To bundle or not to bundle?

Cathay A330
Take off for oneworld. Photograph: AirSpace user commercial aviation




As airlines continuously look to enhance their bottom line, one contemplation of low-cost carriers in this region is if they should bundle their fares or not.

Leaving fares unbundled gives passengers choice, but bundling allows airlines to extract higher yields and attract passengers who do not want to worry about what their ticket does and does not include. The perks included in a bundled ticket–meal, luggage–cost little but can give a higher return.

Today Jetstar announced it has reached an agreement with oneworld carriers for them to book Qantas codeshares operated by Jetstar and for oneworld passengers to receive food and beverage and luggage. I see two take-home messages about this: this is a smart move for yields and, second, indicates the future direction of the Qantas Group. But first some words on bundling.

Viva Macau was an early proponent of bundling, but only for its premium cabin where a meal, amenity kit, and luggage allowance was included.

In 2008, AirAsia X’s XL class–a premium economy seat–remained unbundled, with passengers having to purchase meals and luggage. The pendulum struck back when the carrier introduced for its premium cabin lie-flat beds and threw in a meal and luggage allowance.

Air NZ 4 class Y.jpgEconomy class largely remained unbundled until last year when Air New Zealand introduced a tier fare system (left), doing what other carriers have mooted over the years. Jetstar offered a fare for select international flights that included luggage, food, and entertainment (below right)

While most LCCs operate as stand-alone entities, Jetstar has sold its flights through Qantas and signed interline agreements. But today’s codesharing with oneworld was a big leap forward.

So what does it mean?

First, yields. Today’s announcement will see Jetstar fares available to far more potential passengers than ever before, and at little extra cost since, Jetstar says, Qantas codeshares on almost every Jetstar Australia and NZ flight (Jetstar Asia is being left out). Oneworld passengers who book a flight operated by Jetstar will automatically contribute much-important ancillary revenue.

Codeshare fares do not go on sale until 1 February so we will have to wait to see what premium the convenience of a Jetstar codeshare attracts. When AirAsia X introduced connecting flights on one itinerary, it added a premium to what the two flights would have cost if booked separately.

Jetstar Jetplus.jpgSecond, the Qantas Group. By mid-decade, assuming the 787 enters service, Jetstar will very likely serve more European ports than Qantas. It could also very well have more Asian destinations it flies to directly from Australia than Qantas does. The same could also be true for North America.

The implication is if passengers on their way to or from Australia want a more direct flight than connecting through London, Singapore, or Los Angeles (and also a cheaper fare), Jetstar’s the answer. But then we get to the maxim that passengers like low fares but not the corresponding low service.

The withdrawal of mainline Qantas flights from Gold Coast did not go down well with passengers who wanted full service. And of course are the perennial comments of a passenger who bought a Jetstar ticket on the Qantas website thinking it was Qantas, even ignoring the website’s notice, and was astounded at Jetstar’s low service.

Jetstar has learned its lesson. Codesharing with oneworld carriers and giving those passengers full-service perks, including frequent flyer miles, prevents such complaints from arising.

Then few passengers will care if they’re flying Jetstar or Qantas, or another carrier. With that the debate on Jetstar’s off-shoring and its detriments for the Australian economy is silenced.

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