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Are idle Jetstar A320s bleeding Qantas cash?

Updated with Jetstar statement* For some time now aircraft spotter sites and Pprune, which sometimes hosts

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Flying into stormy skies: Photo courtesy Jetstar

Updated with Jetstar statement*

For some time now aircraft spotter sites and Pprune, which sometimes hosts some very interesting discussions, have been publishing photos and registration lists of unemployed Jetstar franchise A320s parked at Toulouse, Narita and even Bordeaux.

Some carry Japan registrations, some for an approval pending Hong Kong operation in which the Ho dynasty will take instructions from Qantas ( no really) and some have temporary French registrations, normal for aircraft that have come off the Airbus lines, but not been finally delivered to the customer.

The Jetstars photographed include some with their engines covered. They are expensive to park, to store, and to finance when they are not earning their keep, as lease fees or other charges continue whether the jet is earning revenue or not.

Some of these jets would have been idle for months. It is claimed that some of the daily airport charges are as high as $US20,000, but we can’t vouch for that, even though a fraction of that daily amount per jet would be painful for Qantas in its current state.

Which is why Qantas has been asked for a definitive list of delivered but idle Jetstar A320s. Plus an accounting of the full costs being incurred by these jets for finance or lease charges, or other fixed costs. By some counts there are as many as around 11 Jetstar A320s doing nothing but burning cash at the moment.

What isn’t needed is another load of rubbish from Qantas management about how this is all the work of evil foreign government carriers (other than Emirates of course). What is needed is an accounting for the consequences of a serious failure to efficiently and profitably manage the Jetstar business.

No doubt the Qantas board, let by the geniuses that have overseen the massive destruction of shareholder value that has occurred in the company for the past five or more years, are pestering group CEO Alan Joyce for answers.

Those answers are seriously overdue.

*Jetstar statement

·         The Jetstar Group’s fleet order strategy allows for a flexible approach with the allocation of flying resources.

·         Following the delay in the launch of Jetstar Hong Kong, the Jetstar Hong Kong Board is evaluating options to manage their fleet in the short term, with a number of aircraft currently in Toulouse.

·         Jetstar Japan is Japan’s fastest growing LCC and any spare aircraft will be used to support the establishment of the airline’s planned second base in Osaka this year.

·         The Jetstar Group will continue to expand its operations in 2014 including the launch of Jetstar Hong Kong, subject to regulatory approval, the establishment of an Osaka base to support the continued growth of Jetstar Japan and growth in Australia for Jetstar Airways.

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Ben Sandilands has reported and analysed the mechanical mobility of humanity since late 1960 - the end of the age of great scheduled ocean liners and coastal steamers and the start of the jet age. He’s worked in newspapers, radio and TV in a wide range of roles as a journalist at home and abroad for 56 years, the last 18 freelance.

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76 thoughts on “Are idle Jetstar A320s bleeding Qantas cash?

  1. discus

    If indeed these aircraft are parked, idle and costing big money on leases, parking fees etc ( 60 million more for Jetstar japan? ) it needs to be in the mainstream media. Qantas’ future is at stake and even scared cows need to be in the firing line

  2. Bad santa

    Please please please please please let this be the last straw!

  3. discus

    EDIT on my prior post. Please read: “sacred cows” not “scared cows”. No matter how many times I proof read…

  4. Allan Moyes

    Cows in the firing line would be “scared”, discus, and so should Alan Joyce! However, even if he goes, he’ll probably get a golden parachute of $Ms for “improving” the company.

    When is the next shareholders meeting?

  5. Ken Borough

    Jetstar have taken delivery of two B787s. Currently, one flies daily between Melbourne and Bali while the other sat in Melbourne from the date of its delivery around 13 December until it flew to a Cairns on 31 December where it’s understood to be parked. Daily revenue utilization is a tad over five and a half hours for this fleet of two. From this limited evidence, all is clearly unwell.

  6. chris turnbull

    On 31 December 2013 Qantas took contractual delivery of B788 number 3 (VH-VKD). Where it is and what it might be up to I don’t know.

  7. Creeper

    I heard Tiger’s lease costs for the 5 weeks it was grounded was $11 million for the 10 aircraft.

    I notice they are now deferring frames also, one has just gone to Vueling to become EC-LZE.

  8. Travel Hound

    If I am not totally up to speed with the aircraft sitting idle, but I understand they are associated with Jetstar Japan and Jetstar Hong Kong.

