't been up until just recently.
Step one for them 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. Umm, wasn't this round about the time that Richard B was running scared about his investment in DJ? Anyway, 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. The DJ departure gates often had 3-4 suits hanging around 1-2 genuine travellers, and 2 analysts standing there counting who was getting on and how many business travellers there were. I used to. And there weren't many business travellers. So who were these people? QF was selling just as many tickets as before, and couldn't understand it. The analysts at the gates didn't know. Eventually it dawned on everyone that DJ had expanded into a genuinely new SYD-MEL market.
Step 4 is now, which is the DJ entry into the business market. DJ still 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. Its 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.
We can derive some rules for how the small guys can compete with the big guys on a route, which work for XR as well as for DJ:
- route cannot be core business
- can't use more than 5% of the fleet capacity (at least to start with)
- be able to walk away at a moment's notice
- nice to open up a new market
- must be pleasing to the punters
- start-up cost must be less than peanuts
- don't stand still long enough to get bludgeoned
Hmm that even sounds like someone with Metros could try on the F50 routes in WA (pity about the Metro's punter pleasing abilities).
How does the big guy beat the small guy?
- price
- bigger planes
- price
- deep pockets
- price
- mining contracts
- price
- international linkage for on-carriage
- and price
Stand by for the WA price war.