By Ayesha de Kretser
Virgin Australia is poised to re-ignite a price war with bigger rival Qantas, unveiling significantly cheaper airfares to Europe as it works on convincing regulators to approve its tie-up with Qatar Airways.
The airline, which will return to long-haul international services if it is allowed to complete a sale of a quarter stake to the Gulf carrier, on Friday began marketing return fares to Europe for less than $2000.
Virgin has been owned by Bain Capital since it was rescued from administration during the COVID-19 pandemic. The private equity giant needs approval from the Foreign Investment Review Board and the Australian Competition and Consumer Commission to sell a 25 per cent share of the airline to Qatar, a deal announced in October.
If it is approved, Virgin will use Qatar aircraft and crew to fly to Europe through Doha. Qantas opposes the arrangement and believes it is a way for Qatar to work around restrictions on the number of services it can fly. The Albanese government knocked back Qatar’s requests to add dozens of weekly flights to Europe in 2023 after significant lobbying from Qantas.
On Friday, Virgin began offering return economy flights to Europe – including Rome, Paris and Barcelona – from $1800. The airline is charging $2000 from Sydney to London as part of a week-long sale.
Data provided by Webjet shows the average airfare last year ranged from $2744 for return economy flights between Brisbane and Athens and $2058 for flights between Perth and Barcelona.
Qantas, which said it had not lowered airfares in response to Virgin’s announcement, is still offering some flights to Europe that are far cheaper than last year’s average. Return economy flights between Sydney and London, for instance, are selling for as little as $2200.
Flights on other carriers are even cheaper. Turkish Airlines, which last year launched a number of new routes between Australia and Istanbul, is selling peak-season flights between Sydney and London from $1650.
‘Benefit of competition’
John Hart, the head of tourism at the Australian Chamber of Commerce and Industry, said the reduction in fares was the first sign that increasing competition had begun to make it cheaper for travellers.
“There’s no doubt that we’re seeing the benefit of competition and whether it ends up in a price war per se, we can’t see that necessarily at the moment, but we are definitely seeing competition return and that’s the start of a healthy market,” he said. “We knew this would happen. As soon as we got additional competition on those routes, they were going to come down.”
But strong demand for international travel, and the need for expensive fleet overhauls by major airlines, will limit how far airfares will fall.
Hailey Kim, an analyst at Wilson Asset Management, which owns Qantas shares, said commentary from the big airlines in the United States – Delta Air Lines, United Airlines and American Airlines – demonstrated that there was plenty of demand and that airfares were holding up.
“From the Australian context it’s very much two different markets – the domestic market capacity is coming back but not being added aggressively, so the airfare environment looks quite stable,” Ms Kim said.
“For international, consumer demand is very strong and while a lot of global airlines were putting new capacity into Australia last year, some of that has been rerouted back to the European summer market. That means that airfares right now are still considered quite high.”
“Airlines have to be quite rational, and they need to really utilise the cash to invest in their fleet renewal. We might see a little bit of a moderation in airfares, but I don’t think it’s going to be anything dramatic, or anything close to the pre-COVID levels just because of those dynamics,” she said.
The Australian Financial Review reported last month that figures compiled by Flight Centre showed the average ticket price to destinations outside Europe was falling last year. To Japan, for instance, the average ticket price fell 9.7 per cent in November compared to the same time last year.
Morningstar equities analyst Angus Hewitt said with North American carriers in particular “directing capacity to the region, that’s going to show in price competition and eventually margins”.
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