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Mar 4, 2010

Jetstar threatens to cap or quit services to Darwin and Hobart over airport fees, and pulls out of Rockhampton

Disagreements between Jetstar and airport owners have flared into the open today. Earlier today Jetstar announced it was quitting Rockhampton, one of its original launch routes in 20

Disagreements between Jetstar and airport owners have flared into the open today.

Earlier today Jetstar announced it was quitting Rockhampton, one of its original launch routes in 2004, because of an unresolved dispute over handling fees at a local government owned airport that has always claimed to be cheap and low cost carrier friendly.

Then the CEO of Jetstar, Bruce Buchanan, revealed that Jetstar was hitting the ceiling at Darwin Airport where its significant investment in turning the NT capital into a hub connecting its domestic and Asian networks had failed to produce a long term pricing agreement with the owners, NT Airports, despite three and half years of negotiations.

Buchanan says that without such an agreement it can’t proceed with a plan to double its investment in Darwin from being a three jet base into a seven jet base. Jetstar currently flies twice daily between Darwin and Singapore, daily to Denspasar, and five times as week to Ho Chi Minh City, exchanging passengers between its frequent services to other Australian cities and selling substantial amounts of holiday packages featuring northern territory stopovers to both the foreign and domestic markets.

It has 200 Darwin staff on payroll.

The current facilities used by Jetstar at Darwin are approaching their capacity.

The NT dispute reflects a new reality at Jetstar, in that it is the major source of earnings for the Qantas group, is its fastest growing brand, and can find plenty of work elsewhere for the jets its invests in the territory.

By coincidence, Qantas currently has a very strong franchise in Darwin servicing the resources sector, but relies on Jetstar to dominate the leisure sector, and neutralise Virgin Blue, which has never gained much traction in the NT. Tiger was quick to abandon its Darwin services soon after it launched operations late in 2007 because of its dissatisfaction with the airport charges.

In Rockhampton the net result of Jetstar’s withdrawal may not be painful for Qantas as a whole, which offers frequent Qantaslink services to Brisbane, and will add more flights to its Brisbane schedule, equivalent to about half the number of seats Jetstar has pulled off the route.

Jetstar says it is putting the flights it is taking out of Rockhampton from May 10 into Mackay. However Rockhampton is also serviced by Virgin Blue and Tiger, with the latter adding flights to Brisbane to those it makes to Melbourne from March 28.

(Indeed Tiger came out with a special $28 ‘stranded Jetstar passenger’ offer on the Rockhampton-Brisbane route immediately after Jetstar announced its withdrawal.)

Jetstar said today that the Macquarie Bank Tasmanian Gateway Consortium which paid $350 million for Hobart Airport in December 2007 had slugged it with a proposal to lift the per passenger handing charges by 50%, and warned that this threatened to cost the state at least 10% of its tourism trade.

The Hobart situation is made even more interesting by the competition it gets from Launceston Airport, which is 90% owned by Melbourne Airport and 10% by its city council. Launceston Airport’s airline ‘friendly’ incentives and fees have won it much of the leisure traffic to Tasmania already.

The Hobart disagreement, which is still under discussion between the Macquarie Bank consortium and Jetstar, also looks incongruous beside the recent joint promotion by the bank and the airline over the  launching of a Jetstar Mastercard, which enticed applications from the public for a consumer credit facility with eligibility for $1 fares, and clearly involved a payment from Macquarie Bank to Jetstar for recruiting new customers to its financial services product range.

It has been a busy day for the airport/airline relationship elsewhere too, with Tiger Airways confirming it was cancelling its Adelaide-Alice Springs service but retaining its Melbourne-Alice Springs services.

The problem appears to have been one of Tiger competing with itself. Melbourne is a bigger generator of traffic to the red centre than Adelaide, where the Singapore Airlines controlled low cost subsidiary may have botched its market research.

Postscript: The next airport development is likely to be a Tiger announcement that it is moving all or part of its operations from Melbourne’s Tullamarine airport to Avalon airport, which for those not accustomed to the distances involved, is just past the notation on the bottom of the map that says in medieval script ‘Here there be tygers‘.

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3 thoughts on “Jetstar threatens to cap or quit services to Darwin and Hobart over airport fees, and pulls out of Rockhampton

  1. crusader

    While low cost carriers say they have loyalty only to their shareholders, if they continue to take pathways which annoy customers, with so much choice in the marketplace with both Tiger and Virgin, they will ultimtely rue the day they took such steps – especially when they lose their pricing advantage!

  2. Plane

    The regional airline market in Australia doesn’t attract much attention nor money when compared to major capital cities. But regular airlines services are essential for regional centres. When Ansett collapsed the result were hard economic times in those centres where only Ansett provided services. These centres became “stranded” with no regular air services until other carriers stepped in.

    Didn’t know about all this regional activity, so maybe regional airline carriage isn’t as “thin” as it once was. Thanks for the posting.

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