Friday, August 7, 2009

Just Pay the Freight......Please?

Air fares to Australia from the United States have traditionally been some of the highest in the world thanks to the nonstop duopoly that has existed in the market since Pan Am first ran the trip with the 747SP. Eliminating oh-dark-hundred red-eye fueling stops in Hawaii, Tahiti, Fiji or other such places was a premium folks were willing to pay and oh, how the airlines knew it. Until now.

Fact: For many reasons the global economy is dramatically down, business travel is both downgraded and down in general while discretionary travel feels virtually dried up.

Fact: Airlines “net” their revenues down to what’s left over after taxes and non-airline related surcharges and fees. Their argument is that the total fare is not what it seems.

Fact: Customers tend to look at the total outlay, regardless of who gets the money. Few are willing to pay extra to the airline just to match the government fees.

Oh, how the airlines know it. British Airways recently offered fares between New York and London for $156 each way which included nearly all government surcharges and also included two free nights in a central hotel. Competing airlines of course were forced to match the deal.

For its trouble British Airways got virtually nothing, paying out nearly every penny to the authorities and possibly on the hook to the hoteliers in to the bargain. Why? “The plane was going anyway,” meaning they won’t scrap underperforming flights that probably have other traffic booked already. They also hope to either break even or not lose as much as they could have and still secure repeat business in the future.

"Just pay the freight, please?" they beg. It's better to lose a shirt instead of the wardrobe. And flying to Australia now is literally a perfect storm disaster for the airlines and windfall for customers.

Stepped up competition to the South Pacific has certainly helped in addition to the sour economic outlook. If one doesn't mind going back to the good ol' days and stopping in Tahiti or Fiji, Air Tahiti Nui and Air Pacific, respectively, will happily pick up some extra sales. Otherwise, where there were once only two nonstop airlines, today Delta, Qantas, United, V-Australia and Air New Zealand all field nonstops to Australia or New Zealand. Each is absolutely begging for business with firesale rates to Down Under destinations. Since early this year Qantas, the way out in front leader in the marketplace, has had its hands full, changing its rates almost daily, swinging from $229 to $505 each way that I've seen so far.

The economy is in terrible shape. New competition is flooding the market with more seats than the market needs even in good times and some of those airlines (G'day, Qantas!) have massive new aircraft like the A380 to fill. These are the best of times....

Hotels, restaurants and car rental firms are of course equally in the basement. Two years ago roundtrip coach fares were approaching $2000, a total investment that today can easily cover the entire cost of the trip. My own ticket down and back, including Auckland, one domestic New Zealand leg and a flight across "The Ditch" to Sydney came in at barely half that. What?!

Gotta go!

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