Fares fall again in domestic price war

By BINA BROWN

Just when they thought airfares couldn't get any lower in Australia, some lucky travellers are winging their way from Sydney to Brisbane for less than it costs to fill up the car.

Fledgling carrier Impulse Airlines has sparked a new round of limited cut-price airfares by offering $A39 ($47) one-way Sydney-Brisbane.

This was quickly matched by newcomer Virgin Blue and Qantas.

Virgin and Impulse run virtual shuttle services between the main ports of Sydney-Melbourne and Sydney-Brisbane, filling only previously unsold seats with people paying the low-priced fares.

Firmly focused on bedding down with Air New Zealand, the loss-making Ansett Australia has stayed well clear of the latest price war, saying it is driven by quality service, not price competition.

After all, it is not too far off the mark with its $66 one-way Sydney-Melbourne fares, which have been well received among a population used to paying $300-plus for the same flight.

Centre for Asia Pacific Aviation managing director Peter Harbison says that although it is still early days, the arrival of Impulse and Virgin Blue is the best thing that has happened to the Australian public in aviation.

The catch with these low-cost flights is that they are available only in very small numbers, on limited flights and by booking online.

Although Qantas and Ansett still clearly dominate the Australian skies, there is no doubt they are feeling the effects of what is, to some extent, an extremely well-orchestrated publicity stunt by the two newcomers.

There are not that many rock bottom prices, but the perception is now set that fares can and should be cheaper on the country's most profitable routes - Sydney-Melbourne, Sydney-Brisbane - which has created some real competition.

Both major airlines could consistently match the low fares and probably go lower - by filling their unsold seats for the same price or even lower, but to do so would be virtual suicide.

Instead of there being three or four seats a day at rock bottom prices, as is now the case on the Impulse flight from Sydney to Brisbane, if Qantas and Ansett did the same thing there would be hundreds of seats - a move which would not only backfire on major airlines but probably incur the wrath of the competition watchdog.

Determined to break the airline duopoly, which Australians almost took for granted after the collapse of Compass in the early 1990s, Impulse's strategy was always to offer lower fares and increase capacity on the main routes.

"It's designed to give travellers a fair go and stretch their travel budget further," says Impulse executive chairman Gerry McGowan. Impulse operates eight jets on the main routes plus a regional fleet.

Its strategy has certainly worked - domestic air travel has jumped about 25 per cent in the past 12 months.

The extra services between Melbourne and Sydney enticed almost 625,000 more passengers last year, making it the world's third-busiest domestic route.

Richard Branson's Virgin Blue is going for low fares and increased capacity, recently announcing it would add four extra Next Generation Boeing 737s to its fleet of six aircraft. It also has a long-standing order for 10 737-700 series jets.

Having shaken up fares on the main routes on the east coast, Virgin has recently raised the stakes with Sydney-Adelaide flights.

The new 737-800s are expected to be fitted with more comfortable seats suited for long-haul routes such as Sydney-Perth, at present serviced only by Ansett and Qantas.

But Michael Heffernan, an analyst with stockbroker Dickson Ltd, says smaller carriers such as Impulse and Virgin could find themselves overstretched by introducing new aircraft and lifting capacity on comparatively unprofitable routes.