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Hard cheese

The Economist on Oasis

I must have been busy, because I seem to have only just got round to reading The Economist from 2 weeks ago, which has an article about Oasis Hong Kong Airways (Fare game):

Part of the formula is familiar: flying one type of aircraft to reduce maintenance costs, landing at second-division airports, vigorous outsourcing and so on. But translating the low-cost model to long-haul markets is hard. Airliners are already in the air much of the time, reducing the scope to work them harder. Rules on night flights and rest periods for cabin crew stretch turnaround times. And passengers enduring a 12-hour flight are less willing to skimp on food and legroom.

Setting up a long-haul network also takes tiresome negotiations with aviation authorities in many countries. Oasis's inaugural flight was cancelled because it did not have rights to fly over Russian airspace. Most long-haul routes still rely on connecting traffic to fill seats, whereas low-cost airlines offer point-to-point routes.

High-paying business-class passengers at the front of the aircraft enable established carriers to compete fiercely on bargains at the back. According to Nigel Dennis of the University of Westminster, the best that low-cost airlines can hope for on an all-economy long-haul service is a slender 20% price advantage over the established carriers.

“We ran the numbers for an economy service and they didn't add up,” agrees Stephen Miller, chief executive of Oasis. His answer is to combine a low-cost approach with a continued focus on high-margin activities where there is more fat to trim. Oasis's business-class service accounts for just over one-fifth of seat capacity and 60% of revenues. Cargo, traditionally disregarded by low-cost carriers in short-haul markets, brings in another 15-20%.


For bigger carriers, the new entrants are not yet much of a threat. The most profitable business-class travellers will be loth to give up either frequent-flyer miles or the convenience of a full timetable. But the cheaper long-haul alternatives inject more urgency into the big carriers' efforts to cut costs. Mr Laker would surely have been pleased by that.

Hard to argue with any of that, unlike most of the rubbish one reads in lesser publications.  It seems to reinforce what I keep saying, namely that the key to success for Oasis will be to sell enough business class seats.  The Economist is correct that it won't be attractive to everyone, but for anyone who travels in Premium Economy on Virgin or BA (and now on Air New Zealand as well), Business Class on Oasis should be worth considering.

However, it seems that sales are not going very well (as I mentioned previously), so they are trying to do something about it - their latest offer is that if you buy a return Business Class ticket to London, they will give you another one free.  This isn't available with their cheapest fare, and you have to add on the various taxes and surcharges (for both tickets), so it isn't quite as cheap as it might appear at first, but it's not a bad deal.  They also have another offer of a free child ticket with each adult ticket, in both classes, and this does seem to be available with the cheapest Business Class fare.

They have just agreed to buy 3 more planes, 747-400s again, this time from Japanese Airline ANA, presumably for the services they have already announced to the States, so I think we can assume that they are going to be around for a while.  I hope they succeed.   


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