Next stop, New Zealand

“It’s really driven by customers and markets,” said Jetstar CEO Bruce Buchanan in Auckland on February 17 to announce the New Zealand expansion. “And if customers are demanding more Jetstar type capacity, we put more Jetstar type capacity in the marketplace,” he said of the decision to replace Qantas/Jetconnect services with Jetstar.

Certainly the demise of Jetconnect’s domestic operations won’t be lamented by many New Zealand travellers, with the airline’s on-time performance affected by operating some of the oldest 737s in the Qantas fleet. “This (the Jetstar announcement) explains why the Qantas airline has been allowed to be run down here in NZ,” posted one traveller on a New Zealand Herald website feedback page asking opinions of the change. “I was absolutely shocked to see the poorly maintained book-in facilities and listless staff when I last had reason to use this never-fly-to-timetable airline. ” Jetconnect’s last New Zealand domestic service will operate on June 9, with Jetstar’s NZ operations commencing the following day. From June 24 Jetstar says three 177-seat A320s will operate six times daily Auckland-Christchurch, three times daily Auckland-Wellington, and daily Auckland-Queenstown, Christchurch- Wellington and Christchurch- Queenstown services. Those aircraft will complement three further A320s which will by that point be operating 42 weekly trans-Tasman services from Christchurch and Auckland ( Jetstar’s Auckland-Sydney and Auckland-Gold Coast trans-Tasman flying is due to begin on April 28). Jetstar won’t pick up Jetconnect’s Christchurch- Rotorua service, in part because the runway length at Rotorua would place payload restrictions on the A320.

The low cost carrier will also offer full interlining between Jetstar and Qantas domestic and international New Zealand services (while still scheduling 30 minute turnarounds). This means for example a passenger could fly from Christchurch to Auckland on Jetstar, then transfer to Qantas to fly to Los Angeles on the one itinerary, with through checking of baggage.

Qantas will also codeshare on all Jetstar New Zealand services, while Jetstar has also flagged in the future interlining with other international airlines serving New Zealand.

And while the Jetstar A320s are alleconomy, the New Zealand domestic Qantas Club lounges will continue operating.

Jetstar says it is investing NZ$250 million into the New Zealand expansion and setting up a NZ subsidiary. Jetstar Airways Limited will in time apply for a New Zealand AOC (NZ domestic operations will launch using VH registered aircraft under Australia New Zealand Aviation [ANZA] privileges) and employ up to 250 people.

Qantas says the new Jetstar operation means a net increase in Qantas Group staff numbers in New Zealand, but some job losses in Christchurch and Wellington are expected.

The New Zealand expansion forms a key element of the Qantas Group’s recasting of its New Zealand operations, with aircraft operating subsidiary Jetconnect to now purely concentrate on greater trans-Tasman flying, which from June 10 will see Qantas increase daily Auckland-Melbourne frequencies from two to three and Auckland- Sydney services from four to five. From the end of 2009 Jetconnect will also beginreplacing its ageing 737-300s and -400s with an initial three brand new 737-800s configured to seat 12 business and 156 economy passengers, all with in-seat video screens (a first for Qantas 737s). Qantas is also retiming its daily QF25/26 Melbourne- Auckland-Los Angeles flights to allow convenient connections with Qantas’s Los Angeles-New York flights.

Jetstar has long flagged its intention to operate domestically in New Zealand, but nonetheless the new flights represent a significant competitive challenge to Air New Zealand and Pacific Blue. The 84 flights a week see the Qantas Group’s domestic capacity increase from the 20,000 seats a week currently provided by Jetconnect to 29,000 seats a week, up 45 per cent. Jetstar estimates this will represent just over 10 per cent of the market, about a few percentage points above Pacific Blue’s share, based on the latter’s published schedules.

That total penetration of low cost carrier (Jetstar and PB) marketshare in New Zealand also suggests significant potential growth for Jetstar but also Pacific Blue, if Australia, which Buchanan notes has the highest market penetration levels of low cost carriers worldwide at around 50 per cent, is an indication.

Unlike Qantas under former CEO Geoff Dixon, Air New Zealand has not publicly drawn a line in the sand in nominating a domestic marketshare level it plans to defend, but the airline has said it will “vigorously” defend its home market. The Kiwi flag carrier does have significant advantages with a very strong brand and regional and international traffic networks, but is experiencing tough times, seeing falling domestic traffic in a recessed New Zealand economy, even before Jetstar’s arrival.

