Airlines go shopping for aircraft ahead of domestic and international ticket price war

A weekend report in The Age says that Australian air travellers are a step closer to a cut-price ticket bonanza after foreign airlines signed for up to $14 billion in new planes in the past few days at the Paris Air Show.

Big orders by airline operators such as Emirates, Tiger Airways, Fly Asian Express, Thai Airways and Etihad Airways will put pressure on Qantas as they all battle it out to get passengers into their new 525-seat super jumbos and smaller planes, with the biggest challenge is likely to come from Emirates, which is ramping up its already fast-growing Australian operations.

The Dubai-based airline, which recently received permission to increase its flights into Australia from 49 to 84 a week, has signed up in the past few days for another eight of the Airbus A380 super jumbos, making for 55 planes on the order books.

Other orders for new aircraft that will combine to increase pressure to cut ticket prices include orders from Tiger Airways, which ordered 30 Airbus 320s with an option for another 20 planes; Fly Asian Express, a budget airline operating out of Malaysia, which ordered 15 Airbuses; Thai Airlines, which ordered eight planes; and Etihad, which signed up for 12.

Flight Centre’s Haydn Long said the planned increased number of flights and new carriers in the market meant consumers would be the big winners, saying, “Generally the new carrier will want to make itself known and comes out with some really good offers, and the established carriers obviously want to compete very actively, and they tend to come out with offers of their own”.

“They’re bigger planes, there’s more seats on them, they’re more comfortable and people can expect some pretty good deals.”

Qantas will face increased competition on local and international routes, with Singapore Airlines-backed Tiger Airways, having just signed a $3.1 billion deal for 50 planes, with five operating on domestic routes before the end of the year.

Offering dirt cheap fares in direct competition with Qantas’ Jetstar, Tiger will ramp up the number of flights on domestic routes and in the longer term offer cheap fares on international routes.

But the rash of new plane orders and the likelihood of cut-price fares over the next few years is not affecting Qantas’ share price at this stage, with Qantas shares closing on Friday, down nine cents to $5.70, just 14 cents below their $5.84 record high.

JPMorgan transport analyst Matt Crowe said: “Qantas has been dealing with not just Emirates but other carriers who are eyeing off their market. It does present challenges for them; they’re not new, but they are challenges.”

On the cheaper ticket front, he said, “whenever there’s been larger and new aircraft it tends to mean lower prices for consumers.”  “That was the case for 747s, and I imagine it will be the case for the A380 super jumbos.”

“Initially you might not see massive reductions, but once everyone’s got the A380s, and also the Boeing 787s that Qantas is buying, I think you’ll find that the forces of competition will see some lower prices for consumers.”

The other beneficiaries of more planes are pilots, with one local pilot saying “Emirates has apparently identified that between now and 2015 they will need something like 3000 or 4000 pilots.”

“With a world shortage, which will only get worse, it will all get down to the highest bidder.”  “So the people with the money to throw at it will attract the pilots.” But he said poaching was not one of Qantas’ worries.”

“Qantas pilots get paid so much over the money of everyone else.”  “A Qantas 737 captain conservatively earns $80,000 more than a Virgin 737 captain, hence Qantas are trying to disperse their interests into Jetstar, so they can reduce their cost base, which is very high.”

“Qantas pilots would need a very, very good reason to go somewhere else.”

Report by The Mole and The Age