Qantas Fare Increase - 28 July 2010

[Smackbum]

I also have wants, I want to own a BMW X5 3.0D SE - but i can't afford it (mortgages, kids etc take higher priority). That particular model has also gone up in price lately. Do i complain about it? No! - i drive a cheaper vehicle.

I see travel as a want for most of the population ie it's not going to kill you if you don't travel or can't afford to travel on Qantas. I can't understand why there are complaints about a want. It's like a two year old having a tantrum about wanting a lolly.

That's the point. You can't afford an X5 so you drive a cheaper model. There are probably about 20 different cars of the same ilk (if you go right down to the "soft-roaders") that you can buy. There is healthy competition in the car industry and choices abound.

Unfortunately the same can't be said of Airline travel. There are 2 serious options locally, and by cunning use of rewards schemes and other privileges they both encourage loyalty to their particular brand. This then often steers you down the same path internationally, so even where there is theoretically more flexibility, the reality is that slavish adherence to the chosen one is the norm. This is why tobacco companies spend zillions on packaging.

Is this our own fault? Partly -yes. Will abuse of their market share have a detrimental outcome for Qantas? Possibly. Will I ditch them (and my Gold status) to make a point. Unlikely. But I am shat off with the new price of my lolly so I needed to vent.

 

[trippin_the_rift]

Yesterday I paid $1.50 for a 600ml bottle of water.
Today I paid $3.20 for the exact same brand.

Did I complain about a 110% price increase?

Airline travel always has and always will be about what it's worth to you. Price is almost always irrelevant and 3% is not noticable to anyone except those on E class tickets.

 

[AnonymousCoward]

Sorry to inform but Jetstar and Tiger are not realistic alternatives and Virgin Blue is still very amateurish. I have had 5 flights with them in the last 2 weeks and my impression has not changed.

Why do people love putting down the self funded traveller?

Not meaning to offend but that statement is absolute rubbish and comes across as a DYKWIA attitude from someone who has no idea what it is like to earn a living far away from home and having to cover all their costss. Just think that the people purchasing the cheap airfares are keeping the aircraft schedules the way they are today. Have only flexible and business class airfares and then see how many travel.

OK - I earn a living away from home (4000 miles away), and I pay for my own flights to/from Sydney to Singapore.

Does that qualify me to say that I disagree with your statements? 3% is a negligble increase - QANTAS is probably just passing on their own input cost increases.

Previous poster is correct - the people flying expensive fares subsidise that don't. Without the expensive fares (or cargo), there would be no QF flights at all.

 

[JohnK]

I'm sympathetic that you need to travel to put a roof over your head and you cover the costs of travel.

I don't mean to be rude and probably misunderstood the tone of your post but there are people who come on these type of threads and put down the people hit hardest with airfare increases.

These same people do not purchase their own airfares, construct complex DONE4's for company travel (maximised for SCs earning but sold to the company as a cheaper alternative) and could not care less how much the company pays for their airfares, accommodation or meals.

When I did travel for work from 2003-2005 it was economy all the way with the expectation that I would work the next morning and stay in mid-range hotels with a limited budget for food.

Luckily I have a roof over my head but I need to pay the bills (and I am barely scraping throigh) I am forced to work in a foreign city due to the lack of jobs for people with my skill base in my home city.

My rent has just gone up $10/week, airfares are now being raised $6/week, food is more expensive, going out is more expensive, my water rates are more expensive, my council rates are more expensive. Just as well I do not have a family and kids otherwise I would struggle to support them.

I am not looking for sympathy but I find it hard to justify the latest airfare increases by Qantas.

 

[JohnK]

OK - I earn a living away from home (4000 miles away), and I pay for my own flights to/from Sydney to Singapore.

Does that qualify me to say that I disagree with your statements? 3% is a negligble increase - QANTAS is probably just passing on their own input cost increases.

Yes you are allowed to disagree but more than likely your airfares (if purchased in Singapore) are not likely to increase.

Also just because you disagree with my point of view does not make you right and me wrong the same as my point of view does not make me right and you wrong.

Previous poster is correct - the people flying expensive fares subsidise that don't. Without the expensive fares (or cargo), there would be no QF flights at all.

We have been through this argument many times.

Let's take away all people purchasing the red e-deals and generally cheap airfares from the flights. Do you actually think if Qantas did away with the $65, $69, $75, $79, $85, $89 $98 red e-deals SYD-BNE that people would spend $200+ each way every week? I believe the majority of people buying these type of airfares would look for alternatives and not travel as often. For me at those prices perhaps once a month would be more than I could handle.

