Cheap fares may tempt corporate customers back to Virgin Australia

The gap between Qantas and Virgin Australia has widened in the pandemic with one airline now 67 per cent more expensive for corporate travellers.

Virgin Australia may have lost corporate clients to Qantas but new analysis has suggested the carrier is on track with its lower cost business travel strategy.

The airfare difference between Australia’s major domestic airlines has doubled since Virgin Australia emerged from administration, with new analysis showing Qantas corporate travel fares are now 67 per cent higher than its rival.

The report by independent travel procurement consultancy Butler Caroye shows Qantas domestic corporate airfares averaged $323 in the second quarter of 2021, compared to Virgin’s $193.

Butler Caroye managing director Tony O’Connor said corporate travel fares were those offered to clients willing to commit a certain percentage of their travel budget to a particular airline in return for discounts.

In the case of Qantas, companies were required to book 90 to 95 per cent of flights with the airline and 60 per cent of international flights, while the figure was 70 to 80 per cent for Virgin Australia.

The report examined whether simply choosing the “best fare of the day” was the better approach for travel buyers, and found that in most cases it was.

“The price difference between the two airlines is now just too great to lock into one carrier, which for most companies has typically been Qantas,” Mr O’Connor said.

“If Virgin provides a reasonable number of services at business times and on business routes they must remain a viable alternative to Qantas and therefore the widening of the price gap could be of great interest to Australian businesses.”

Several factors had contributed to the price difference between airlines increasing from 32.8 per cent in the first half of 2019, to 67 per cent in the second quarter of 2022, he said.

First of all, Virgin Australia deliberately lowered fares after emerging from administration under new US owners, Bain Capital.

 

Chief executive Jayne Hrdlicka revealed last year business class fares had been cut 20 per cent, and the removal of free snacks from economy had also delivered savings for travellers.

Secondly Qantas had changed the way it allocated different levels of fares for different seats, sloshing more seats into the flexible and more expensive fare basket. “With 10 or more fare types within economy class, each having a different fare level, airlines can regulate the availabilities of the fare types,” Mr O’Connor explained.

“Shifting more seats into a more expensive fare type increases the overall average fare.”

As a result of the changes, Qantas’s average domestic corporate fares were now about 9 per cent higher than pre-Covid times, and Virgin’s around 13 per cent lower.

“The already substantial 2019 corporate pricing gap between the two airlines has approximately doubled,” said Mr O’Connor.

To date the shift had not deterred companies from jumping ship from Virgin to Qantas in the wake of the smaller airline’s administration and change of ownership.

But Mr O’Connor said Virgin’s strategy should work.

“With the price gap being as large as it is now they will attract business travellers,” he said.