Issue 315: Bright Star?

From its modest fleet of 14 hand-me-down ex-Impulse Boeing 717s serving an initial 14 destinations with 400 or so staff, today’s Jetstar is a group of airlines spanning not just Australia but New Zealand, Singapore, Vietnam and Japan, with around 7,000 staff operating almost 120 aircraft on 130 routes to 64 destinations.

Along with the Qantas Domestic operation and the Qantas Frequent Flyer scheme, it has been one of the key profit generators and growth vehicles for the Qantas Group, and it is still the stand-out success model for a ‘legacy’ airline in establishing a low-cost carrier (LCC) subsidiary.

Qantas Group traffic figures for the most recently available month at press-time, February 2014, give a snapshot look at where Jetstar sits within the Qantas Group today. For the month Jetstar’s Australian domestic operations carried 870,000 passengers, when Qantas Domestic flew 1,241,000 and QantasLink flew a further 416,000. (For the sake of comparison Virgin Australia, including its regional operation, flew 1,301,582 passengers in February, Tigerair 210,799. ) Clearly then, Jetstar is a key player in Australia’s domestic market.

And while that Australian domestic market is still the core of the Jetstar business, its operations across Asia are increasingly important. Singaporebased Jetstar Asia flew 302,000 passengers in February, and its long-haul international and NZ arms a further 376,000.

So in all, and not counting its Vietnam and Japan operations, Jetstar carried no fewer than 1. 5 million passengers for the month.

That’s a pretty impressive achievement for an airline whose business plan wasn’t signed-off on until November 2003.

Of course the aviation environment that business plan was created in bears little resemblance to today’s aviation market, both in Australia and more broadly in Asia. The Ansett collapse was recent history and Virgin Blue was still a cheap and cheerful upstart. There was no full-service Virgin Australia, no Tigerair Australia, no thought of an Australian airline expanding into Asia.

It is still the stand-out success model for a ‘legacy’ airline in establishing a low-cost carrier subsidiary.

The 10 years since have seen remarkable growth, but Jetstar has also attracted its fair share of criticisms and controversies along the way, and it has not all been smooth sailing. Jetstar’s reputation for service has been patchy in the past. Its Asian operations have encountered mixed fortunes – Vietnam-based Jetstar Pacific is no bigger today than when it was relaunched under the Jetstar banner in 2008, and the planned Jetstar Hong Kong operation remains stuck firmly on the ground. There have been the controversies like the cadet pilot scheme and using Asian-based cabin crew on Australian domestic ‘tag’ flights. And for some Qantas staff, Jetstar has come to be seen almost as the ‘enemy within’ – that part of the Qantas Group where much of the investment in new fleet and new markets has gone, most prominently illustrated by the decision to allocate the Group’s first 787s to Jetstar and not Qantas mainline.

And Jetstar celebrates its 10th anniversary soon after posting its first loss since its start-up phase (a first half loss of $16 million). Where once Qantas and Jetstar were able to squeeze Virgin Blue from both the full-service segment of the market from above and the low-cost segment from below, today the Virgin Australia Group is working to turn the tables, with Tigerair taking on Jetstar, and a lower-cost but effectively full-service Virgin Australia turning up the heat on Qantas. And where once Jetstar enjoyed a ‘first-mover advantage’ in setting up low-cost carrier operations in Asia, today Asian skies are teeming with LCCs.

So looking ahead to where Jetstar might be in another 10 years is a mug’s game, given the unpredictable nature of aviation, and the many challenges Jetstar faces.

For example, Jetstar’s domestic operations may have reached a stage of relative maturity, but just how do the Qantas and Jetstar domestic operations sit side-by-side in the years to come? What is the fate of Jetstar Hong Kong? What competitive threat does a revitalised Tigerair represent? But under the leadership of Jayne Hrdlicka, it looks like Jetstar is entering a period of consolidation, where the emphasis is not so much about rapid expansion but on maturing systems and processes, and improving the customer, and employee, experience.

And despite the first half loss, there are plenty of positives for Jetstar, such as Jetstar Japan which shows signs of real promise, a core domestic business which remains profitable, and even simple aspects like improved employee engagement and customer satisfaction levels which should have very tangible revenue upsides.

There looks to be plenty of fascinating stargazing ahead as the next Jetstar chapters unfold.