Low-cost airlines: Just child's play.
By Ian Jarrett ~ The Grumpy Traveller
Tuesday, 2nd August 2005
At school, simple arithmetic was never very simple for the Grumpy Traveller but even if he had a Masters degree in mathematics, he doubts he will ever understand the economics of low-cost carrier operations.

Budget carriers seem to have developed a model that flies in the face of all known business sense. In effect, the worse you perform and the tougher the competition, the more attractive you become to an outside investor.

In Singapore, Valuair and Qantas subsidiary JetstarAsia have each found the going tough in the challenging low-cost environment that has developed in the region. They are currently in the process of merging their operations – figuring perhaps that two minuses make a plus, as they did in my schooldays, as I recall. (Note to Ed: I may be wrong here, I only scored 10 per cent for maths).

Sir Richard Branson, as always, was first to catch on. He persuaded Singapore Airlines to cough up bags of cash for a substantial stake in Virgin Atlantic at a time when Sir Richard's carrier was going through a wobbly time. The deal was sealed in a ritzy London restaurant, when the CEO of Singapore Airlines said something along the lines that it was the best day of his life – which is perhaps why he is now the ex-CEO.

Branson recently found an investor for Virgin Blue, his low-cost operation in Australia that has been struggling to maintain momentum in the face of rocketing fuel prices and competition from Qantas low-cost offshoot, Jetstar. Stevedore Patrick Corporation stepped in with a container load of cash for a controlling stake in Virgin Blue.

Tony Fernandez, who once worked for the Virgin Group, and clearly learned business tactics from Sir Richard, heads Air Asia. As the competition has hotted up, and the price of fuel has continued to soar, Air Asia's response has been to intimidate rivals by ordering 100 Airbus A320s, costing billions.

Both India and China have launched low-cost airlines although reports from the UK suggest that setting up a budget carrier cannot be that difficult because at least one schoolboy in England in doing just that.

Working from a computer in his bedroom, the young man is planning an intra-Britain route for his start-up operation, thereby avoiding the need for international air traffic rights. His assets are probably just his computer, his PlayStation and maybe a mobile phone.

Such is the crazy world of low-cost carriers that Airbus salesmen are probably already on the TGV from Toulouse, heading for the boy's home with briefcases stuffed full of Airbus A380 literature. "Hey, young man, have we got a deal for you with the mega jumbo. Think of it, you can have 555 PlayStations – one with every seat."

If it's that easy, maybe I'll look at launching an all-business class low-cost carrier – Grumpy Airlines - flying disgruntled Qantas customers who get off-loaded onto Jetstar.

I'll offer plush leather seats with lots of legroom, plus a full meal and drinks service. And I'll concentrate on the high-volume Sydney-Melbourne route.

If only OzJet, due to launch in Australia in October, hadn't got there before me…

IAN JARRETT is based in Fremantle, Western Australia from where he travels frequently in Asia on assignments for travel magazines.

He is a member of the BamBoo Alliance, a group of leading travel writers in the region. He can be contacted at ianjarrett@mac.com
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