- Virgin Australia went into voluntary administration on Tuesday, raising the small but real possibility of a Qantas monopoly.
- David Beirman, a senior lecturer in tourism at the University of Technology Sydney, told Business Insider Australia that with a monopoly, “it’s inevitable that fares are going to go up.”
- Beirman added that if Virgin leaves, it removes three brands from Australia – Virgin, Tigerair and Skywest Airlines.
- Visit Business Insider Australia’s homepage for more stories.
Virgin Australia went into voluntary administration on Tuesday, but what could happen to airfares if it leaves the airline industry completely?
David Beirman, senior lecturer in tourism and in the Management Discipline Group at the University of Technology Sydney Business School, emphasised that it is not at all certain Virgin will cease to exist altogether, as there are “various white knights” looking to rescue the airline.
Virgin’s administrator Deloitte said there has already been interest from companies looking to finance the airline. “We have commenced a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far,” administrator Vaughan Strawbridge said in a statement.
Beirman said most people in the travel industry would hope Virgin can somehow be saved because it would result in the loss of three brands. He said Australia would be losing three brands in total, including Virgin, Tigerair and possibly Skywest, a regional carrier mainly operating in Western Australia that Virgin acquired in 2013.
How Virgin Group’s exit could affect airfares
Beirman explained that if Virgin ceases, Australia will be left with a Qantas monopoly and that would spell bad news for domestic airfares.
“If Virgin goes and Qantas takes on a monopoly situation, I think it’s inevitable that fares are going to go up,” he said. “By how much I really don’t know.”
He added that it would be “very bad news” for domestic airfares as competition “has made such an enormous difference to airfares.”
Beirman recalled the time when Australia had a two-airline system up until 1993, which included the now ceased Ansett and Trans-Australia Airlines which was later acquired by Qantas. “When you had a two airline system, basically everybody was charging the same fares,” he said. But when the government stopped owning Qantas in 1993, Beirman said things started to get a lot more competitive. When Virgin entered the market in 2000, it “was a really big game-changer.”
“There was some genuine competition that was going on in the skies,” he said. “There was a lot of airfare discounting.”
Beirman explained that back during the 1980s, airfares between Perth and Australia’s eastern states were fairly expensive.
“When I started as a travel consultant in 1981 selling domestic cases, your average fare to Perth was $1,000 return,” he said. “In more recent times up until coronavirus, you could find in the marketplace return fares between Sydney and Perth for about $300. So having that competition was a huge game-changer.”
Australia relies heavily on the travel industry
Beirman highlighted that Australia still has a very high dependence on aviation to get us between major cities.
“You look at the fact that Sydney-Melbourne is the fourth most travelled destination pairing in the world and I think Sydney-Brisbane is about the eighth or ninth, so aviation is really important to us,” he said.
And as a result, Beirman said from a consumer and a business point of view, “you want to have that domestic airspace as competitive as possible.”
But if Virgin is able to survive and get some financing, Beirman pointed out another issue for cheaper airlines during the coronavirus pandemic. The concept of “cramming” people on a flight “which has been the classic model of low cost carriers.”
“The market is going to be very wary about being crammed in like sardines,” Beirman said. “We’ve got used to this concept of social distance and social distance is going to be a difficult concept to spring.
“And obviously, if people are going to need more space when they’re travelling, that means that there’ll be less seats, which means that fares are going to be high.”
But if Qantas retains a monopoly, it means they could just set the airfares. “What they might try and do as a trade off is perhaps reconfigure the economy section so that there is actually a bit more space between people,” Beirman said.
“It’s a really brave new world that we’re facing.”
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