Wirraway
27th Jan 2005, 13:36
Fri "The Australian"
Long haul carriers to challenge Qantas
Steve Creedy
January 28, 2005
DOMINANCE by Qantas and higher fares on some routes mean Australia remains a potential target for low-cost, long-haul airlines, according to industry veteran Bill Franke.
Mr Franke, who is chairman of Singapore Airlines' offshoot Tiger Airways and a managing partner at US-based transportation equity fund Indigo Pacific Partners, said there were significant hurdles to starting up long-haul, low-cost airlines, which made a successful start-up in Europe or the US unlikely.
Asia was also high risk, he said at the Centre for Asia Pacific Aviation's low-cost airlines conference in Singapore.
He said long-haul carriers needed expensive wide-body aircraft as well as marketing and maintenance facilities at each end of the flights.
They also faced operational challenges and restrictions on services.
In round numbers, if it took $50 million to start up a low-cost, narrow-body airline, it could take $200 million to set up a long-haul operation.
Existing airlines would also "fight to the death" to prevent a low-cost airline undermining one of their few remaining sources of profitable operations. But, he said, there were some markets where the idea could work.
"And because of the cost structure and fare structure on the long-haul markets out of Australia, probably somebody will look at it or should look at it," Mr Franke said .
"I know for a fact that there are two or three investor groups that have nudged the idea around and talked about whether it was timely to pursue it and for a variety of reasons chose not to do it.
"But because of the dominance of Qantas in the marketplace on the international routes and because of their fare structure, it is something that will be susceptible to competitive incursion."
Mr Franke said a decision to allow existing airlines to pick up passengers in Australia and carry them to the US would make it harder for a low-cost, long-haul airline such as a Virgin Blue offshoot to enter the market.
"Established airlines are flying large airplanes with a a lot of seats and they can always make some seats available at the lowest possible fare in those aircraft," he said.
"If Qantas had competition, it would create some problems for a low-cost start-up because you'd have not only Qantas seats, you would have Singapore Airlines seats ... That would have very competitive pricing as to some seats on every airplane.
"So I think that would be a business opportunity that competition might obviate. In other words, you might not have that opportunity."
Addressing longer-term trends, Mr Franke said few opportunities remained to make money from investing in low-cost airlines in western Europe, the US, southeast Asia and Australia.
He believed opportunities for investing in the low-cost carriers still existed but were not for the faint of heart.
They centred on developing markets such as eastern Europe, developing Africa, Turkey and the Middle East, Russia, India and China.
"Low-fare airline service represents an opportunity to introduce these people to air transportation for the first time," he said.
"However, pursuing investment opportunities in these regions won't take you down an easy path."
Other possible investment opportunities included the private and general aviation jet industry, air taxis and all-business-class airlines.
Mr Franke also expected a new generation of multi-class, full-service airlines with a low-cost structure driven by the ability to start with a clean sheet of paper.
Unlike low-cost carriers, the new airlines would provide high-quality accommodation for "frill seekers" and employ a marketing strategy that focused on niche customers.
"We believe there is good potential to generate revenue in the West by using proven strategies such as networks and multi-class configurations, but doing so with a cost structure that approximates the low-cost model."
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Long haul carriers to challenge Qantas
Steve Creedy
January 28, 2005
DOMINANCE by Qantas and higher fares on some routes mean Australia remains a potential target for low-cost, long-haul airlines, according to industry veteran Bill Franke.
Mr Franke, who is chairman of Singapore Airlines' offshoot Tiger Airways and a managing partner at US-based transportation equity fund Indigo Pacific Partners, said there were significant hurdles to starting up long-haul, low-cost airlines, which made a successful start-up in Europe or the US unlikely.
Asia was also high risk, he said at the Centre for Asia Pacific Aviation's low-cost airlines conference in Singapore.
He said long-haul carriers needed expensive wide-body aircraft as well as marketing and maintenance facilities at each end of the flights.
They also faced operational challenges and restrictions on services.
In round numbers, if it took $50 million to start up a low-cost, narrow-body airline, it could take $200 million to set up a long-haul operation.
Existing airlines would also "fight to the death" to prevent a low-cost airline undermining one of their few remaining sources of profitable operations. But, he said, there were some markets where the idea could work.
"And because of the cost structure and fare structure on the long-haul markets out of Australia, probably somebody will look at it or should look at it," Mr Franke said .
"I know for a fact that there are two or three investor groups that have nudged the idea around and talked about whether it was timely to pursue it and for a variety of reasons chose not to do it.
"But because of the dominance of Qantas in the marketplace on the international routes and because of their fare structure, it is something that will be susceptible to competitive incursion."
Mr Franke said a decision to allow existing airlines to pick up passengers in Australia and carry them to the US would make it harder for a low-cost, long-haul airline such as a Virgin Blue offshoot to enter the market.
"Established airlines are flying large airplanes with a a lot of seats and they can always make some seats available at the lowest possible fare in those aircraft," he said.
"If Qantas had competition, it would create some problems for a low-cost start-up because you'd have not only Qantas seats, you would have Singapore Airlines seats ... That would have very competitive pricing as to some seats on every airplane.
"So I think that would be a business opportunity that competition might obviate. In other words, you might not have that opportunity."
Addressing longer-term trends, Mr Franke said few opportunities remained to make money from investing in low-cost airlines in western Europe, the US, southeast Asia and Australia.
He believed opportunities for investing in the low-cost carriers still existed but were not for the faint of heart.
They centred on developing markets such as eastern Europe, developing Africa, Turkey and the Middle East, Russia, India and China.
"Low-fare airline service represents an opportunity to introduce these people to air transportation for the first time," he said.
"However, pursuing investment opportunities in these regions won't take you down an easy path."
Other possible investment opportunities included the private and general aviation jet industry, air taxis and all-business-class airlines.
Mr Franke also expected a new generation of multi-class, full-service airlines with a low-cost structure driven by the ability to start with a clean sheet of paper.
Unlike low-cost carriers, the new airlines would provide high-quality accommodation for "frill seekers" and employ a marketing strategy that focused on niche customers.
"We believe there is good potential to generate revenue in the West by using proven strategies such as networks and multi-class configurations, but doing so with a cost structure that approximates the low-cost model."
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