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Passengers flying high on cheap airfares -

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Passengers flying high on cheap airfares

Simon Santow reported this story on Friday, July 3, 2009 12:38:00

PETER CAVE: The airline industry may be on its knees worldwide but it seems there's never been a
better time to fly.

From today the world's biggest airline Delta is crossing the Pacific Ocean, bringing more
competition, and lower fares hopefully, to the traditionally protected US Australia route.

Domestically the discount operator Tiger Airways has become the fourth carrier operating between
Sydney and Melbourne.

It's trying to grab a share of the market and even expand the market by selling some seats for less
than a taxi fare to the airport.

But the price wars may not be sustainable in the long term, as Simon Santow reports.

SIMON SANTOW: Turn on the TV, open a newspaper or log on to a computer - there's no escaping the
advertising blitz as airlines do their best to get people flying through the financial downturn.

BEN SANDILANDS: It is going to be the battle of four brands and I actually think the cheap prices
are going to last quite some time on what used to be the golden route.

SIMON SANTOW: Aviation commentator Ben Sandilands blogs on the industry for website crikey.com.

He's been watching on as aggressive no frills carrier Tiger Airways becomes the latest to take on
the Sydney Melbourne route.

Its hook is airfares from as little as $39 each way.

BEN SANDILANDS: Well it is certainly not sustainable at those prices but Tiger is not here to make
money. Tiger is controlled by Singapore Airlines and Tiger's entire purpose in Australia is to
participate in the ultimate rationalisation of the airline industry. So they are very patient and
they are prepared to lose money.

SIMON SANTOW: When you say they are not here to make money, in the long term they obviously want to
make the money.

BEN SANDILANDS: Yes, I think in the long term, the entire purpose of Tiger is to help Singapore
Airlines find effective investments outside of Singapore. That has been the strategy for a very
long time in Singapore.

They tried it with Ansett of course and it was a disaster.

VANESSA REGAN: Tiger Airways is now entering the big league and we are one of the major domestic
players in the industry at the moment. I guess what we are trying to achieve here is new low fare
travel options for people throughout Australia.

SIMON SANTOW: Tiger Airways spokeswoman Vanessa Regan says the airline is different from
competitors Virgin Blue, Qantas and Jetstar.

VANESSA REGAN: Tiger Airways offers an absolutely true low cost business model, which gives
passengers access to the lowest fares in the market without having to pay for all the expensive
add-on services if they don't want them.

We believe it is a proven business model which is based on the likes of Ryanair and easyJet
internationally which are two of the most successful airlines in the world.

SIMON SANTOW: So would you expect Qantas, Jetstar and Virgin Blue all to be there in competition
with you in the long term?

VANESSA REGAN: Well, we actually believe we are quite unique in the market and that we are filling
a void. We are actually growing the travel market and we are not really looking at cannibalising
off other competitors.

SIMON SANTOW: Sydney Melbourne isn't the only route currently undergoing a shake up.

Airfares on the Australia United States transpacific route used to be some of the least competitive
in the world.

For airlines, there was a lot of money to be made on largely captive markets.

That's all changed since the number of carriers doubled from two to four in less than 12 months.

Commentator Ben Sandilands again.

BEN SANDILANDS: The economy fares across the Pacific, which most people are buying, have been as
low as $700, even $650 return. Delta which started flying today, that is the biggest airline in the
world, hasn't actually been too active in the Australian market but it has been enormously active
in the American market thereby making it quite difficult for Qantas and V-Australia to be
successful on the other side of the Pacific.

SIMON SANTOW: And as a proportion of what they were charging six to 12 months ago?

BEN SANDILANDS: About a quarter in some cases and this even applies to the premium fares too but in
economy, it has been down to about one quarter of the previous fare level.

SIMON SANTOW: Now is that unambiguously good news for customers or is there a danger that in the
mid to long term that some of them will have burnt a lot of cash, would have withdrawn and we will
be back to the bad old days?

BEN SANDILANDS: No, I don't think it will go back to the bad old days. I think when we look at the
history of this sort of operation now we have been seeing lots of new entrants come into markets
over the past 10 years. They do permanently change the market into a more competitive market. There
will be a lower fare benefit, there is no doubt about that, but will there be four carriers on the
transpacific? Probably not.

SIMON SANTOW: But while passengers enjoy the prices, there's also been a fall off in what customers
can reasonably expect for their dollar.

BEN SANDILANDS: Service levels have gone down and that is particularly noticeable on the short haul
domestic flights. I mean on the Sydney Melbourne route for example, you will see the premium
business class cabins that Qantas fly now disappear.

I am absolutely certain they will be gone by the end of the year as Qantas itself realigns its
product more to where the price is.

PETER CAVE: Aviation blogger and commentator Ben Sandilands ending that report from Simon Santow.