Feb 20, 2012

Air Canada says it is going to do a Jetstar

Air Canada is continuing its infatuation with the Jetstar model according to a

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Air Canada is continuing its infatuation with the Jetstar model according to a report today, so much so that it is surprising Qantas isn’t talking up a Jetstar Canada franchise instead of what is looking like Dead Q in Asia.

The Canadian report also quotes advice from the the Australian and International Pilots Association to Air Canada pilots to get a ‘seat at the table’ at this stage, rather than be left out in the cold as happened in Australia.

Captain Brad Hodson, vice-president of the Australian and International Pilots Association (AIPA), is warning his Canadian counterparts not to let Air Canada push ahead with its LCC plans without having some say in how it is shaped.

“You might not be able to stop the LCC, and I’m not saying you should stop it, because there might be a market for it. But you need to get those jobs for your members, and work with the company,” he said in an interview Friday. “You need to have a seat at the table.”

Capt. Hodson said the AIPA, which represents 2,500 pilots at the Qantas Group, including some of the Jetstar pilots, wasn’t given an option when Qantas launched Jetstar. The subsidiary was launched without consultation with the AIPA, and using pilots outside of the union at lower wages, he said.

The brand has since morphed into an international operation through Qantas establishing a series of offshore joint ventures for Jetstar in Vietnam, Singapore and Japan that employ cheaper local labour than is used in the domestic Jetstar service.

“What we are really seeing now is a franchising of that brand that amounts to essentially offshoring the airline to cheaper cost bases,” Capt. Hodson said. “You lose control of your regulation, your standards and all of those things because they’re not based in your country.”

In Australia, offshoring of the Jetstar brand has led to the loss of lucrative overseas flying for Qantas pilots, including numerous routes to Japan and New Zealand, he said.

“At the start, they didn’t want us because they wanted a whole fresh, clean start,” he said. “I would suggest to Air Canada and its pilots to work together if that is what’s going to happen. I’m not sure whether or not Air Canada wants to do that. The low cost model is probably not to do that.”

In an earlier report this month, Air Canada sources said it was considering setting up a low cost carrier based outside of Canada for the purpose of flying Canadian domestic routes, similar in principle to the basing by Qantas of Jetstar A330s in Singapore to fly to and from Australia under Singaporean labor laws, and the use or abuse of tag flights to rotate Asia based cabin attendants through several entirely domestic Australian Jetstar sectors on duty tours starting and finishing in Singapore,  which as a tactic appears to be coming unstuck.

The logical place for Air Canada to attack its more costly obligations under Canadian industrial law with a similar arrangement would be the US.

Qantas might be tempted by the thought of a Jetstar Canada deal, but Air Canada is looking for a rapid buildup of a large new low cost operation, something that would not be ‘capital light’ as Qantas CEO Alan Joyce most recently said was a preferred course for an Asian based venture.

His comments to this effect last week have caused some analysts to argue that the Qantas plans for a premium single aisle Asia based carrier in a venture that would include Air Asia, the major Malaysian rival to its Jetstar franchise, is in fact dead.

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20 thoughts on “Air Canada says it is going to do a Jetstar

  1. TomTom

    What does it say about Air Canada if Qantas is their role model?

    That is an airline that is unusually well-protected from competition by its government.

