Future of flying in coronavirus Australia is all domestic, as Qantas, Virgin and Rex look local
This is how bad it has become.
Just days before announcing a $2 billion loss last week, Qantas announced it was selling off one of its most prized assets.
It wasn’t one of its planes or its frequent flyer program.
Sets of the famous Qantas business-class pyjamas — the stars of many Instagram posts — were being sold off for $25 a pop.
After almost six months without flying, Qantas’s stockpile of “business class amenity kits”, which include Tim Tams and travel-size skincare products, had grown too big. It needed to offload.
It is no surprise.
Today, for those able and willing to fly, domestic routes are king and business class is a thing of the past.
The airline’s most popular route is Brisbane to Cairns, with its pre-pandemic number one route, Sydney to Melbourne, on some days is down to one direct flight a day.
But with COVID-19 case numbers beginning to stabilise in New South Wales and gradually declining in Victoria — and amid continued discussion over the eventual lifting of domestic border closures following the Qantas chief’s stinging comments last week — air travellers are starting to dream again.
And according to analysts — just like COVID-19 — it is all about “testing, testing, testing”.
Peter Harbison, airline analyst and executive chairman of CAPA — Centre for Aviation, said as restrictions began to ease, airlines would start experimenting.
“In the US they are publishing routes that aren’t actually operational to test market demand,” he said.
“They’ll publish 20 flights online and see how they go and pull the ones that don’t work.
“We saw this in Australia before the latest restrictions and we’ll see it again.”
He said this would be squarely focused on the domestic market where “losing a little bit of money” on selected flights would not be as severe, compared to international flights which were still an unknown entity.
However he said the days of “dynamic testing”, which saw airlines offer massive discounts based on consumer demand and algorithm-based pricing structures, were long gone.
So, what about price?
Some analysts are predicting “normal prices” in a post-restriction Australia, with the decimated airline industry attempting to rake back as much revenue as it can.
It is a forecast backed up by IBISWorld senior industry analyst Tom Youl.
He said it was unlikely there would be discounts in the short term.
“Qantas’s strategy in part of their announcements [last week] was that they’re not going to chase aggressive expansion in terms of the numbers of flights and seats available,” he said.
“And so what this means for consumers is there’s likely to be what we might call ‘normally priced flights’, and we’re not likely to see any heavy discounting or cheap flights that Australians have become accustomed to.
“Airfares are likely to remain in that moderate to high price range in the next 12 to 18 months.”
But he said airlines would try to entice consumers back by keeping prices affordable.
“There is still going to be some hesitancy on the part of consumers [to fly] and you have to get the early adopters in,” he said.
“There’s not a lot of room to have high prices while things are still normalising, and of course we still have factors like unemployment will peak around 10 per cent … so demand will be softer than normal.”
Strategic Aviation Solutions chairman Neil Hansford agreed.
“You have two things working against you,” he said.
“One, people going to be scared to travel. Two, peoples’ salaries have had the living daylights beaten out of them — and there won’t be the cheap destinations to go to.”
Mr Hansford said airlines still needed to get high levels of capacity on flights in order to maintain viability.
“There is a lot of pent up demand out there,” he said.
“But it still comes down to simple economics. Jetstar, for example, needs to get about 90 per cent of the plane full to make the bacon and keep the current fares.
“While Qantas, being more class based, is a little more than that. The airlines will be experimenting.”
Mr Youl said it was likely Qantas would try to have full planes and fly on the most profitable routes as it gradually built up from its current capacity of about 20 per cent.
“So Melbourne-Sydney, Sydney-Brisbane and Melbourne-Brisbane, that triangle is extremely profitable for domestic airlines,” he said.
“Assuming that cases are relatively contained, that will be the early focus for Qantas and, to a lesser extent, Virgin.
“Just getting capacity and the number of seats available to meet demand in the short term, Qantas has suggested this will be their strategy.”
Before Victoria’s second wave, industry analysts were modelling a return to 60 per cent of the domestic market by the end of the year.
Today it is predicted at about 40 per cent.
What about the regions?
Regional-focused airline Rex, which has been the beneficiary of multiple federal government assistance packages, is predicted by many analysts to swoop in on Virgin’s rebuild and announce increased routes in the coming weeks and months.
Mr Youl said regional customers could end up seeing more services as Australians turned to domestic tourism.
“Australians want to travel — [those] who are fortunate enough to still be employed and have a decent income coming through the door,” he said.
“There is a good incentive for airlines, and this includes REX as well, to reopen flight routes between capital cities and regional Australia to allow Australians to robustly travel while we’re not able to travel overseas.
“There might be some short-term jostling, but there is a potential for an increased frequency of regional services in the mid term, early 2021. That’s certainly a possibility.”
Mr Hansford said international flights were another story.
He predicted a Pacific bubble would emerge early next year, while countries with more developed health systems might announce individual travel bubbles mid next year.
“But one thing’s for sure, we’re not going to have the $1,200 Sydney to London flights that were being offered,” he said.
Mr Harbison said it was likely airlines would continue losing money.
“That’ll happen for quite some time,” he said. “But there is still so much uncertainty.”
“It’s all up in the air while we’re down on the ground”.