Tiger Airlines’ David v Goliath battle for low cost fares

A year ago today when Tiger Airways was grounded for five weeks it had around 6% of the domestic market and exercised real pricing power over its much larger rivals.

Today it has around 3% of the market, and is the prisoner of downward pricing pressure applied by Qantas and Virgin Australia, in that it is confined below the substantial volume of low fares both of the major airlines have put into the market in a clash driven overwhelmingly by their desire to respectively keep or take the higher yielding market that comprises business travellers and those who will never again try to stuff themselves into a Jetstar or Tiger seat.

But that doesn’t deter Andrew David, who has been its CEO since mid October and had been the chief operating officer of Virgin Blue and more briefly, after its relaunching as Virgin Australia.

His message is that Tiger will lose money if necessary and for as long as necessary to ensure that it survives as Australia’s only true low fare format airline.

It’s not a message Qantas or Virgin Australia want to hear. The price and capacity contest that is officially hurting both of them is a destructive visitation of similar contests to those that have variously helped extinguish or force into US style bankruptcy legacy carriers in America, Europe and Japan, where Japan Airlines is emerging from its painful but apparently successful reconstruction.

David sees Tiger’s position as strategically stronger than the options confronting his Goliaths. It is rising from its setback. The Goliaths are bleeding from self-inflicted wounds. It doesn’t matter if they stop bleeding and charge the fares that restore their domestic profit margins, or if they continue to bleed. Either way, the patient Tiger wins.

(Where is Jetstar in all of this? Good questions. It isn’t as consistently cheap as might be expected, and it annoys the hell out some Qantas customers when they get tricked, punted, misled or induced against their will to fly Jetstar.)

David’s remedial actions at Tiger have, from accounts, been deep and methodical. The airline has brought reliability to its schedule, and ditched, at least for the time being, some lesser ports in order to put better frequency on key routes out of Melbourne, the Gold Coast, Brisbane, Perth and now Sydney, where today it launches a new base which will rise to three out of what will be a fleet of 11 A320s by the last quarter of this year.

There will be TV ads soon,  a first for the carrier, and rare in low cost carriers per se, because, David says, “we’ve now got something to sell, which is high personal service, and frequent, and reliable, low fare flights.”

He says there was no point promoting a damaged brand before the fundamentals of the operation were fixed.  And Tiger will soon be as easy to book and manage for consumers as any airline, when it rolls out of mobile app and reinstates a simple, no nonsense web check in process.

“Cheap, frequent, reliable, accessible….” he says with emphasis.

A year ago Tiger was certainly cheap unless it thought you were desperate to fly on a last minute booking,  when it was incredibly expensive. It wasn’t reliable, and it was, time and time again, tricky and difficult to use.

In the current fare war, the difference between the fare levels Tiger needs to charge to break even, and the fare levels Big and Little have on widespread offer, can be as little as $15-30 one way on a short eastern cities flight such as Sydney-Melbourne.  Back before grounding that gap was around $65-125, creating a much more tangible reason for flying Tiger than any day this week for example.

Which is one reason why David today dropped 10,000 seats for $10 one way between Melbourne and Sydney onto the market. “We won’t make any money on them,” he says. “But we will introduce a lot of new customers to what Tiger is all about, which is a cheap, reliable, frequently available seat, and a high personal service ethic.”

In a long conversation, some of it in confidence, he says the low fare revolution is unstoppable, and changes forever what people will expect from air travel, and how they will use air travel, to change their lives as well, and for the better.

He draws attention to ‘family’ too. At Virgin Blue, the staff were united under a ‘keep the air fare’ banner that was originated by its founding CEO Brett Godfrey.

David has his ‘family’ all working in synch toward making Tiger as successful in Australia as Ryanair and easyJet have been in Europe, or the somewhat more internally harmonious Southwest has been in the US.

No one could seriously suggest Jetstar is one big happy family. The notion of management/staff engagement seems totally out of place in the labor-in-its-place or upstairs/downstairs divide that pervades Qantas/Jetstar.

David’s comments about ‘family’ are, on reflection, exceptionally relevant to what could happen in Australian domestic aviation. Southwest and its European imitators have done everything the analyst community derided as impossible in recent history. They have survived, prospered, expanded, and enriched their employees with jobs and retirement benefits that endured, and were not stolen from them as was the case when some legacy carriers deliberately flew into Chapter 11 in order to keep sweeping the money into seriously overpaid and underperforming managements, and gutting their shareholders in the process.

Although hated by some unions and flying professionals, those carriers, which Tiger seeks to emulate, not only created stable jobs for aviation professionals, but facilitated the greatest mobilization of air travellers in the history of transport, transforming Australia, whether we are ready for this, or not.