    We are all know the deal with Jetstar Hong Kong and so in real terms there should be no surprises here. The reality is investors (QANTAS and others) go through a whole range of “what ifs” when investing in such ventures and as such, even though the current situation is not desirable it would have been allowed for in the business plan.

    A320’s sitting idle for Jetstar Japan is a new one for me. It might have something to do with slots or approval to fly international. I am not sure, but at the end of the day it will all come out in the wash.

    Generally speaking it is not uncommon for airlines to have surplus aircraft in their fleet. Just think of the aircraft VA bring in and out of their fleet and how long it takes to complete end of lease maintenance.

    We have to remember these planes are long term investments (8 years minimum) so in real terms the pain is going to be short lived. Also remember the economics of airlines rely on scale of economies, so over the longer there could be advantages in having these aircraft sitting idle for a short period of time.

    Let’s not simply get into a QANTAS bash because QANTAS is doing what airlines do. There are realities associated with running airlines and we just need to come to terms with it.

  9. Dan Dair

    Travel Hound,
    Let’s be realistic.
    Qantas is skint.
    It can’t afford to take-up the B787 options for it’s in-house fleet, when updating & upgrading it’s aircraft would make them more economical to fly & more inviting for it’s passengers.
    Having ONE aircraft sitting idle might be considered to be acceptable if it was going to be ‘spare’ as a JQ fleet replacement, to slot-in anywhere in their network.
    If there are as many as twelve aircraft sat idle (Quoted figure of 11 x A320’s + 1 x B787 @ Cairns(Ken Borough)) it becomes less surprising that QF is struggling so much.
    If someone ‘gave’ Michael O’Leary 12 modern passenger planes, he’d have them running 24/7, 350 days a year & earning their keep in a minute. (even if all they were doing was making a dollar a day over their costs)

    Your statement,
    “it will all come out in the wash” is another version of ‘she’ll be right’ which is more based on hope than reality.
    Should Qantas go-under, it will be the same people who think that “it will all come out in the wash”, that will be turning around and despairing that ‘no-one saw that one coming’.
    Ben has been ‘Qantas-bashing’ for ages.
    It is clear that the reason is NOT because he doesn’t like Qantas. (I believe it’s as close to his heart as any contributor to these pages)
    It is because he genuinely fears for it’s survival & has done so for a considerable time now. (longer than I’ve been a regular on this site)
    Hopefully Ben’s fears are unfounded, but all the time spin, half-truths & obfuscation come out of QF HQ, we’ll never know.
    (Ansett all over again.?)
    (I watched the Swissair documentary on YouTube. The more I read about QF/JQ, the more it resembles the way Swissair/Sabena went bust. When the airports start demanding cash to fuel the planes, you’ll know the games up)

    Positive thinking is a good thing. It can help you achieve better results and more of them.
    However, all the positive thinking in the world, will not change a pigs-ear into a silk purse.

  10. patrick kilby

    In noticed quite a few at Narita couple of months ago, but it could have been at the time of day when they are all about to head off. There are a lot of flights ex Narita now. Not sure why they can’t use the HK ones in Australia while others are serviced or some such. The 787 is new so is being sorted out prior to real work from Feb with the new Timetable with three of them.

  11. moa999

    The real worry in the region is not Qantas (Jetstar)’s orders.

    Maybe Air Asia with over 380 – all A320/320neos

    or Indonesia’s Lion Air with over 600 !! – pretty much all A320 and B737s

    If they can’t use that capacity within Asia, methinks a lot of it might flight flying South, from airlines with a very low cost base.

  12. Travel Hound

    Hello Dan Dair,

    I don’t share the same enthusiasm as some for bashing QANTAS. Both Jetstar Japan and Jetstar Hong Kong are start-ups. As is the nature with such ventures there are hiccups along the way. In both instances expansion there is / will be aggressive expansion, so in real terms this could be a better option than not having enough capacity.

    As I stated in my post QANTAS would have gone through a whole a whole range of “what if’s”, so this is probably covered. What wouldn’t be covered is slow expansion where the airlines take years longer in achieving scales of economy. I don’t think the $$$ realities of this are not appreciated.

    As for the 787 it is a new aircraft type and has to do a whole lot of proving with pilots, FA’s, maintenance, etc before it can start operations proper. I don’t see any mismanagement here.

    QANTAS’s problems are more structural based than they are operational, so if we are really concerned about QANTAS, we should be looking elsewhere for where the problems lie.

  13. Travel Hound

    Hello Moa999,

    You bring up a very good point.

