Ready, Steady, Go?

What’s the secret? Could it be that Jetstar’s cautious approach is paying dividends? Expansion of its Singapore operation, Jetstar Asia, was frozen through 2014 and 2015, keeping capacity growth on hold, enabling the carrier to cement its position and ride out a downturn. It still has only 18 Airbus A320s, although growth has resumed with the budget operator late last year adding four new destinations out of Singapore Changi to Palembang and Pekanbaru in Indonesia, Guiyang in China and Danang in Vietnam.

Compare that though with rivals. Malaysia’s AirAsia group operates a fleet of 176 with 404 A320s on order. Indonesia’s Lion air flies 11 aircraft but has 469 on order. India’s Indigo has a fleet of 109 with 425 on order. Even Vietjet, with a smaller fleet of 36, has 283 on order. Their propensity for adding heavy metal has led to deep discounting and fare wars as the players increasingly seek to fill empty seats.

There’s other evidence that caution pays off. According to the International Air Transport Association (IATA), India has been beating the world every year in terms of demand growth, with domestic traffic up 18 per cent last year over 2014. But cut-throat airfare wars and heavy discounting, which may be good news for customers, is hitting airline bottom lines and all but negating the positive impact of lower fuel prices. Only two Indian airlines made money last year: Indigo with a A$230 million profit and GoAir with A$20 million (expected to lift to around A$33 million this year).

GoAir, owned by local conglomerate the Wadia Group, in particular is being held up as an example of where a “steady as she goes” policy has allowed it to escape the ravages of India’s sometime chaotic air market. Described by one local analyst as “the fuddy-duddy of Indian skies”, it was launched 10 years ago and has eschewed big ambitions. Rivals that took to the skies around the same time have grown significantly. Indigo has a fleet of 111 and Spicejet 42. GoAir still has only 21. It currently continues to confine itself to domestic flying despite having been given clearance to enter international skies and had a modest marketshare of 8. 4 per cent in July compared with IndiGo’s 39. 8 per cent and SpiceJet’s 11. 7 per cent.

GoAir actually met local regulations – allowing Indian carriers to go international when they have a 20-strong fleet and have been flying for five years – in 2011. Yet it has stayed at home, even though in August this year it got government approval to fly to Iran, China, Vietnam, Maldives, Azerbaijan, Uzbekistan, Kazakhstan, Qatar and Saudi Arabia. (It was denied permission to fly to Kuwait, Turkey, Thailand, UAE and Oman. ) In the past Jeh Wada, the LCC’s managing director, has even described GoAir as a tortoise and suggested ambitions of overseas flights were “more glamour than anything else”.

We are really confident about absorbing this aircraft number.

That may be about to change. The carrier now has 144 Airbus A320neos on order although deliveries are spread over many years. The first two were delivered earlier this year and they will bring continuing savings in fuel and operating costs. And if any airline can expand successfully without overcooking the capacity side, it may be GoAir. Last June it appointed Austrian Wolfgang Prock-Schauer, who holds a Masters Degree in Economics and Business Administration from the University of Vienna, as chief executive. A former head of Air Berlin and British Midland, he was also chief executive of India’s Jet Airways before moving to Go. He is something of an expert in “upscaling” airline operations. In his first job with Austrian Airlines, he oversaw its expansion from 20 aircraft to 100, and during his six years with Jet Airways he presided over its fleet expansion from 40 aircraft to more than 100.

Prock-Schauer has said the aircraft order is aimed at building up an international presence.

“The character of an aircraft is to spread its wings and fly. It should not be bound to one market … we are in a (domestic) market which is growing at a rate of 20 per cent and even 10 per cent will be good enough. We are really confident about absorbing this aircraft number. ” While GoAir’s sudden aggression has surprised many aviation analysts they suggest it is probably a result of the arrival of aggressive newcomers such as TATA/Singapore Airlines, Vistara and AirAsia India, piling even more pressure onto the domestic market. Despite the strong growth, outpacing even China, there is overcapacity locally, especially on key routes between major cities such as Delhi and Mumbai, according to Prock- Schauer.

“These metro routes (which account for over 70 per cent of overall traffic) are getting a bit difficult for all of us. If you add up Mumbai-Delhi you will probably have 62 frequencies among all of us. So it is very difficult in the lean season … international expansion is something I have done several times. ” Asked about the strange mixture of international route rights GoAir has won – destinations such as Iran, Azerbaijan, Uzbekistan and Kazakhstan – he explained: “We purposely chose countries which have huge demand, like China, or countries like Kazakhstan and Vietnam that are underserved. Vietnam can be the new Thailand. Some of these countries are so close to India. Almaty (Kazakhstan) is less than a three-hour flight away from India. Even Baku (Azerbaijan) isn’t that far. ” He adds that a second phase of international flying may include Europe but no timetable has been disclosed. Prock-Schauer acknowledges there will be start-up costs in running international operations, but says that he will not sacrifice profitability. “Profitability prospects will be the decisive factor of allocation of aircraft. ” All in all, a cautious progression from being a “fuddy-duddy” to a more rapid, yet still slow and steady, capacity growth that sees it emerge as a domestic/international operator is the path that GoAir is now following.

