LCC Model Won't Fly in Australia

Low cost carriers will not survive in Australia without enlisting additional sales support, the country’s leading travel agency group has predicted.

Flight Centre Limited managing director Graham Turner said LCCs that focussed solely on sales generated from their own websites would struggle to compete with the established domestic carriers.

Mr Turner said LCCs would be competing head to head with Qantas, Jetstar and Virgin Blue, all of whom had stronger brand presences and stronger sales networks, built around Australia’s travel agency sector and online sales channels.

He said LCCs would need deep pockets as they attempted to market their brands, attract customers and develop a sustainable business, while ignoring the benefits the country’s comprehensive agency network could deliver.

“The Australian market is relatively small and is dominated by three well known airlines who all work with travel agents to grow their business,” Mr Turner said.

“New carriers will struggle to gain a significant foothold in this environment if they ignore the billions of dollars in sales travel agents generate in Australia each year.

“Deep pockets will be needed, as we are seeing now with Tiger.

“In addition to normal airline-related expenses, costs will include:

  • Creating a brand presence through marketing and advertising
  • Developing and maintaining a website as a major or sole way of dealing with customers, many of whom will want to compare prices for multiple airlines and are likely to look elsewhere
  • Maintaining a call centre for the thousands of customers who prefer to deal with a person and don’t want to book online, in addition to accommodating those who simply want to amend their bookings; and
  • Losses stemming from the heavily reduced and unstainable airfares the new carrier will need to offer to attract the travelling public’s attention

“Even after this multi million dollar investment, there is no guarantee the new carriers will attract large numbers of customers, as the established players have loyalty offerings and have shown historically that they are very keen to compete on price.”

Mr Turner said Australia’s travel agency sector was among the strongest in the world and its value to airlines should not be ignored.

“Flight Centre Limited alone has more than 1000 shops in Australia and more than 4500 sales people, plus numerous websites. This network generated almost $6billion in transactions in Australia during 2008/09, despite the downturn in global travel.

“We offer airfares on all airlines, including low cost carriers, and are keen to work closely with LCCs and other new entrants to grow the travel market.

“By ignoring agents, LCCs’ approach is in direct contrast to the approach some of the most successful international airlines take when they enter a new market and seek to grow their businesses.

“LCCs should view the margin they pay to travel agents as an investment because it generates a genuine return – sales.

“A sizeable portion of the margin an agent typically earns is also reinvested to generate further sales, as it is used to promote the airline’s products in the agent’s advertising and on its websites.”