Tiger To Make An International Footprint?

Tiger Airways Holdings' CEO, Tony Davis recently publicly announced that the airline is evaluating international markets within a five hour range of Australia that can be reached by its domestic subsidiary's fleet of narrowbody A320s. Routes News examines which international markets could be of interest and asks, will it succeed?

Tiger Airways Australia has established itself as the fourth largest carrier in Australia's domestic and international markets on the basis of weekly seat capacity.

The table below illustrates the five leading carriers according to domestic and international capacity:

Source: Flightbase, 14-20 June, 2010

Tiger Airways (Australia) has a wholly domestic network, serving 14 destinations from its main operating base at Melbourne Tullamarine, which accounts for 159 of its 425 weekly flights. The low-cost operator currently competes with either Virgin Blue or Jetstar on 10 of 12 routes from its main base, and competes with both carriers on eight of the routes.

Why Take Tiger's Network International?

Firstly, with mounting competition and capacity in the Australian market, domestic city pairs are beginning to exhaust, with some potential cities being very small.

Darwin's urban centre is home to a population of just over 75,000, while Alice Springs has a population of around 25,000. Despite Australia deregulating its domestic aviation market in 1990, airport competition lags behind that of Europe or the US . The propensity to fly domestically is extremely high, given the vast distances between cities and the lack of rail competition.

Domestic services can be very long, but the yields remain domestic. This weakens earning potential but does help improve utilisation of the aircraft if services are operated overnight, for example, a flight from Perth to the East Coast, which takes around four hours, could be scheduled as an overnight flight. (Perth is in fact, closer to Singapore by distance than it is to Sydney on Australia's east coast). Australia also has slot constraints and curfews at its main airports.

Tiger has struggled to compete on frequency on major trunk routes and its focus on the international market is not a surprise given that there are very few domestic routes left to stimulate.

What's The Up-side Of International Routes For Tiger?

New international markets will allow Tiger to sell a new product to existing customers, while being able to take a swipe at the high fares on offer to markets such as the Pacific islands.

International routes will help to improve the utilisation of the airline's aircraft with overnight sectors, meaning less ground time. International yields will help improve earnings and there is also a price sensitive ethnic market to tap into, coupled with route support, which is available in tourist destinations.

Which New Markets Could Tiger Serve?

There are three major regions that could be served by Tiger, Trans-Tasman, South East Asia and Pacific Ocean spring to mind.

Trans-Tasman

Given Melbourne's southern location, it is likely that the city will be a focus for Tiger's Trans-Tasman routes to New Zealand and the Pacific Islands. BSP (Airport IS) data shows that the leading destinations from Melbourne to New Zealand according to frequency/passenger flows, are:

Auckland:

611,398 O&D passengers flew here from Melbourne between March 2009 and 2010. Virgin Blue and Emirates fly the route seven times a week, while Air New Zealand operates 14 a week and Qantas 21 a week.

Christchurch:

IATA BSP data shows that 261,396 O&D travellers flew to Christchurch during the March 2009-2010 period. Virgin Blue offers six weekly flights, while Jetstar has eight and Air New Zealand, seven a week.

Wellington :

125,891 passengers flew to Wellington from March 2009-2010. Two carriers fly here: Air New Zealand (five-times weekly) and Qantas (seven-times weekly).

Tiger could enter these markets and compete for a share, however the airports may be concerned about attrition and could steer clear of offering competitive deals. Tiger could possibly be attracted to New Zealand's secondary airports rather than enter Auckland or Wellington. That means the likes of Hamilton, Rotorua, Dunedin and Invercargill airports could also be served. Or New Zealand could be served from Tiger's other base in Adelaide, or being smaller markets they could be served from Avalon, Melbourne's secondary airport. There is some two-way traffic, but as these are smaller market significant stimulation would be required to fill 180 seats and they would have to fly to the main Australian destinations to attract sufficient two-way traffic.

South-East Asia

Given the limited range of Tiger's fleet of A320s, when looking to South-East Asia, the carrier is more likely to serve the region from northerly Australian points, such as Darwin.

From Darwin, Tiger may well look to serve Singapore, a route flown by over 98,000 passengers between March 2009 and 2010. Jetstar currently offers 12 weekly frequencies.

Bali will also be of interest, flown by over 85,000 passengers during the same period. Jetstar operates a daily service with narrow-bodies.

Alternatively Ho Chi Minh City could be an option for Tiger, with Jetstar enjoying a monopoly from Darwin. It has carried over 40,000 annual passengers on its four-times weekly service.

Serving Pacific Markets

In the Pacific markets, the trunk route from Australia to Nadi would be the most likely route from Melbourne. Virgin Blue offers this service and nearly 100,000 passengers flew the route between March 2009 and 2010.

Can Tiger Succeed?

Tiger Airways has successfully operated in the domestic market and its Asia brand operates successfully from Singapore. But challenges remain for the carrier.

The markets above are difficult to sell as seat-only. They need accommodation as part of a package, just like the Greek Islands in Europe, for example. These markets are seasonal, so it is uncertain if some markets can maintain a year-round service. The Trans-Tasman is already pretty competitive and Tiger would have to offer some radical (and probably unprofitable) fares to make a difference or services to smaller destinations.

Also international markets remain controlled by air service agreements and this process has yet to commence for Tiger Airways.