Jetstar In Asia

Hrdlicka says the company remains committed. “We remain very pragmatic and practical about how long it will take and the Jetstar Hong Kong board is making a decision to ensure that there is no additional invested capital required given the extended timeline. ” Nevertheless, the talk today among aviation industry insiders in Hong Kong is that a decision will not come until June or July. There are also strong suggestions that it won’t be the decision Jetstar wants. There is another potential issue. After Beijing recently introduced new regulations designed to encourage the launch of more budget airlines in China it has been reported that allthree of the country’s big carriers, Air China, China Eastern Airlines and China Southern Airlines, are considering setting up their own LCCs. Could China Eastern, which holds a third share in Jetstar Hong Kong, tire of the saga and bail out in favour of launching its own no-frills brand? It is a possibility.

If any of this eventuates, it will be a further setback to Jetstar’s endeavours to rule Asia’ Pacific’s budget skies. And not the only one. Alan Joyce’s announcement in February that Qantas is putting the brakes on its aggressive expansion into Asia by halting growth at Singapore-based Jetstar Asia may save money but it also holds the potential to do significant market damage.

Given its dire financial position Qantas, which holds a 49 per cent stake in Jetstar Asia, may have had little choice. “This is a significant re-prioritisation of our growth to focus on the areas that we must continue to invest in,” the Qantas chief executive told investors. The other Jetstar-branded joint ventures are in Japan and Vietnam and he said stiff competition in South-East Asia had stripped $29 million from Jetstar’s earnings in its latest six months to December 31. Overall, the budget group lost $16 million, a dramatic turnaround from a $128 million profit in the same period a year earlier. The losses were blamed on “market capacity oversupply driving yield decline in South-East Asia, market growth ahead of demand in the Australian domestic market and fuel costs”.

Hrdlicka told Australian Aviation that the airline’s brand strategy in Asia remains largely unchanged. “This strategy is important to Jetstar’s Australian and New Zealand airline operations and secures the long-term value in the Jetstar portfolio for our investors. Over the last five years, Jetstar Asia (Singapore) has managed steady andsustainable growth to a fleet of 18 aircraft and more than 600 weekly services. Jetstar Asia’s focus now is on supporting this network in a highly competitive market which is suffering from overcapacity.

“We are seeing other market players, particularly in South-East Asia, consolidate and in some cases reduce fleet orders and growth. In Singapore, Jetstar’s focus is on strengthening existing operations to ensure we are in the best position to capitalise on growth opportunities when conditions improve. ” It is difficult to precisely assess the performance of the individual Jetstar operations because Qantas essentially bundles them into Jetstar group results. But for Jetstar Asia, accounts recently lodged with Singaporean authorities show its profit fell 80 per cent last financial year, ending June 30 2013. Qantas may tout it as “the most profitable and best low-cost network based in Singapore” but genuine profitability remains a challenge nearly 10 years after it began flying. The documents show it posted a profit of $3. 36 million for that year, down from a $19. 6 million profit a year earlier. Its accumulated losses at that stage stood at $57. 9 million and that number will likely increase by the time it reaches the end of its current financial year.

Interestingly, this suspension of growth has been directed specifically at Jetstar Asia, which is essentially the heart of the airline’s regional operations. No mention was made of the two other operating brands, Jetstar Pacific in Vietnam and Jetstar Japan and whether they will also rein in growth. But both remain in their start-up phases and neither is making any money yet. None of the chief executives of these carriers – Jetstar Asia’s Barathan Pasupathi, Jetstar Japan’s Miyuki Suzuki, Jetstar Pacific’s Le Hong Ha and

Qantas said that Jetstar Asia continues to provide “a strategically important gateway”.

Jetstar Hong Kong’s Edward Lau – could be reached for comment.

But Ho Chi Minh City-based Jetstar Pacific, which became part of the Qantas stable in 2007 and is now 70 per cent-owned by Vietnam Airlines with Qantas holding the remaining 30 per cent, has had a troubled history and hasn’t made a profit since it took on the Jetstar brand. Jetstar Japan, based at Tokyo’s Narita, started less than two years ago and is also in a start-up, loss-making phase. Last October its majority shareholders Qantas and Japan Airlines each had to pump in another $60 million by way of a share placement to keep it going after finances were hit by a weak Yen, making its fuel much more expensive. The injection took Qantas’s stake to 41. 7 per cent and JAL to 45. 7 per cent. The budget airline’s two smaller shareholders – Mitsubishi and Century TokyoLeasing – saw their stakes drop from 8. 3 per cent to 4. 3 per cent each because they did not participate in the share placement.