    The Jetstar strategy has focussed expansion in the North Asia mature markets where they are being used to compliment existing full service carriers.

    If we look at the major Asian LCC’s and take their home markets out of the equation, they aren’t performing to well. CAPA has an article about the Philippines market and uses the word “irrational”. This a market where Tiger and Air Asia have a presence.

    If you look at the business model of Jetstar and where they have invested in expanding their operations, I don’t think any of us (even the QANTAS bashers) could call it irrational.

    With all of the new planes coming into the LCC market over the next five years, Jetstar’s strategy is probably going to be seen positively by most in the industry. On this point I don’t think a snapshot in time focusing on one relatively small issue will ever give a proper representation of realities.

  14. Ben Sandilands

    Travel Hound,

    Criticising Qantas on its record and on the factuals is not bashing. On some of the reasoned estimates of the costs for 11 delivered but idled A320s I have received today they are costing Qantas shareholders, the one’s screwed by this management and its feeble directors, to the tune of $2 million a month in lease or finance charges.

    Are you seriously suggesting this is all normal and planned for?

    Curious to know how long you think this ‘normality’ is tolerable.

  15. Flying High

    Wow – so now it has grown to 12 idle aircraft. How much more spin can you put on this? Any takers for 18 or how about 24?

    Lets start with the facts. There appears to be 5 Jetstar HK aircraft in storage. No surprises there because the venture has been delayed.

    Those 5 aircraft are the responsibility of Jetstar HK. Qantas owns 33% of Jetstar HK so at worst it is up for 33% of any costs – not 100% as is suggested in this article. Its a very convenient omission and you can start dividing your costings by 3!

    Where are these so called idle aircraft in Japan? None of the 18 aircraft are in storage with all 18 existing aircraft flying scheduled routes. Improving the daily flying hours is one of the key challenges for Jetstar Japan as it expands but that is very different to alleging they are putting aircraft in storage.

  16. Ben Sandilands

    Flying High,

    The question put to Qantas and Jetstar concerned jets delivered but idle. Jets for which the fixed costs continue but the revenue doesn’t. The invitation to clear up the numbers and of jets and the specific costs wasn’t taken up.

    It was specifically said during the interview that there was a rotation of units in Japan, as distinct from all of the aircraft delivered being in active service. The idle slack is to be taken up by the opening of the Osaka base.

    The basic premise remained unchallenged, that a proportion of the fleet is idle. But attracting fixed costs based on each jet, whether or not the jet concerned is inactive.

    The LCC model is based on high utilisation and high load factors. The fleet isn’t being managed to consistently achieve those objectives, which is why there are so many photos in circulation of Jetstar Japan A320s parked away from the action.

    I was keen for Qantas/Jetstar to clear up the question as to just how many delivered jets were idle. It wasn’t keen for that information to be published.

    The spin continues, but so do the questions, and they need to be answered.

  17. Bad santa

    Where is the Qantas bashing? All I see is frustration at the destruction of a once iconic airline by an entirely inept management.
    Travel hound,
    Jetstar Hong Kong is not a start up. It’s still just an idea (bad in my opinion), poorly implemented and costing millions and millions and millions. The hilarious “5 year plan” press release assured us it would be up and running in early 2013. Never mind the aircraft. The cost of infrastructure and staff sitting idle as well boggles the mind.
    This is reminiscent of Red Q. Announcing a new idea without due diligence to ensure a concrete path to reality. This management is so bad it doesn’t learn from its mistakes.
    If you think this is just a “hiccup” then you must have gone to the Alan Joyce school of airline management.

  18. Dan Dair

    To put a context on my earlier point about aircraft utilisation & how Michael O’Leary would do it differently;
    A few years ago an LCC operated a positioning flight from my local airport to another internal airport, before this flight went on to a holiday destination.
    The LCC, (not Ryanair in this case) registered the flight as a route & sold tickets on it.!!!
    Because the flight was fully-equipped with ALL on-board crew, there were no restrictions to this.
    The tickets were £5 + taxes.
    I don’t know if they ever sold more than a few per flight as it wasn’t the kind of route the masses would want, (or someone would already be flying it) but the fact that it was generating a couple of extra shillings here and there is the point I’m making.
    All modern airlines need maximum utilisation to justify ‘owning’ an aircraft.
    If you can’t do that, you need to sell it on or lease it out.
    (Or return it to the manufacturer against a future sale (order swap) & remove the parking/storage costs from your books immediately)

    Travel Hound;
    Point 1,
    The what if’s…
    I would agree with you in almost every case, but the evidence regarding Qantas seems to disprove the idea that it’s been properly thought through.

