Tigerair Australia will expand its presence on transcontinental routes in the lead-up to Christmas when it begins flights between Sydney and Perth, in a move that will add more capacity to a saturated market.
Analysts warn that Virgin Australia, which has a controlling stake in the budget airline, risks losing passengers to Tigerair because its customers are more sensitive to ticket prices than those who fly on Qantas.
The latest route to be launched by Tigerair will also put pressure on its arch rival, Jetstar.
Tigerair will operate up to six weekly return flights using A320 planes between Sydney and Perth from December 19, which will compliment its existing Melbourne-Perth services.
Dampening concerns about too much capacity on the transcontinental routes, Tigerair chief executive Rob Sharp said he believed its entry to the Sydney-Perth route would encourage more people to fly. "We believe we will have a stimulatory effect. Our growth is going to be driven by where we see demand," he said.
Tigerair and Virgin are now able to co-ordinate flights after the latter received approval to buy a 60 per cent stake earlier this year, and Mr Sharp said his airline would not be flying routes if it cannibalised its controlling shareholder's market. "We have quite a different product [to Virgin] and the capacity from east to west is largely wide-body aircraft [in contrast to Tigerair's single-aisle planes]," he said.
The battle between Qantas and Virgin over the last year has been the fiercest on transcontinental routes, with both flying larger twin-aisle aircraft such as Airbus A330s. But analysts have warned that an oversupply of flights in the Australian market over the next year will be greatest at the low-cost end of the market as Tigerair embarks on plans to double its size by 2018. Jetstar has promised to "protect its position" in the domestic market.
Commonwealth Bank analyst Matt Crowe said he was slightly surprised by Tigerair's decision to enter the Sydney-Perth route, given the slowdown in the Western Australian economy.
"It fits with Virgin's original claim that they were going to put Tiger into new markets but from an industry point of view we would like to see less capacity come into the market," he said. "It makes it a little bit tougher."
Mr Crowe said there was greater risk to Virgin of it losing customers to Tigerair than Qantas passengers deciding to fly with Jetstar. Virgin's passengers tended to be more price sensitive.
Tigerair will take delivery of two more Airbus A320s in coming months, which will boost its fleet to 13 aircraft in Australia.