Nevertheless, of all the currently operating Asian brands, it appears to be the one with the most promise, despite the fact that Japan’s low-cost carrier market is in its embryonic stages.

With 18 aircraft and plans to grow to 24 and go international it is now Japan’s largest LCC serving 10 routes and flying up to 72 services a day. The next biggest LCC competitor, Peach, operates 11 flights on nine domestic routes.

Its expansion has been slowed in recent time because of failure to gain approval from authorities to open up a second base at Osaka. Despite this, a Korean academic, Wujin Chu, during a visit to Sydney recently, believed Jetstar Japan had a significant opportunity to takeadvantage of an open skies deal between Japan, Korea and China which could see the market become one of the biggest in the world. The professor of marketing at Seoul National University and a visiting professor at Macquarie University’s faculty of business and economics, said the Japanese joint venture had been a success story in the region.

As for Qantas, it said at the time the equity injection would “support Jetstar Japan’s future fleet and infrastructure growth, enabling the carrier to capitalise on the significant potential of the low-cost carrier market in the world’s third largest economy’’. The cost of entering the Japanese market has weighed on the financial performance of Jetstar, which booked $50 million in start-up losses from Jetstar Japan and Jetstar Hong Kong in the year to June last year, with Macquarie Equitiesestimating the Japanese operation is losing about $50 million a year.

In its latest half year report, covering the six months to December 31, Qantas said Japan continues to be a substantial opportunity for the Group, with Jetstar Japan in a strong competitive position. “Jetstar Japan is the largest domestic LCC in Japan with over three million passengers carried since launch, market leading on time performance and strong customer advocacy. ” Its growth freeze aside, Qantas said that Jetstar Asia continues to provide “a strategically important gateway” to Asia, operating in a highly competitive market with LCC capacity up 34 per cent putting significant downward pressure on yields. “This was partially offset by unit cost improvement of two per cent coupled with four per cent increase in ancillary revenue per passenger compared to the prior corresponding period. ” On Jetstar Pacific it said the airline “continues to realise the benefits from the fleet renewal program, achieving a seven per cent unit cost improvement compared to the prior corresponding period. In addition commercial initiatives have enabled an eight per cent increase in ancillary revenue per passenger. ” It emphasises that “The inherent risk associated with start-up operations (in Japan and Hong Kong), including obtaining necessary regulatory approvals, is being mitigated through strong local partners, leveraging their strength in each market, sharing risk through appropriate equity structures and appropriate contractual protection in relation to, inter alia, fleet procurement transactions. ” That sounds fine but it really amounts to putting the best possible shine on what in reality has become a constant drain on the Qantas Group’s wider woeful performance. The issue for Jetstar across Asia is that market conditions and competition will certainly worsen rather than improve in the years ahead. An open-ended suspension of development of its main budget operation in Singapore will end up putting it miles behind rivals who are doing the exact opposite.

According to CAPA – Centre for Aviation, there are now 47 budget airlines in the region, flying a combined fleet of almost 1,000 aircraft. They have more than 1,500 aircraft on order, about 50 per cent of the region’s total aircraft purchases. No-frills operators already hold around 30 per cent of the South-East Asian market and 27 per cent of South Asia’s. In North Asia – including Japan, greater China, and South Korea – it is far lower, just 10 per cent but that will increase dramatically over the next few years.

While Jetstar sits attempting to hold its ground the opposition will be throwing more and more capacity onto its routes. The likes of Malaysia’s AirAsia, Indonesia’s Lion Air, Tigerair and Scoot in Singapore, VietJet Air in Vietnam, Spring Airlines in China and Cebu Pacific in the Philippines, where eight out of every 10 seats in the domestic market are now LCC, have the aircraft manufacturers popping the champagne corks with their orders. Lion has 500 aircraft on order. AirAsia has more than 280. This landslide speaks for itself in terms of what Jetstar will be facing as the months roll by.