    Point 2,
    On current form I would think it very likely that JetStar will not be owned by Qantas in 5 years time.
    Also,a strategy of aircraft utilisation & rollover-renewal would potentially mean that some of these aircraft may have been replaced before JetStar achieves the level of success you suggest.
    (But at least the re-sale value on a 0-hours/0-cycles airframe will be relatively high.???)

    (Whilst proofing this it occurred to me that over an ownership period of 3 years, the 0-hours & cycles aircraft would probably have cost more to park than it’s residual value)

  19. Dan Dair

    It subsequently occurred to me that it might be relatively cheap to park an aircraft adjacent to the Mojave desert ‘graveyard’.
    If your plane’s not going to be required at ‘a minutes notice’ for a while, it might be a lot cheaper to fuel it to fly it there and back, but actually park it for next-to-nothing in ideal preservation conditions.?
    Just a thought.

    (Does anyone have the graveyards phone number & an e-mail address for Allan Joyce.?)

  20. Travel Hound

    “It was specifically said during the interview that there was a rotation of units in Japan, as distinct from all of the aircraft delivered being in active service. The idle slack is to be taken up by the opening of the Osaka base”.

    Ben, As far as I know Jetstar release operating statistics on their aircraft. If I remember correctly, in one of their statements to the market they stated they were on average turning their aircraft in Japan 5 times per day (and thus underutilising them). Again, if I remember correctly they even stated average hours per day. At the time they were very clear that utilisation rates would not increase until such time they started international flying, which would allow them to better schedule aircraft.

    These statements to the market have been out there for quite a while. Analysts go all over these numbers and make their assessments on them.

    We see some photos on the net months latter and start screaming.

    I am not sure what we are to expect. These are start up airlines. They have to go through a fair amount of work to get them to a stage where they are viable. To expect there to be no bumps along the way is just not realistic.

    I would concur that the current situation is not ideal, but in stating this don’t see how it can be concluded the Jetstar business and QANTAS management by default are a shame because of it.

    In all seriousness people have to get real! We are not talking about balancing our weekly grocery spend, but running very complex and sophisticated businesses. You can’t confuse the two.

  21. Travel Hound

    “Are you seriously suggesting this is all normal and planned for”?

    What I am saying is planning includes a whole range of scenarios, which are taken into consideration when developing a business plan. I would suggest low utilisation of aircraft in the initial stages of start-up would be one of those scenarios. To suggest it is “normal” would probably be a stretch too far, but to suggest it wasn’t planned for would again be a stretch to far.

    Starting a new airline in a new country is a very complex undertaking. A robust business plan would allow for a range of scenarios.

    Again we are taking a snapshot in time and coming to conclusions about entire businesses. This is just not realistic.

  22. Dan Dair

    Travel Hound,
    With respect, I disagree on your last point.

    In principle, other than the size of the numbers, there’s little difference between household & commercial budgeting.
    Any organisation, no matter how massive or miniscule has to ensure that there is enough coming in on a daily/weekly/annual basis to cover the outgoings over the same period.

    Any organisation can borrow money for investment in something or other. The trick, as always, is to manage your finances correctly.
    An individual or household which is overstretched financially will have the same consequences as a business, if there’s a hiccup in the income stream.
    If you rely on overtime to meet your bills & the overtime isn’t available, you’ll struggle.
    Equally, if a business is not utilising it’s capital or staff assets to the full, it will not be bringing in the expected revenues.

    The consequence for either organisation is financial failure due to cash-flow problems.
    The subtle difference is domestically, if your car gets repossessed, you can always catch the bus, though you might not get finance for anything for a while.
    If Qantas starts getting stuff ‘re-possessed’, it will undermine any business confidence in it from the markets & suppliers & it will be in dire-straights faster than an Emirates A380 trying to beat the KSA curfew.

    At a micro or macro level, the way any financial organisation works is basically the same.
    The difference is in business, you employ dedicated finance-department people who’s minds are not boggled or overwhelmed by the huge figures.
    These are the people who are constantly asking “where are we up to in the plan?” and are constantly revising the plan to reflect where we’re actually up to.
    Qantas either hasn’t got those kind of people or the board & CEO aren’t listening to them.

  23. Ben Sandilands

    The wombat in the room so to speak in the Qantas situation is that there is no confidence in the current management ever returning to profitability.

