Why are airfares out of Australia in business or first class so much more expensive compared to ex-Europe?

17 replies

Alkaff

Qantas - Qantas Frequent Flyer

Member since 07 Jan 2014

Total posts 5

With me residing in Switzerland I fly home to Australia ex Milan annually and have noticed a big difference in C-class air fares ex Europe in general compared to ex Australia to Europe.

For example a typical C-class ex Milan would cost around EUR 3'000 - 4000 to OZ, but the other way around would cost AUD 7'000 - 9000 which is quite a difference.

In short, why are airfares ex Australia so much more expensive in either C or F compared to ex Europe...?

Serg

QFF

Member since 12 Apr 2013

Total posts 870

Answer is plain – in Europe they have plenty of choices while in Australia we have none. It is not only biz, all tickets are cheaper from Europe. There are few certain and distinctive groups of travelers. Business travelers will pay any asked price. Those who fly to relatives will search for cheaper fares, but eventually will fly for whatever cheapest available. And just tourist will rather fly to America/Asia/Africa than to Australia if it happens to be cheaper. So carriers make it more attractive to leisure pax travel to Australia. But from Australia we have no choice – Americas, Europe, Africa or Asia – we MUST buy airfare. In other words they (carriers) screwing us and making money on us. Really sux, but unfortunately true. Try to quote MEL-LAX-MEL vs LAX-MEL-LAX to cry even more.

Merc25

Qantas - Qantas Frequent Flyer

Member since 29 Jun 2013

Total posts 317

Most airlines make their money from 1st and buisiness class,economy tickets are heavely marketed and reduced with many different prices it's a funny thing ,but in the last few days prior to take off ,economy ticket prices rise ,and buisiness tickets fall as airlines hope to sell buisiness tickets instead off upgrading them using points

edy4eva

Member since 11 Mar 2012

Total posts 115

The economists/economics minded will try and explain that as supply and demand. Conspiracy theorists will say it's price fixing. 

My view it's that it's a bit of both as well as the fact that the local market has been conditioned to pay almost double for everything.

We need a parlamenitary investigation. Had someone from the senate suggest this needs to be pursued, that was over 8 years ago but we need the will of few people to make that happen.

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,059

Agreed. While demand and supply does play a part the reality is airlines will charge as much as they can get away with. Unfortunately since Australia is so far away from Europe and the Americas, very few airlines from that part of the world come here, and if they do they mainly target SYD. Consequently that leaves a few "regional" carriers leading the market, namely SQ and CX (and maybe MH) as they have the volume, breadth and frequency.  They have no incentive to lower prices ex AU.

What we need is a disrupter to the market. That came in the form of EK. But since their union with QF, they see themselves as part of the establishment and no longer the rookie messing up the market. Our hope is China Southern, but they face a major psychological hurdle in trying to get people to fly them and/or transit in China. With the maturity and real sophistication of the Chinese overseas traveler, this mindset will slowly change. 

But one airline will not change things. But we need to ask ourselves, will the "regionals" who offer volume, breadth and frequency, continue to do so if there is an artificial mechanism to force them to lower prices? 

Serg

QFF

Member since 12 Apr 2013

Total posts 870

Demand-supply is irrelevant here. Almost all (>99%) pax flying both directions. So WTF demand/supply has to do where journey started? They can screw us because we have no choice, so they do.

 I believe government should force airlines to sell tickets for the same price (during the same period of course) regardless where journey started. Of course each airline can charge whatever they want, but price must be the same regardless where journey starts and where ticket bought. Dreams, dreams.

 And yes, I will not fly China Southern and will not transit through China even for substantial price difference, and now it miserable to even consider. YMMV.

TheRealBabushka

Member since 21 Apr 2012

Total posts 2,059

All I can say to that is Thank God the Asia Pacific region has no grandios (but stupid) vision of offering a common market yet hampering businesses will idiotic rules and regulation.

spinoza

Member since 01 Feb 2012

Total posts 218

Everything in life can be explained with economics. 

Price fixing is also part of economics. Although its probably not technically what is happening. Price fixing means one airline agreeing with another (or several others) to maintain high prices. 

What is probably the case is that due to ridiculous government protection around the world that restricts competitions and mergers and every country stupidly wanting a flag carrier, just as they want a car industry, there is an oligopolistic market structure (basically insufficient competition). 

Both Serg and TRB I think are misunderstanding what supply and demand means. For one thing, the desire for an Australian to travel to Europe is greater than the desire for a European to go to Australia. i.e. for a European, in the list of travel destinations, Australia is in a weaker competitive position since it is far away compared to other desirable destinations. For an Australian, everything is far away!

Serg thinks government intervention is the answer to everything. Ok, so let's say prices are aligned - Australians pay less, Europeans pay more. Now all things being equal, more Europeans will holiday in the US or Asia rather than Australia. 

TRB, your line "While demand and supply does play a part the reality is airlines will charge as much as they can get away with." is quite interesting and should definitely be used as an HSC economics essay question. That's exactly what supply and demand is! There is insufficient supply and too much demand, so customers bid up prices!! If demand reduced, prices would go down. If we let more foreign airlines compete, supply would go up, and prices would go down.

Supply and demand determines the equilibrium price and quantity of a product/service so that both sides of the transaction have maximal utility. Supply and demand does NOT mean companies should charge a price just above their cost to provide the good or service. By definition, in a free market, companies charge "as much as they can get away with". Consumers will also pay as little as they can get away with. That is the beauty of capitalism. 