There is plenty of evidence pointing to where competition is biting. Jetstar has already been making adjustments to its routes as it strives to drop loss-making or marginal services. This included cutting all flights from Darwin to Manila at the end of March, a result of competition from Philippine Airlines. It also moved

There are now 47 budget airlines in the region, flying a combined fleet of almost 1,000 aircraft.

three A320s stationed at Darwin to Adelaide where it has established a new cabin crew and pilot base. Services from Brisbane to Darwin were also cut from nine to seven a week and services from Darwin to Singapore from nine weekly to daily. In July Jetstar will also cease flying between Auckland and Singapore. On that route some serious competition is looming in the shape of an alliance between Air New Zealand and Singapore Airlines, which plans to put A380s on the route, with Air NZ adding its own 777‑200 service later this year. It’s not all shrinkage, however. Just before the suspension of growth was disclosed in February Jetstar Asia announced it will begin flying daily from Singapore to Fukuoka via Bangkok in June, making the southern city the carrier’s third Japanese destination after Tokyo Narita and Osaka Kansai.

The Jetstar group is certainly no minnow, though its main strength continues to lie in domestic operations, which have made money since start‑up. But profits domestically have also been declining. Domestic dominance is hardly surprising since its main competitor, Virgin Australia’s Tigerair, is tiny by comparison with just 13 A320s. But it is expanding with the potential to eat into Jetstar’s share.

All the Jetstar carriers together actually carry more passengers than Qantas, 27 million annually against 23 million. The total group fleet is 113 jets. 74 of these are Australia-New Zealand-based – 56 A320s, six A321s, eight A330s (three of those are operated internationally out of Australasia by Jetstar Asia) and four 787 Dreamliners. Jetstar Asia has a fleet of 19 A320s, Jetstar Japan 14 A320s and Jetstar Pacific six A320s. Far from matching its competitors’ growth. Jetstar’s expansion is beingtrimmed back. Part of the cost-cutting measures being imposed by Joyce is a deferral of the final three of 14 787s earmarked for Jetstar. The LCC’s A320 order book has also been “restructured”. Joyce hasn’t given any detail of exactly what that means but it is understood to involve deferral of a significant portion of an order for 32 A320s and 78 A320neos placed with Airbus in October 2011. Hrdlicka told the Senate inquiry that the changes to the A320 order were due to the “lower growth environment in Australia and based on a very pragmatic view about what the joint ventures will and won’t need from the Qantas Group. ” As for those jets sitting idly in Toulouse, Jetstar Hong Kong management, while unable as yet to operate an airline, are being kept busy trying to find a lessor who will buy them and lease them back to the airline. Besides, Alan Joyce says there’s nothing unusual about the situation. “It is worthwhile pointing out that this is not unique,” he told the Senate committee hearing. “When airlines start-up there is a disjoint between getting the aircraft for a new airline and having the aircraft operating certificate, which typically follows after you have proven and had the aircraft and the traffic rights… Virgin America had to wait a year, and had over 15 aircraft on the ground for over a year, before they got traffic rights in the United States… In Japan, Skymark had aircraft sitting around, again, for months, waiting for approval. We could go through lists and lists of airlines. ” Meanwhile, Jetstar Hong Kong, with zero revenue coming in, will have to continue paying the parking fees at Toulouse. And if it fixes up a sale and lease-back arrangement, it will then be paying around $400,000 a month for each aircraft. But overall, Joyce insists Jetstar’s LCC fundamentals remain strong. “Jetstar Group improved unit cost by two per cent and ancillary revenue per passenger by one per cent compared to the prior corresponding period. Jetstar has been profitable in the Australian domestic market every year since launch. Domestic seat factor increased by 0. 5 points to 82. 3 per cent as a result of five per cent passenger growth on capacity growth of four per cent. The over-arching focus in Asia continues to be profitably bedding down existing businesses and partnerships. Jetstar has been a pioneer Australian brand across Asia and we continue to see major opportunities for it in the world’s fastest-growing aviation region. ” Whether it grasps those opportunities remains to be seen.