A320 stars in Qantas Group’s narrowbody future

Coming just days before the part Singapore Airlines owned Tiger Airways began Australian domestic services (see page 24), the narrowbody order was a clear statement of intent from Qantas that it plans to defend its local marketshare and grow aggressively offshore.

“Our fleet plan is our investment in the future,” CEO Geoff Dixon told the Qantas AGM in Melbourne on November 14. “We confront very strong and very aggressive competitors domestically. Internationally, we all know there are big capacity increases, particularly from Middle Eastern carriers and we are absolutely aware that that means our customers have more choice than ever before. ” Dixon has long made clear his determination to maintain Qantas’s 65 per cent domestic marketshare, but the order for A320s and A321s makes even clearer Qantas’s intention to use Jetstar as a key expansion vehicle, not just in Australia and New Zealand but more broadly throughout Asia.

From Airbus Qantas will order 50 firm and option or take purchase rights on a further 40 A320s/A321s, while an additional 17 A320s/A321s will be leased.

Of those, at least 17 will be 213-seat A321s, with the first, a leased machine, to enter service as soon as this March.

Jetstar has long shown an interest in the A321, which compared to the A320 on which it is based offers greater seating capacity (36 more seats in Jetstar’s single class configuration), slightly improved operating costs per seat, and greater range.

Jetstar CEO Alan Joyce said the A321 offers “a suite of benefits to meet the demands of a growing market and to maintain our low fares leadership position.

“The A321 offers superior seat-kilometre costs of any single-aisle aircraft within its class and provides the flexibility of adding additional seats per sector over services now operated by our A320 fleet. ” This latest order commitment came after Jetstar won Qantas board approval for its big expansion plans. With 25 A320s currently in service in Australia/NZ, others with Jetstar Asia, and the first of an additional previously ordered nine A320s due to enter service in December (’07), the airline’s Airbus narrowbody fleet could ultimately grow to around 150 units.

“Jetstar has outlined further growth opportunities within both the Australian domestic market and on short haul international routes from Australia, and these will now be actively pursued,” Joyce noted.

This includes allowing Jetstar to establish new bases in Perth and Darwin “to serve fast growing Asian markets”.

But the order also allows for significant expansion of Jetstar’s operations in Asia, with it likely many of the Airbuses on order to be deployed by Singapore based Jetstar Asia and Pacific Airlines, the Vietnamese airline Qantas now part owns.

Meanwhile, the new 737‑800s – 30 firm and 49 options/purchase rights – will replace Qantas’s 26 ageing 737-300/-400s on its Australian and New Zealand domestic and trans-Tasman networks. “The B737-800 has a 25 per cent lower fuel burn per seat and 30 per cent lower maintenance cost compared with older equivalent aircraft,” Dixon said.

The first 737 under this latest order will be delivered in 2009. The extent to which Qantas exercises the 49 737-800 options may reveal the extent to which it plans expansion of its mainline Australian and New Zealand domestic services – given the firm order for 30 new 737‑800s will allow replacement of the current 737-300/-400s on little more than a one-for-one basis. But general market growth and growing capacity constraints at Sydney Airport will likely see Qantas use more widebodies domestically.

Qantas’s ability to place such enormous new aircraft orders also confirms the airline’s financial health – Qantas says it can fund the purchases without affecting its investment grade credit rating – while the bigger an aircraft order the bigger the likely discount offered by the manufacturers. This means Qantas is likely able to buy its aircraft more cheaply than its competitors (Qantas’s ‘buy in bulk’ strategy was first shown with its massive 787 order).

In all, Qantas has announced orders for $35 billion worth of new aircraft since it began rolling out its fleet growth and renewal strategy with the initial A380 order in 2000.

“This decision, together with existing A380 and B787 commitments, secures an order stream for next generation aircraft that will allow the Group to meet long term demand growth and replace older aircraft over the next decade,” Dixon said.