But it is perhaps Pacific Blue that might be the most vulnerable in any New Zealand domestic fare war. The New Zealand based arm of Virgin Blue began NZ domestic flights in November 2007, and serves Auckland-Christchurch, Auckland-Wellington, Wellington-Christchurch and Dunedin-Christchurch, in addition to its trans-Tasman and Pacific Island flights.

“I don’t really know in this market where Pacific Blue sits, it’s a very weak brand,” Buchanan remarked.

Still, Pacific Blue promises to stand its ground. “PB is a challenger brand, very resilient and importantly the New Zealand domestic market represents a very small amount of group capacity, so whoever may enter this market will be met by a very competitive player,” Virgin Blue CEO Brett Godfrey told Australian Aviation for our March issue profile on Pacific Blue (see p24 March ’09 AA).

Buchanan says building the Jetstar brand will be critical to the airline’s success in New Zealand. The airline already has some visibility in the market with its ex-Christchurch trans-Tasman flying, but Buchanan says building the brand will be a slow process.

“It’s not something you do overnight,” Buchanan said, but, “I’m a big believer that establishing a strong brand is what our key asset will be long term. It will help us drive visitation to our website, it will help drive ancillary revenue, help drive growth opportunities.

It will give us the edge when all other things are equal. ” To help with brand building Jetstar has launched an advertising campaign featuring Australian comedian Dave Hughes, and for a short time on February 17 offered NZ$1 promotional fares (the reaction to which overwhelmed the airline’s recently upgraded server capacity). Buchanan also points to Jetstar’s status as a Qantas subsidiary in giving passengers confidence in its financial stability and maintenance standards.

But the benefit of the two brand strategy runs both ways, with Buchanan noting there were a number of routes and markets making losses for Qantas that Jetstar has been able to operate profitably for the group. “It’s a great example today,” Buchanan said of Jetstar taking over the NZ domestic operation.

“We’re all about delivering growth. I think our brand will be strong and ubiquitous across the region. ”

“We’re focused on our customers, we’ve focused on delivering the price promise – we’re all about delivering growth. I think our brand will be strong and ubiquitous across the region. ” How that ubiquity is achieved could take several forms, not just further New Zealand domestic and trans-Tasman flying, but also long haul flying from Auckland to Asia and North America.

“Auckland has some unique characteristics for us, so we’re interested in exploring it,” Buchanan said of New Zealand’s largest city’s figuring in Jetstar’s future plans.

Auckland is one of three Pacific ports that Jetstar could use as hubs – as well as Fiji and Honolulu – for flights from Australia and New Zealand into North America. “If we can create some strong markets there and get a strong presence there (Auckland), that really helps us in creating jumping points. So that’s why we think Auckland has good potential. ” Buchanan also said Jetstar is “very interested” in serving Pacific island ports from New Zealand, but: “There are some issues we’ve got with traffic rights that we’re working though. ” For expanded trans-Tasman flying, Buchanan is very enthusiastic about the project to create a common immigration border between Australia and New Zealand, which in effect would allow flights between the two countries to operate as domestic flights, without the need for passengers to clear immigration and aircraft to operate from international terminals.

“You could take significant costs out of the journey, take a lot of hassle out of the product, and that would open up the ability for us to serve Newcastles, Avalons, a whole bunch of ports,” Buchanan enthused.

“Imagine that, you are travelling between Auckland and Sydney and it is a 30 minute check-in close and it’s out of a domestic terminal. ” By removing departure taxes and international passenger processing charges, Buchanan estimates: “You could lower the fare by 30 per cent, you could stimulate traffic growth by 30 or 40 per cent on the trans-Tasman. ” Another longer term opportunity Buchanan sees is to link Auckland with Jetstar’s Asian network, such as Singapore with connections onto the Jetstar Asia network, Ho Chi Minh City in Vietnam linking with Jetstar Pacific, or the planned Jetstar Asian hub for long haul 787 operations “For Jetstar we’re profitable, we’ve got lots of opportunities, and for us the biggest challenge is around what we prioritise next. ” (for which Singapore, Ho Chi Minh City, Hong Kong, Bangkok and Kuala Lumpur are still be considered). On the other hand, there are no plans to link New Zealand into Jetstar’s burgeoning Darwin hub, as the airline says Darwin is essentially a narrowbody hub, and the A320s lack the payload- range performance to link economically Darwin and New Zealand nonstop.

In the meantime, the airline has plenty to focus on with its New Zealand expansion and building the brand in New Zealand that will allow it to take advantage of those future opportunities.

“We’ve been talking about this for four years now, it’s been on the cards for a while, (but) it is just about prioritising where you want to direct your effort.

For Jetstar we’re profitable, we’ve got lots of opportunities, and for us the biggest challenge is around what we prioritise next. ”