My guess is Qantas would struggle to justfiy having regular flights on SYD-MEL-BNE triangle with 30% capacity even though these people have paid for super saver airfares and above. So what happens to the schedules?

Every single person on that aircraft is just as important as the next and I am not buying your argument of people on red e-deals are a loss for Qantas while people on flexible airfares are making a huge profit.

In fact it is the other way around. If it was not for the people on red e-deals your "so-called" flexible airfares would be a lot more expensive.

 

[QF029]

put down the people hit hardest with airfare increases.

Dude, it's $3. If times are so tight, maybe cut down on the 'golfing' trips in Thailand.

 

[Flashback]

I love how companies will do things like this, pushing prices up, but then at the same time be telling their employees that a pay freeze is still in effect and there will be no increase in wages this year.......

 

[oz_mark]

I love how companies will do things like this, pushing prices up, but then at the same time be telling their employees that a pay freeze is still in effect and there will be no increase in wages this year.......

A pay freeze is better than being insulted with a tiny increase.

In the QF case, however, there are a number agreements in place with various groups to increase pay levels over time.

 

[Flashback]

A pay freeze is better than being insulted with a tiny increase.

In the QF case, however, there are a number agreements in place with various groups to increase pay levels over time.

Not when it's happened 2 years in a row, and at the same time they've been announcing record profits..

 

[wandering_fred]

I'm sorry I will take ALL of the 3% increases in my billings if my customers will use the math that Qantas uses.

O class fare Aug 2009 MEL-PER $205
O class fare Mar 2010 PER-MEL $215

E class fare Sep 2010 MEL-PER $245 - note credits only to QF program
O class fare Sep 2010 PER-MEL $299

An $85 increase on a $210 fare is a LOT more than 3% in my decimal system

But I'm known for wandering in strange directions

Fred

 

[anat0l]

We have been through this argument many times.

Let's take away all people purchasing the red e-deals and generally cheap airfares from the flights. Do you actually think if Qantas did away with the $65, $69, $75, $79, $85, $89 $98 red e-deals SYD-BNE that people would spend $200+ each way every week? I believe the majority of people buying these type of airfares would look for alternatives and not travel as often. For me at those prices perhaps once a month would be more than I could handle.

My guess is Qantas would struggle to justfiy having regular flights on SYD-MEL-BNE triangle with 30% capacity even though these people have paid for super saver airfares and above. So what happens to the schedules?

Every single person on that aircraft is just as important as the next and I am not buying your argument of people on red e-deals are a loss for Qantas while people on flexible airfares are making a huge profit.

In fact it is the other way around. If it was not for the people on red e-deals your "so-called" flexible airfares would be a lot more expensive.

The odd thing is that it wouldn't matter if airfares were markedly more expensive, because there will still be some people that will fly them. Sure, a lot of people will not, but airfares were very expensive (relative to today's costs) many years ago, and yet airlines still managed to get by without horrendous losses (admittedly without the same schedules). Since we've gone through an era now where we've seen much lower airfares than air travel of decades ago, it is only now that we are unlikely to believe that we will ever be seen to pay those kinds of airfares ever again and still have the same frequency of flights that we have today.

The fact that there are a range of fares available must mean that the airline is making more money from some fares (seats) than others (even if you take into account a suitable amount of financial "insurance"/"risk" for, say, allowing a customer to change or cancel their ticket on flexible fares). Whether a seat is actually priced at a loss (if the cost of flying a passenger can be calculated) is a whole different thing, but if it did happen that way then obviously the airline will still be looking to make sure that of all the fares paid across the aircraft, the seats which are priced for profit will make up for those at a loss. It's a similar principle for most businesses, i.e. having "loss leaders" to stimulate business or out of necessity.

I don't mean to be rude and probably misunderstood the tone of your post but there are people who come on these type of threads and put down the people hit hardest with airfare increases.

These same people do not purchase their own airfares, construct complex DONE4's for company travel (maximised for SCs earning but sold to the company as a cheaper alternative) and could not care less how much the company pays for their airfares, accommodation or meals.

I think you need to be careful here JohnK.

As much as it is not good for those to be inconsiderate of others who need to live on BFOD policies - either company or self funded - it is not fair to make a sweeping assumption of that sort for the converse demographic, because there does validly exist people who must (optimally) fly on flexible fares (and some of them are self-funded as well).

 

[medhead]

Additionally sale, red e-deals etc fares are subsidised by business and flexible fares bought by the corporate sector. So in fact they are covering part of your fare.