In the case of the Jetstar Group, it will, in many ways, be a similar story. Jetstar Asia is reviving its expansion and growing its route network cautiously. But parent Qantas expects to take delivery of the first of 99 Airbus A320neos it has on order from the end of 2017. These aircraft are ostensibly destined for Jetstar as older A320s are paid off and to cover growth, although the company has not ruled out operating the aircraft on Qantas mainline domestic services to replace its Boeing 737-800 fleet.

Qantas chief financial officer Tino La Spina said the Qantas Group fleet plan offered “ultimate flexibility”, with new arrivals able to replace existing aircraft or to support growth. Jetstar Pacific in Vietnam, which currently has 12 A320s, as well as two A321s leased from joint-owner Vietnam Airlines, signed up at this year’s Farnborough Airshow for 10 A320ceos. They come from China Aircraft Leasing, although their arrival will partially be offset by the return of two A321s to Vietnam Airlines.

Jetstar Pacific chief executive Le Hong Ha said the aircraft would help the carrier grow international routes.

“The new aircraft will allow us to expand our operation on our international network from Vietnam as part of the wider Jetstar Group. ” Jetstar Pacific executives have said the carrier aims to have up to 30 aircraft by 2020, still a modest increase given the growth of some competitors.

Jetstar Japan, which is currently the largest of the group’s operations with a fleet of 20 A320s, has been bullish in the past, suggesting its fleet could reach 100 by the end of the decade. That ambition has certainly been reined in with the most recent projection being the fleet could reach 28 in the next three years.

Part-owned by Qantas and Japan Airlines, who have both pumped funds in over recent years, it does have huge potential, although the Japanese LCC market remains in its embryo stage. But with profits coming a year earlier than expected it can also be expected to begin expanding its capacity.

It had a boost earlier this year when it was granted rights by the Civil Aviation Administration of China (CAAC) to operate services from Tokyo and Osaka to Shanghai and Guangzhou. Whatever the prospects for Jetstar across Asia – and they are significant – the fact remains the group is now about to embark on an expansionary splurge.

At the recent full-year results announcement Joyce said he was bullish on growth prospects for the three Asian-based airlines, which produced a A$85 million year-over-year improvement in profitability in the recently completed fiscal year. Jetstar Japan was profitable for the first time, while Jetstar Asia improved its profit. The Vietnam business struggled slightly, Qantas said, as other airlines have also grown there.

But he added: “This is a part of our group strategy that sometimes gets overlooked, but Jetstar is rapidly becoming a major LCC player across all of Asia. ” Growth in Asia will remain a big part of the strategy, both at Qantas and Jetstar, he added. “We are not waiting for that mega-trend to happen. We are actively positioning the group for longer-term success in the world’s fastest-growing passenger market. ” For the likes of Jetstar and India’s GoAir, putting the brakes on expansion has certainly paid off, a strategy that might have saved some of Asia’s other more than 50 no-frills players from the fiscal pain they have suffered over recent years. Industry experts remain deeply concerned that the region’s infrastructure, both in terms of airport capacity and air traffic management, won’t be able to cope with the projected growth.

Think about it. Boeing projects a global demand for 39,620 airliners worth $5. 9 trillion over the next 20 years. It says 15,130 of these will be coming to Asia. Chinese airlines alone will require about 6,330 new aircraft worth around $950 billion over the next two decades, about 17 per cent of the global total.

Airbus thinks that over the same period, China will need about 5,400 new planes, comprising 40 per cent of all deliveries for the entire Asia Pacific region. It’s worth mentioning that 120 million Chinese travelled overseas last year. That number is expected to reach 800 million within two decades. Overall, Airbus forecasts demand in Asia for 12,810 new aircraft valued at $US2 trillion.

Whatever the correct figure, more than half of these will be single-aisle narrowbodies, all demanding slots and airspace in our already crowded airports and airways. Sure, many of these deliveries will be for replacement but the region isn’t taking thousands of new aircraft in isolation. And how many of the passenger jets being delivered to other regions – the US, Europe, the Gulf – will be earmarked for services to and from Asia as the world’s carriers increasingly try to grab a bigger part of what will be the world’s largest aviation market.

It isn’t just the ability of the infrastructure to support this ongoing growth. It’s the ability of regulatory bodies to provide oversight to ensure that all this flying is done safely and at the high standards customers expect.

Let’s be honest, some parts of Asia have fallen dismally short in that respect. European black bans. Federal Aviation Administration downgrades. International Civil Aviation Organization red flags. Not to mention nefarious goings on in such places as India and China with forged or doctored pilot licences.

It is, simply, not nearly good enough.

For budget airlines, having a conservative strategy involving sustainable growth that doesn’t ovrburden the ability of the system to handle demand in coming years, makes a good deal of sense.