Qantas Fare Increase - 28 July 2010

[medhead]

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.

So now you're confusing me because you only just wrote that it is impossible to state whether any particular seat is profitable or not.

The claim has been made that expensive fares subsidise cheap fares and the basis for determining that is how qantas set their fares.Sure you can say that qantas won't sell a plane load of cheap fares - we know that, based on our experience of buying tickets. There is no way to claim that a plane won't fly without expensive tickets being sold because qantas never sell only cheap seats. Then we have the example you gave of 1 J and 1 Y pax. That plane flew.

My contention is that in the example given there will be no fares lower than $200.

 

[AnonymousCoward]

Then we have the example you gave of 1 J and 1 Y pax. That plane flew.

If that plane regularly flew with 2 passengers, I'm pretty sure that the flight would be cancelled.

The plane probably flew because QF schedules require that plane to be somewhere else later on (or early the next morning). But if it were regularly flying with two passengers, then the schedule would (eventually) be changed.

 

[Happy Trails]

There are lots of LCCs selling only "cheap" seats, and making a profit.

There are many carriers offering a mix of premium and cheap, and making a profit (plenty making losses too).

There are close to zero airlines offering an all-premium product - several have tried and failed.

Draw your own conclusions

 

[oz_mark]

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).

I disagree. WHat makes a flight maximise its profit is having the ratio of fares correct. If you sell only high price fares, you will be flying around with a lot of empty seats. Sell them at low prices and then you will fill the plane, but not maximise your profit. Yield management is all about getting the mix of fare levels correct to maximise the revenue on a flight.

For an airline such as Qantas, both high yield fares and low yield fares are important from a revenue maximisation point of view.

 

[AnonymousCoward]

For an airline such as Qantas, both high yield fares and low yield fares are important from a revenue maximisation point of view.

Of course it's important for a revenue maximisation PoV. The cheap fares are the "icing on the cake".

But QF isn't a LCC. If people aren't paying for the expensive fares, then the route ends up being served by Jetstar, which has a model for flying where people aren't paying expensive fares. QF doesn't.

 

[straitman]

There are lots of LCCs selling only "cheap" seats, and making a profit.

There are many carriers offering a mix of premium and cheap, and making a profit (plenty making losses too).

There are close to zero airlines offering an all-premium product - several have tried and failed.

Draw your own conclusions

A very simple explanation that is basically correct.

 

[straitman]

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.




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.

This is closer to reality than you might imagine.

On any given trip the 'Yield Management' gurus know what percentage of seats are filled and therefore base the seating cost around that. Using your example of an aircraft with 100 seats with an operating cost of $10,000. Yield management knows that the 1800 flight from A - B has on average 80% loading (80 seats). They therefore know that they need to average $125 per seat to break even.

They also know that on average that there will be 2 J seats sold at $1,000 and 4 J seats at $500each, 8 Y seats sold at $250 each, 10 Y seats at $200.

Let's then start at the other end of the scale. If they then offer and sell 20 seats at $75 each that will be snapped up by people from AFF (or similar).

We now have 50 seats sold for $9,950 which is almost what is required to break even.

Another 20 seats at $125 that will be sold to people who missed the $100 price etc. and that only leaves 16 of 80 at the in between prices.

Which ever way you look at it there can be (and are) seats sold at below the average required for a break even situation. Are they the icing or part of the big picture :?: It depends upon your perspective but does it really matter :?: NO it does not :!:

In addition to this the gurus will play with and adjust fares as required to make it all work. If they cannot make it all work they very quickly drop the route (just like TT does) and move on to something or somewhere else.

... and that's how it works folks.

 

[Freqy Flyer]

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

Yep, Fred you are wandering. Hardly fair to any airline (let alone QF) to make a price comparison between a sale fare and a year round fare (even though they are booked into the same class and same fare basis)!

 

[wandering_fred]

Wandering or not - if the sale fares never re-appear - and I haven't seen them recently - that is just as much (or perhaps a lot more than) of a price increase than an announced 3% on the year round fares.

I also think E class fares were much less obviously available a year ago. While I would not have booked one, I don't remember seeing them when I did book, ie the O class was the cheapest available.

Price increases have to be compared with what you can actually book rather than what the airline wishes you to think is their lowest base fare. So you compare cheapest and cheapest and the difference is still about 15%. Same class and the difference is 40%.:evil:

Qantas depends heavily on their customers having very short memories.
AFF needs to help insure that people remember:shock:

Fred

 

[oz_mark]

Wandering or not - if the sale fares never re-appear - and I haven't seen them recently - that is just as much (or perhaps a lot more than) of a price increase than an announced 3% on the year round fares.

PER-MEL was on sale about 10 days ago for $219 in the Wave Goodbye to Winter sale.

 

[NM]

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.

Perhaps Qantas' costs have also been going up in a similar manner?

While I am not in any way suggesting a 3% rise us trivial or not noticed, I fully understand and expect that from time to time companies like Qantas need to review their pricing schedules and adjust according to circumstances such as variations in their own costs and the economy.

I think an across-the-board increase is quite fair and equitable for all involved, whether their airfares are corporately or personally funded.

 

[Flashback]

Perhaps Qantas' costs have also been going up in a similar manner?

While I am not in any way suggesting a 3% rise us trivial or not noticed, I fully understand and expect that from time to time companies like Qantas need to review their pricing schedules and adjust according to circumstances such as variations in their own costs and the economy.

I think an across-the-board increase is quite fair and equitable for all involved, whether their airfares are corporately or personally funded.

My main gripe is that it seems to occur multiple times a year (or feels that way, anyway!). Fair enough if moving with the CPI, but once a year at most..

 

[NM]

My main gripe is that it seems to occur multiple times a year (or feels that way, anyway!). Fair enough if moving with the CPI, but once a year at most..

When was the last across-the-board fare review from Qantas?

 

[Freqy Flyer]

When was the last across-the-board fare review from Qantas?

I got the following back in late August 2009 ...

Qantas and QantasLink Domestic Fare Increases

As a valued partner, I am writing to advise you of increases to Qantas domestic economy and business class fares effective for sale and travel on or after 3 September 2009.

Economy and Business Class fares will increase by an average of 2% across the Qantas Domestic network.

In addition, QantasLink fares will increase across the majority of routes for sale and travel on or after 3 September 2009. The fare increase varies across fare types and markets, for full details check fare displays.

Qantas regularly reviews network price points taking into account market and business performance. Our Business, Fully Flexible and Flex Saver base fares have not increased on most markets in over twelve months.

All existing bookings must be ticketed on or before 2 September 2009 otherwise the increased fares will apply.

Can't seem to find the last one about International but I think this was the last one for Domestic.

An 11 month gap is pretty reasonable to me.

 

[NM]

I got the following back in late August 2009 ...
...
An 11 month gap is pretty reasonable to me.

Seems acceptable to me too. Just wish my salary was reviewed and increased with the same regularity and consistency :-|