I would echo other comments. It is naive to think that qantas are selling any seat on an aircraft for less than the cost to fly the passenger. It is much more likely than flexible and business fares are subsidising Qantas' profit to a much greater extent than the ready deal fare.

(if the cost of flying a passenger can be calculated)

I'm sure qantas and other airlines think they can calculate the cost of flying a passenger.

 

[dajop]

I just do not understand.

OK if flying SYD-ARM, SYD-MRZ, MEL-DPO or other routes where there is no direct competition ... maybe grounds for complaint.

1) I don't accept that DJ, JQ, TT are not alternatives (except the sort of routes as described above). Tough luck if you can't afford QF. Many people can't afford cars or parking either, so catch public transport. Sometime majorly inconvenient, but they have to live with it, just like TT may be majorly inconvenient. Fact of life.

2) I don't buy the loyalty argument either. It's exactly why QF can do these sorts of the things - it is an important part of their business strategy - lock people in via loyalty programs and that gives you more pricing freedom. Very clever. If a 3% pushes you over the edge there are alternatives, paid lounges (priority pass) or one off access to DJ lounges, excess luggage charges if needed etc. If loyalty benefits are important you need then to pay the fare increases.

Whilst there is (and indeed there is) significant competition in the market place then I think it would be a complete waste of taxpayers trying to re-regulate QF pricing. Imagine if QF put up there fares 25% ... what would happen then? Should the government regulate that? I suspect no... demand would plummet and move across to DJ and the LCCs... ie market self regulates.

 

[medhead]

1) I don't accept that DJ, JQ, TT are not alternatives (except the sort of routes as described above). Tough luck if you can't afford QF. Many people can't afford cars or parking either, so catch public transport. Sometime majorly inconvenient, but they have to live with it, just like TT may be majorly inconvenient. Fact of life.

I think that these other airlines are viable alternatives is strongly dependant on the route. I'm self funded ADL-SYD commuter. There are an extremely limited number of flights on this route that suit my needs to be at work. In fly over on Monday morning and I can pick either QF or DJ at 6 am which is the best option. The next possible option is QF at 7am but that would get me to work at 1030, so a bit late. JQ and TT are just out due to poor times in relation to me doing a full days work in SYD.
On the return JQ is not an option with a 6 pm flight being too early to get from work to the airport, JQ the same. QF has a 625 pm flight, still a bit early but doable. QF also have an 845pm flight, this is what I have locked in. But it is a late night to get home. TT have the best option with a 730pm flight, which is really surprising. Nice that they have filled a hole in the other airline timetables. But I only locked in one of these flights for September to give it a run. This is due to the poor OTD reputation of TT, saving $50+ over qantas just doesn't make up for the potential delays. The difference in September is the savings is $120 and I'll be Platinum so delays can be in the QC.

 

[dajop]

There are an extremely limited number of flights on this route that suit my needs to be at work.

My point being that one could argue this regarding someone commuting from one suburb to another 10km away. This may involve a 20min car trip, or a 75 min odyssey via public transport involving connections through suburbs miles away. So parking prices, petrol, mechanics fees and car insurance go up 3% - should the government step in and stop that because the alternative are limited for this person?

 

[medhead]

My point being that one could argue this regarding someone commuting from one suburb to another 10km away. This may involve a 20min car trip, or a 75 min odyssey via public transport involving connections through suburbs miles away. So parking prices, petrol, mechanics fees and car insurance go up 3% - should the government step in and stop that because the alternative are limited for this person?

No of course not. I do realise there has been some suggestion of government intervention. But surely the answer is you travel 75 mins earlier. And similar for my flying commute I travel late going home and if there was no flight in Monday then I'd have to travel Sunday. Or I could drive lol

Edit:that is of course the government shouldn't step in

 

[AnonymousCoward]

I would echo other comments. It is naive to think that qantas are selling any seat on an aircraft for less than the cost to fly the passenger. It is much more likely than flexible and business fares are subsidising Qantas' profit to a much greater extent than the ready deal fare.

Given that a flight has a fixed cost, and a variable cost, it's impossible to state for a certainty whether any single seat is profitable or not, without knowing the total number of seats sold and what price points that they're sold at.

However, there's a number of articles, TV shows etc. that show that cheap seats are marginal at best. Since the plane has to fly anyway, it's better to have $10 than nothing. However, without the $x000 being made off the full fare and business/first passengers, the plane wouldn't fly at all.

