| Carrier: | Jetstar
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| Headquarters: | Australia
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| Founded: | 2004
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| Destinations: | 21
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| Bases: | Sydney, Melbourne (Avalon)
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| Owners: | Qantas Airways Ltd
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| Listed: | Yes
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| Online Booking: | Yes
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| Website: | http://www.jetstar.com
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| Fleet | B787 10 on order
A330-200 12 on order
A320 23
| Overview - Jetstar Jetstar – A big future for Qantas affiliate
Jetstar was conceived by Qantas as a tool to stem the rise in the domestic Australian market of Virgin Blue, which was then decimating the flag carrier’s market share. The carrier, which was established in 2003 and launched services May-04 with a fleet of 14 B717s, met with unqualified success in its initial goals. It is now a fundamental part of Qantas’ international and domestic strategy, not merely a subsidiary which sots off at one side.
Jetstar’s aggressive marketing and pricing campaign pushed down by 15 percentage points Virgin Blue’s vision of what level market share it could attain and forced it to revise totally its low fares-led business plan. Virgin Blue has now ceded the lower end of the market to the Jetstar, in favour of its own ‘New World Carrier’ strategy.
In the intervening two years, Jetstar – CAPAs Low Cost Carrier of the Year for 2005 – has steadily grown, posting a YOY capacity increase of about 50%, while replacing its inherited B717s with A320s. Moreover, its success in operating a popular airline with low costs prompted the parent company to make it a central part of the group’s future, widening its scope to take on intercontinental flying.
Saying that the affiliate will eventually be just as important as the main line, Qantas CEO Geoff Dixon opened a new chapter in the LCC book when he assigned Jetstar a major portion of the group’s intercontinental flying, operating first A330s and later to be Qantas first B787s on the carrier’s secondary long-haul routes. It currently operates five A330s, with a sixth scheduled for delivery, and has 15 B787s on order.
Armed with substantially lower costs (driven in large part by its lower wages – a Jetstar A330 captain reportedly earns around AUD100,000 less a year than its Qantas counterpart), the carrier began operating long-haul, two-class, service in Nov-06 when it connected Melbourne and Bangkok.
It now offers services to Honolulu, Bali, Phuket, Ho Chi Minh City, Bangkok, Nagoya and Osaka, and will add operations to Kuala Lumpur in Sep-07 (home to soon-to-launch AirAsia X, which has pointedly made services to Australia the cornerstone of its business plan).
With the arrival of the longer-range B787s, the carrier will set its sights on Europe, using its superior cost base to serve cities Qantas could not serve profitably, likely including Rome and Manchester.
Significant contribution to Qantas’ profitability
Jetstar has played a pivotal role in Qantas’ recent record profitability. Revenue climbed by more than 40% in 2006/07, with Jetstar itself reporting an almost four fold increase in operating profit, earning AUD112 million “from routes that in 2003/04 Qantas either lost money on or realised a very small profit”, according to Mr Dixon. Overall, Jetstar is estimated to have contributed AUD250 million in operating profits to the Qantas bottom line over the past three years.
Jetstar International’s A330 operations contributed a small profit of AUD3 million in its first year of operations (excluding start up costs).
A big future gets even bigger … but with question marks
Since the realisation that Jetstar could be introduced into international long-haul service to stem – and even reverse – the parent airline’s inexorable market share losses, it became apparent that Jetstar is not a minor sideshow, but will play a significant role in Qantas’ future.
Mr Dixon’s Aug-07 has made the point that Qantas, “has a small timeslot - just a few years I imagine - to make ourselves an indispensable part” of the development whereby Asia has become the global industry’s centre. The Australian flag carrier’s continued investment in Jetstar’s Singapore-based operation (of which it is a 49% shareholder) and its Apr-07 purchase of a 30% stake in small Vietnamese low cost carrier Pacific Airlines – rumoured to soon bear the name “Jetstar Vietnam” – are evidence that Qantas intends to play an outsized role in the region’s low cost sector.
The future has no shortage of challenges, in both the long-haul and domestic markets. AirAsia X’s potential to play a strong role in the Southeast-Asia-to-Australia leisure segment must be closely monitored, even though it will initially be constrained by the shortage of capacity available for it to operate.
So too will close attention be paid to Tiger Airways’ establishment of a low cost arm on leisure routes in the Australian domestic market. Worryingly, both competitors will bring lower costs (and therefore lower fares) to a market in which Jetstar has been the undisputed low cost leader in recent times.
Jetstar however has advantages in its scale of operation in Australia, effective use of its relationship with its parent, including interlining, linking into Qantas’ frequent flyer programme (and, shortly, to establish its own programme). If Qantas’ strong strategic support for its offspring continues, Jetstar could in fact become one of the more substantial airlines in the region within the next five years.
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