Qantas Airways and Air New Zealand (ANZ) have each launched discount units, with Australian Airlines taking to the air and ANZ rebranding its domestic services as "Express Class".
Australian Airlines, the new Qantas subsidiary, has started flights from Cairns, the gateway to Australia's Great Barrier Reef, to Osaka and Nagoya in Japan. Further routes from Cairns to Fukuoka, Singapore, Taipei, and Hong Kong will follow.
At the same time, ANZ rebranded its domestic flights as "Express Class" after scrapping business class, in-flight meals, alcoholic drinks, and travel agent commission, while encouraging passengers to book more flights on-line.
Both these units accelerate a move pioneered last decade when ANZ created Freedom Air, a discount subsidiary. Two years ago Virgin Blue introduced discount service in Australia and the carrier is now planning to expand it within the region.
Neither Australian Airlines nor ANZ's Express Class fully copy the original discount model of Southwest Airlines, but they do show a growing move towards lower-cost units responding to specific needs.
For instance, Qantas concluded long ago that it could not afford to fly three-class Boeing 747s on predominately leisure routes. For such markets it created Australian Airlines to offer all-economy Boeing 767-300s. Its first routes are aimed at inbound tourists, but if they succeed, Australian will add outbound tourist destinations such as Hawaii and Greece.
"Demand has never been a problem in these markets," says Denis Adams, Australian's chief executive. "The problem has been getting the yield."
Australian shuns the no-frills label, but it has simplified processes and in-flight services, and pared overheads to the bone. It is outsourcing maintenance to Qantas. Australian's aim is to keep costs 25-30% below those of its parent. Adams stresses: "The key to our survival is costs."
In contrast to Australian, which is driven by a Qantas desire to expand its overseas presence, ANZ's Express Class is a defensive move. Express Class is part of ANZ's restructuring after last year's brush with bankruptcy. Faced with the prospect of low-fare domestic competition from Qantas, Virgin Blue, and a potential startup called Jump Airlines, ANZ created Express Class as a way to cut costs, lower fares, and discourage potential rivals.
ANZ's alternative strategy is an equity alliance with Qantas. But Qantas-ANZ talks have dragged on so long both sides agree they must either resolve their differences before year-end or call it off.
DAVID KNIBB BRISBANE
Source: Airline Business