If only a single $100 SYD-MEL ticket was sold for a flight, I strongly doubt QANTAS would make a profit on that seat. (Actually I was once on the last 737 flight from CBR-SYD. I was in J, and there was one passenger in Y. I doubt QF made a profit from us on that flight )

 

[AnonymousCoward]

I don't mean to be rude and probably misunderstood the tone of your post but there are people who come on these type of threads and put down the people hit hardest with airfare increases.

QANTAS isn't some charity. They are a business, and have shareholders who own the company. They shouldn't have to worry about every single person who might fly them and their personal circumstances.

Now, if QANTAS were a government sanctioned monopoly, then we'd have some government regulation forcing a universal service obligation. But there is competition, and perhaps you should give some of your dollars to the competition, so that it ends up being more viable to fly on alternate carriers.

My rent has just gone up $10/week, airfares are now being raised $6/week, food is more expensive, going out is more expensive, my water rates are more expensive, my council rates are more expensive. Just as well I do not have a family and kids otherwise I would struggle to support them.

I am not looking for sympathy but I find it hard to justify the latest airfare increases by Qantas.

It's 3%.

Inflation is that much. Rising prices are a fact of life (if you want to see what happens when prices fall, just go live in Japan for a few years, and see what sort of creeping malaise that causes).

If a 3% increase in my expenses was going to cause me that much hardship, then I would reconsider my work/spending/living arrangements. I'm not trying to tell you how to live your life, but if were me, I'd be thinking I'm pretty close to the financial edge, without much margin. And so it's time to do a bit of a fundamental rethink. Maybe I'd relocate to Brisbane, even if that meant giving up much of my flying and WP.

 

[medhead]

Given that a flight has a fixed cost, and a variable cost, it's impossible to state for a certainty whether any single seat is profitable or not, without knowing the total number of seats sold and what price points that they're sold at.

However, there's a number of articles, TV shows etc. that show that cheap seats are marginal at best. Since the plane has to fly anyway, it's better to have $10 than nothing. However, without the $x000 being made off the full fare and business/first passengers, the plane wouldn't fly at all.

If only a single $100 SYD-MEL ticket was sold for a flight, I strongly doubt QANTAS would make a profit on that seat. (Actually I was once on the last 737 flight from CBR-SYD. I was in J, and there was one passenger in Y. I doubt QF made a profit from us on that flight )

I think your first paragraph says it all. There is no way to say if a particular fare is profitable or not. That works both ways - it is impossible to claim that flexi and J fares are subsidising ready fares.

My view is that Qantas set fare prices based on their extensive database of sales information and yeild management information. I do not accept that they set their prices at a loss making level. Sure it may turn out that they do make a loss in some examples, but I don't believe they set out to make a loss when they set fares.

 

[AnonymousCoward]

I think your first paragraph says it all. There is no way to say if a particular fare is profitable or not. That works both ways - it is impossible to claim that flexi and J fares are subsidising ready fares.

Of course you can.

Fixed Cost: $10000
Variable Cost per pax: $100
Number of seats: 100

If QF only sells 100 x $120 fares, then each seat is at least meeting the marginal cost per passenger. But the plane will make an overall loss.

However, if QF can sell 50 $300 fares, and 50 $120 fares then the flight is profitable. Perhaps "subsidising" is not the correct word, since it's impossible to divide the fixed cost across pax until the number of pax is known. However without the expensive tickets being sold, the plane isn't going to fly.

My view is that Qantas set fare prices based on their extensive database of sales information and yeild management information. I do not accept that they set their prices at a loss making level. Sure it may turn out that they do make a loss in some examples, but I don't believe they set out to make a loss when they set fares.

No one sets out to make a loss I agree with you there. I doubt QANTAS prices any fares below the *marginal cost* of providing that seat. That's just a recipe for disaster.

The question becomes, out of the "profit" (marginal revenue-marginal cost) made on that seat, what is the contribution to the fixed cost of flying the plane. Are the cheap seats contributing a fair share? Obviously not. A $300 ticket is going to contribute a vast amount more than a $100 ticket (at least $200 more, given that the marginal cost is some value less than $100).

Selling more tickets cheaply rather than letting those seats fly empty is "icing on the cake". But the plane isn't going to fly in the first place unless the flight is profitable in the first place. And selling expensive flexible fares (or premium cabin fares) are what makes the plane profitable (leaving aside the cargo rev for the time being).

And we can see what happens when you only have people prepared to pay low prices to fly to a particular destination: QF finds it untenable to support that market, and Jetstar, with lower costs, takes over the route.