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Nov 2, 2011

What does Scoot mean to Qantas, Jetstar and Asia?

It is not very bright for analysts to push the line that the revelation of a custard colored paint job for the Singapore Airlines low cost longer range brand Scoot is a vindication of t

It is not very bright for analysts to push the line that the revelation of a custard colored paint job for the Singapore Airlines low cost longer range brand Scoot is a vindication of the Qantas infatuation with Asia.

That’s a bit like saying ‘Duh, Asia is full of people who are getting richer so we need to be there.’

Robert Gordon Menzies (look him up) jolted the nation with this electrifying insight in 1956 when he signaled the importance of pursuing post war trade opportunities in Japan, at a time when memories were raw and the electorate had forgotten his pre-war enthusiasm for selling pig iron to the land of the rising sun.

What matters about business opportunities in Asia is how well and how shrewdly they are identified and developed, with a full appreciation of the sovereign, cultural and legal realities.

Scoot is a 100% owned subsidiary of Singapore Airlines operating  from there to wherever, in time, it sees the right opportunities,  and accessing those markets as an internationally recognized Singaporean flag carrier, that is, majority owned and controlled by Singaporean owners.

It is, with one difference, a carbon copy of the international arm of Jetstar in Australia. It is a vindication of the Qantas decision to launch that international arm, which is not the same as Jetstar Asia, Jetstar Pacific or Jetstar NZ.

The difference is that Qantas also bases three of its A332s at Changi Airport to fly into and out of Australia and New Zealand and in due course with more jets, anywhere that the government of Singapore likes, using labor paid under Singaporean terms and conditions, which can be summarised as higher super levies, much lower taxes, and somewhat lower salaries, keeping in mind that Singapore lacerates itself over being cost uncompetitive against Thailand, Bangladesh, Indonesia, the entire Mekong delta states and the Phillipines.

Thus Scoot is Singapore Airlines’ version of Jetstar international (Australia).   It isn’t anything like the premium product single aisle carrier Qantas is proposing to base as a Qantas controlled but allegedly majority Asia owned carrier in either Singapore or Malaysia.

If the Australian dollar was for some reason to fall into the same values it fetched during most of the first decade of this century  the cost differential between an airline between based here or there would be even more dominated by the price of fuel which is today the most important cost variable in commercial aviation.

Simple minded arguments about how everything is cheaper in China and thus we should all shut down international trade and retreat into some sort of jingoistic village economy with zero population growth, and apply punitive protection tariffs to make Australia strong (somehow) is a throw back to the Black Jack McEwen era in sophisticated trade policy (look him up) which was in vogue shortly before Menzies made the candles flicker in the RSL clubs by talking up the need to sell stuff to the Japanese.

The real issue concerning Qantas and its Asia strategies is not the obvious merits of trying to unlock opportunities in a huge and expanding market but its real intention, which is to break organized labor, dump what bean counters see as the excessive costs of excellence in Qantas flight standards,  and retreat from a Qantas international business that has been primarily compromised by management incompetence.

If this management of Qantas can’t apply itself to glaring deficiencies in its fleet, network and product decisions what hope does it have in setting itself up in Asia to muscle in on the premium quality intra-Asia turf of Singapore Airlines, Cathay Pacific, Asiana, Korean Airlines and others?

In August Alan Joyce announced the loss of 1000 jobs in Qantas international to switch resources into the Asia venture, wherever and whenever it might occur.

Yet last Friday, at the AGM before it locked out its customers world wide in order to create enough pain for the national economy for FWA to intervene and shut down dissenting union voices, Alan Joyce claimed that ‘not a single Australian job would be lost’ in Asian venture.

This was the same venue at which Joyce embarrassingly claimed that without Qantas input Airbus wouldn’t have gone ahead with the A320 NEO program. As if. Nothing was going to stop the NEO because of huge demand for a more fuel efficient single aisle jet which would exploit new engine technology available from 2015.

Joyce has a problem with the facts. Just as he had with his safety responsibilities and obligations while he was the founding CEO of Jetstar.

Concurrently with the Asia project Qantas is now committed to cutting its access to London in half by the end of March and handing over the surrendered flights to a prisoner, er, passenger exchange, with British Airways at Bangkok and Hong Kong.

This is madness. Almost all of those passengers who cannot fly Qantas all the way to London after the northern summer timetable kicks in next year are going to chose Singapore Airlines, Emirates or Etihad to fly all the way on one brand, especially if several of them earn Virgin Australia points.

Scoot may look like a vomit comet with its custard colored splash lines, but it will put even more pressure on Qantas and its Jetstar franchise than seems to generally understood by those who cut and paste Qantas press releases, or report to media bosses who accept the gifted privileges of the Qantas Chairmans Lounges.

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