Winners and Losers in the Jetstar, Tiger and Hobart Airport Fee Battle

Tiger A320 TO MEL.jpg

Will Horton

South and detached (physically, although some might argue in other ways too) from mainland Australia, Tasmania is frequently forgotten. Ditto for the island state’s Hobart Airport, which sees approximately 22 passenger flights a day, primarily on narrow-bodies.

But now the airport is in a fight with LCCs over fees. The airport announced last month its intention to increase from 1 July its $8 passenger fee by 50%, making the new fee $12. Hobart issued a fact sheet saying what passenger fees are used for in general, but hasn’t specified why the fee is going up. It only says the last increase was three years ago (but inflation wouldn’t add $4).

That increase a drop in the bucket compared to other airports (I’m looking at you, Heathrow) but enough to get Jetstar and Tiger threatening to reduce services to Hobart.

From Jetstar CEO Bruce Buchanan:

That is probably the most extreme price increase we have seen across any of the Australian airports…It is one of the extreme examples of bad behaviour by airports…Wewill look at all options to maintain capacity into Tassie, and if itdid go through we would look at potentially shifting some of thecapacity into Launceston.

From Tiger Australia’s commercial director Steve Burns:

If HobartAirport, or any airport for that matter, tries to impose highercharges, we will take immediate steps to reduce or remove Tiger Airwaysservices and redeploy our aircraft to one of the many airports andregions who would love to see more passengers and more tourists.

To frame the discussion, Jetstar has 87 weekly flights to Tasmania, 52 of them to Hobart (the rest are to Launceston in the northern part of the state). Tiger has 25, 21 to Hobart. Hobart has a population of 206,000 and Launceston 100,000.

While Jetstar and Tiger said they might pull out entirely, the worst they would do is reduce frequency. Neither can abandon Hobart entirely. They are each secretly hoping they will stay and the other will reduce capacity. Why? If Jetstar reduces capacity Tiger will move in to pick up the loss. Buchanan says the increased fee could cause a 5-10% drop in passenger numbers. But after planning to spend hundreds of dollars between accommodation, food, and car rental will visitors suddenly be turned off from Tasmania because of an extra $4?

The cynics have asked why the airlines don’t swallow the fee and pass it on to passengers, as is the norm. Here’s where marketing comes in. Jetstar and Tiger are both attached to their price structure, which gives the total price inclusive of taxes and fees. Jetstar’s fares end in 9 ($29, $39, etc.) and Tiger’s end in 8 ($28, $38, etc.)


Jetstar Hobart.jpgTiger:

Tiger Hobart.jpgAs a result, Jetstar and Tiger can’t add $4. They could either keep the fare and dip into profit (or more likely, make a loss) or add $10 to the fare. If one carrier added $10, the other would have a greater competitive edge.

On one hand Jetstar and Tiger are using this situation as an opportunity to snap up market share if the other reduces its schedule. On the other hand Hobart fits the stereotype of airports wanting more money.

On the third hand (a result of the inbreeding in Tasmania), Qantas and Virgin haven’t squeaked and will likely and gladly pass the fee onto passengers.

Keep on fighting, Jetstar and Tiger.

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