    In my opinion, the stock market for QAN is most driven by the level of expectation of quick gains from the dismantling of the enterprise through spin offs, or some form of a buyout or rationalisation play.

    Too many eyes are focussed on the exits (at a profit over the buy-in point) compared to those that might be looking at the longer term future

  24. Travel Hound

    Hello Dan Dair,

    The whole crutch of the article is based around a premise that QANTAS management is totally incompetent because Jetstar currently have A320’s being under utilised in some markets.

    The premise is wrong!

    With regards to Jetstar Japan, I don’t see how anyone could see this as a failing venture. It has strong partners, a potential market that is three times larger than Australia and is growing faster than any of its LCC peers.

    For arguments sake let’s take a guess and put a value of $10 million over six months for the underutilisation of aircraft in Japan, but after the six months (when they get access to Osaka) the aircraft allow Jetstar to grow and subsequently become profitable. Let’s also argue the inflection point for profitability is 24 aircraft (a reasonable guess). Now if Jetstar waited for Osaka slots to become available before ordering aircraft there could be a 1 year delay in Jetstar becoming profitable.

    Now if at 24 aircraft Jetstar Japan can produce a profit of $20 million, than having aircraft idle for six months at a cost of $10 million over a two year period actually resulted in additional profits of $10 million.

    The arguments about idle aircraft are very simple. They do not take into account the entire business plan. They do not take into account other costs and how they are accrued over a period of time. More importantly, they don’t take into account the revenue opportunity aspect of the Jetstar Japan business and how this factor will ultimately determine the real value of the business going forward.

    These businesses, if successful will have exponential growth in revenues. If the Jetstar Japan venture is successful (on current evidence I don’t see why it shouldn’t be) in 2-3 years time this event won’t even get a mention.

    We have to be realistic.

  25. Red Devil

    Travel Hound: You state this is normal business, bollocks! This cycle of making press statements about RedQ and Jetstar HK “Before getting approval” has proved over and over again that Alan Joyce and his team are completely incompetent). I could use more colourful words but might get banned). If his plan was to sell off the Jetstar franchises at a huge profit the time has passed.
    Anyone who has worked in Asia knows the problems companies face in doing business and it cannot be done overnight and they are quite clever at taking westerners money, gaining the expertise and doing their own thing. Alan Joyce was a lamb to the slaughter and one of many over centuries that line the road with carcasses of companies that think they can go to the heart of China and make a quick buck.
    Qantas is now under a huge amount of pressure because of actions by management, not the cost of staff. The cost of staff can be dealt with by engaging in the staff and not telling them that Jetstar is madly profitable and expecting them to believe it. Australians are like the Irish, cynical but not dumb(except for some) and know they have been lied to and the company expect to forgive and forget. The staff will not believe anything this management and board says ever again because they have no credibility especially when they ground the airline at the costs of millions in what can only be described as a massive own-goal.
    If he was so successful with his plan investors would be lining up at the door. The deal with Emirates is attune to a “Cashless Takeover” with no money changing hands or a equity stake in Qantas that Emirates is entitled to do, subject to FIRB approval of course. Emirates is actively courting our high-yield passengers every time they go through the Dubai lounge.
    The demise of Qantas started a long time ago with James Strong went down the path of selling off assets to generate profit and this continued through Geoff Dixon who knew nothing about airlines but made a lot of money for himself and now Alan Joyce. Qantas has been beset by as Ben described it, short-term management, intent on making as much as they can while they can and the consequences will be disastrous. Good luck to the new CEO if there is one, massive effort required and every week Alan Joyce is at the helm the problem will get bigger.

  26. Travel Hound

    Hello Red Devil,

    There is no Bullocks in my post. What I have written are the realities of doing business. If we don’t like it than we should just let others take over our businesses and handle our affairs for us.

    I work out of Asia and the remarks that they just want to take our money is wrong. The realities are Asia is where our future are, so like it or not, we have to do business there (and I enjoy working out of Asia).

    If we do have a real interest in the well being of QANTAS than we should be looking else where. As stated in one of my previous posts QANTAS’s problems are structural, not operational.

    So, look at the legislative environment it works under, current work practices (and this doesn’t mean going lowest possible wage, al la Virgin Australia), maintenance regimes and corporate instead of this doom and gloom forecasting based upon photographs on the internet.

    At the end of the day, as Australians we are actually good at doing good business and being fair at the same time.

    Unfortunately, we are also good at having a good old whinge, if things don’t go the way we think they should.

    It’s an international word we live in and we can’t look back. We have to move forward!

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