Bull market for competitive airfares? - Macleans.ca

Bull market for competitive airfares?

Rock bottom pricing may be over, but competition keeps fares in check

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Take off eh.comFear and greed. Sounds like the financial markets doesn’t it? In fact, this mantra could just as easily be applied to the workings and philosophies of many of the world’s scheduled airlines. The good news is, their short-term, reactionary business styles also help fuel healthy competition for the consumer.

We may have just witnessed the best airfare bargains of the century. They are not likely to be repeated any time soon, as they were brought on by a combination of the worst financial meltdown since the Great Depression and a dose of the swine flu. A deadly cocktail for the airlines and one that precipitated “fire sales” rather than the usual “seat sale” fare.

Although rock bottom fares are not likely to come back, consumers should take heart because competition will keep a lid on prices — even as some airlines attempt to reduce competition by taking capacity out of the market. These fear tactics – lowering prices and reducing supply – shift dramatically as soon as the economy begins to improve. Airlines then quickly put aircraft back into service to stop a competitor from filling the gap. This is known as the greed mode. Many carriers even start ordering new aircraft at such times. All of this quickly results in too much capacity being put back into the market and a downward pressure on prices.

During the past couple of decades, scheduled airlines have concentrated strictly on price and eliminated many of the onboard services we were accustomed to. Their rationale was to take on the low cost carriers, but, in dumbing down their product, they have inadvertently turned themselves into a commodity. As with any commodity, the only point of difference is price. It is now hard to tell a “low cost carrier” from a so-called “legacy carrier”, and consumers naturally veer towards the cheapest. The internet has speeded up the process by making it very easy to comparison shop – which in turn, helps keep fare increases in check.

Fueling the troubles of the traditional scheduled carriers is a seismic shift in the pecking order of the world’s airlines. Airlines such as Emirates, Jet Airways, Etihad, Qatar, Singapore and Cathay Pacific etc. were either unknown or much smaller players a few years ago. Not only are these airlines price competitive, they offer a service level which differentiates them from the rest. Their order books for new aircraft are staggering and they are happy to fill and exceed the voids left by some of their old competitors.

The next decade will see the emergence of even more competition as the developing markets of China, India, Russia and Brazil spawn even more airlines. With their rising wealth and demographic power, they haven’t even scratched the surface yet.

For those of you who fear the ‘cheap fare’ boat has sailed, you should not worry. You may have missed the bottom of the “fire sales”, but the long term trend would suggest we are in a bull market for highly competitive air fares. This should not end any time soon.

Photo Credit: egdigital

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