Serg

QFF

Member since 12 Apr 2013

Total posts 870

Spinoza, while (as least in theory) allowing more carriers fly Australia MAY lead to price decrease, it WILL NOT read of price skewing. They can screw us (because we far away from everything) and they will do so as long as they could. It is nothing to do to supply/demand, but rather something to do to monopoly – while Europeans can use other means of transportation/destination we Australians tied up to only one - aviation. So welcome to ugly face of capitalism - monopoly. Yes it is monopoly albeit joined one. Another ugly face is “marked depth”. Why we here paying astronomical prices for cars compare to say USA? Remoteness and taxes aside we still paying far more. Why? Because big guys give a sh!t for such small market like Australia and unless they can extract megaprofit they are not interested. Similar situation can be observed right here in Australia. Mobile companies doing fierce competition in big cities (where supply/demand is really playing it role), but no-one cares about rural people. What it is to do to supply/demand? Nothing – marked is shallow, they cannot charge 10 times more, so they do not give a damn.

spinoza

Member since 01 Feb 2012

Total posts 218

"It is nothing to do to supply/demand, but rather something to do to monopoly". I agree, monopoly is bad - it is bad because the monopolist can manipulate supply to push up prices. It IS supply and demand, but it is the monopolist's manipulation of the free movement of supply and demand.

Yes - monopoly is bad, as is oliogopoly. There can be two reasons for monopoly / oligopoly. One is because it is a "natural monopoly/oligopoly" - i.e. the conditions are such that only 1 or very few firms can actually make money. E.g. the Australian domestic aviation market is a natural duopoly. It is not large enough to support 2+ players.

The other reason is government regulation. Sometimes this is good, sometimes bad. Our banking system has a government enforced oligopoly. Is this good or bad? It is good in the sense that it did not need a govt bailout in 2008, and we now have a very strong financial system that we should be proud of; but it is also bad in the sense that there is less innovation and less competition on some products.

With respect to the car industry, the largest reason we are paying more than a similar economy (its almost silly to compare to the US) is because we have tariffs and various taxes that serve to protect the now-dead Australian car industry. US is a unique case due to their own subsidies, tariffs, domestic industry, and its a much larger market. 

Market depth is an issue - because we are a small market, companies need to charge us more to make it worthwhile to be in this market. That's why its taken so long for brands like zara to come into Australia, and many still aren't. I would rather the choice of paying twice the price of HK for zara than not have the option. The economic irrational part of us will cry "rip off", but its the reality of being in a small economy. Profit is the only reason companies trade - if they cannot make a profit then they won't be in this market. What exactly is the problem? 

You decry monopoly, but cannot acknowledge that more competition is the solution. 

Serg

QFF

Member since 12 Apr 2013

Total posts 870

Competition is the solution…… but unfortunately not everywhere. Take for example Lygon Street in Melbourne (for those who do not know there are more restaurants on this street than residential properties). Indeed competition here is just great! Not only they compete on cost, but also on variety (like Indian food vs Chinese one). I am for such competition! However telecommunication (mobiles) and at great extend aviation is other story. As gas, water, electricity etc. And economist actually agreed that planning economy (aka socialism) is far better for society than chaotic one (aka capitalism). Thus we can manufacture something in place where it is most profitable for society as whole. Unfortunately society as whole is no more than stupid herd. Best example is airfares – they kill each other for a dollar difference in price and happily torture themselves 24hr in space that no-one prison has. This is why capitalism proves to be better model – problem as everywhere in people.

Amjid

Qantas - Qantas Frequent Flyer

Member since 30 Dec 2012

Total posts 34

This point is interesing (spinoza) "Both Serg and TRB I think are misunderstanding what supply and demand means. For one thing, the desire for an Australian to travel to Europe is greater than the desire for a European to go to Australia. i.e. for a European, in the list of travel destinations, Australia is in a weaker competitive position since it is far away compared to other desirable destinations. For an Australian, everything is far away!"

I notice when booking BNE-KHI, in Y with CX the Fare varies between $1300-3000 depending on season. However in the opposite direction, Fares in J hover around $2200 all year round.

If I wanted to fly J ex.BNE, cost is $7K-8K. I asked a Travel Agent friend of mine and he mentioned about a 'special' or trying to stimulate demand on certain routes. Given the fact that KHI isnt a high yeilding route, Im baffled they would offer Y Fares at $1500, but for $500-800 more, you can fly in J. Also, KHI or nearby destinations arent high demand in - rather its high demand OUT, so why the 'special' ex.KHI?

EK fill their J seats on most flights to KHI. CX must be having difficulties... But it does add a spanner to the works of Supply & Demand... I reakon J wouldnt be full inbound to KHI, so why the need to offer them soo cheaply outbound.

Like its that cheap, last year I was contemplating going on EK for 1200 RT in Y and then returning in J on CX, then return home (end of holiday) on EK.

crosscourt

Qantas - Qantas Frequent Flyer - Chairmans Lounge

Member since 01 Sep 2011

Total posts 91

lets not also forget exchange rates, they certainly make a difference.

spudseamus

Member since 25 Feb 2012

Total posts 32

The simple answer is ! Because they can !  For those who can remember that far back there was a time you could purchase a ticket through family or friends in say U.K. And fly the opposite way on that ticket ! Ahh the good old days ! 

We will never be a Hub to anywhere  and therein lies part of the problem ! 

Ozkid

Member since 02 Dec 2011

Total posts 26

Not having investigated this, do others book (say) return to SIN, then separate flights to Heathrow. Is there an advantage to this?

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