  2. Ben Beveridge

    Hi Ben
    Every now and then I get time to read your airline related articles.
    I recognise that you know a fair bit about airlines but you hold your readers in contempt as you sacrifice balance to grind your peronal axe against Qantas.
    You are just like many of the old timers in the travel trade who harken back to times past when airlines had high margins and travel agents had high margins and the owners of travel agencies and employees of airlines had long lunches and swanned around the world for next to nothing and travel journos got heaps of free junket trips to all the nice places and free upgrades to front of the aircraft.
    You of all people know that those salad days are long gone and what really bugs me is that you fail to recognise that Qantas has been for the past 15 years one of the highest performing airlines in the world by all measures; one of the few (total of 3) with an investment grade credit rating, one of a few that has returned its cost of capital, one of a few to continuously win Skytrax awards (the one that really matters), one that ha th best carriers in the world in its backyard, one that has a relatively small home market population and onethat does not have the natural geographic and significant advantage of a hub like Singapore or Dubai or Abu Dhabi or the fifth freedom rights that go with it. What is more any company can start up a domestic airline operation in Australia (can be 100% foreign owned), all they have to do is get an air operators certificate and that is unique I think to anywhwere in the world. Also Australia has virtulally an open skies aviation policy in regards to inbound traffic rights and the government has granted heaps of capacity to the middle eastern and Chinese airlines as well as the likes of Singapore Airlines and Cathay Pacific. I do not work at5 Qantas but I know a number of senior people at Qantas as well as recent executives and they are not fools. They do heaps of planning and fully realise where the problems are (as you do, I might add) but many of the issues that Qantas faces do not have a silver bullet. The competition from quality carriers on the international front is intense and the key factor is that they have a cost advantage of something like +30% on Qantas International. Qantas International is genuinely losing about $200M pa and I know for a fact that it does not cross-subsidise Jetstar (I have seen the figures and that might hint at what I do)
    Qantas a pilot workforce that is based on seniority and block bidding that can support a system where a senior captain can be paid about ~$350,000 a year and work about 10 hours per month. They also have so much time on their hands (inflight and offtime) that they spend it plotting the downfall of the company; as if they know something about running an airline. They fail to recognise that they are not the airline (as they see themselves, the Gods of the air where everyone else is irrelevant) but more akin to the operators of a sophisticatd machine in a factory that makes no sense to run unless the widgets that it makes can be sold in the market with an appropriate profit margin and recognising that this factory with its machinery is up against lots of other factories with similar machinery and similar products and also without any revenue there can be no costs (well not for long anyway unless you have a friendly government to bail you out) They are a cost like any other of the inputs producing the product and they are dependent on many other parts of the supply chain and other parts of the business so that they can continue to operate the machine in the factory. So continuing the analogy, without producing a good product on the machine that they operate and that the product produced is appropriately priced according to demand and competition and the cost and the quality of the raw materials that go into making the product ad that there is a reasonable margin, there will be no need of machine operators and there will be no factory. And the flight attendants are not much better earning over double (sometimes more) than the flight attendants of Qantas main international competitors. Qantas could sack all its flight attendants tomorrow and pay half the current rates and they would still have line of people streching from Brisbane to Melbourne who would be keen to take on the role; and there would be plenty of people to repace them when they got tired of what they were doing or the novelty had worn off. The thing is in such a case they probably would not want to make a long term career of it and begrudgingly hang around until they were 65. But we live in a country with civil liberies and workers rights (which is what makes Australia great) so that the draconian policies of say Singapore Airlines where if you do not fit into size 8 dress you are out and once you get to 35 you are out anyway., do not apply. And the Singapore girls come mainly from poor families in Malaysia and Indonesia (mostly of Chinese origin) who bunk four girls in a one bedroom apartment in Singapore to make ends meet.
    And Australians are then critical of Qantas and do not support it and point to the pretty young girls on the Asian airlines and the middle eastern airlines (who are also low paid) and the low fares and the fact that you can travel to about 30 destinations in UK/Eurpoe with one stop (because of their hub advantage) and you Ben feed fuel to the fire by intentionally overlooking the facts and giving a very distorted view of Qantas. And you cast aspersions on Qantas fleet renewal program without mentioning the financing advantages of Singapore Airlines via the sovereign wealth fund of Temasek (Singapore Inc) and the sovereign wealth funds of the UAE states and Qatar and the high depreciation rates available on aircraft in most counties which in turn encourages (makes it financially worthwhile) to retire aircraft early and buy new ones. Alan Joyce and his senior team know what they are doing. So did the executive team under Geoff Dixon before him. Qantas today has challenges like never before and it cannot be complacent and it isn’t. Qantas in the old days was the public service on wings run for the benefit of its employees and it was a time where for yonks it only had one route that made a profit (Japan) and its staff swanned around the world staying at the best hotels and drinking the best wine and later when the old Qantas guard took over Australian Airlines for the first two years or so it made a complete hash of it and lost all the ground that Dixon and Strong had made up on Ansett. In the eighties and early nineties Ansett was clearly the front runner but it lost its way in about 1995 (soon after Tom Dery left, and Dixon left after he was kicked out of Australian by the Qantas old guard and went to Ansett for a couple of years) and apart from Ansett being a cash cow for Rupert Murdoch and Sir Peter Abeles and starved of capital, along came Air New Zealand starved them even more, did not make job cuts when Ansett had lost heaps of market share to Qantas and Virgin and Impulse as well as the corporate market to Qantas (which significantly reduced their net yield) and finally finished it off when the old 767s were grounded. They were due to be replaced about 4 years before, News was going to stump up the capital but Air New Zealand wouldn’t (when half owner) and certainly couldn’t when it stupidly took up its option to buy the 50% that was originally earmarked by News (Rod Edington) to to Singapore Airlines.
    The thing is you know what I am saying about Qantas is true, but you refuse to recognise it because for some reason you have a personal bee in your bonnet about Qantas and its executive team (recent and current) and will put your crooked slant on anything that happens and so feed the ignorance of your readers and perpetuate mistruths.
    Any way, I do not know why I waste my time writing to you. Nobody will read my comment and most people are not knowledgable enough about the aviation market to dispute your generally distoted view.
    P.S. Air Canada this time around is trying to establish a genuine LCC like Jetstar; which means not having a common pilot pool with high wages and inflexible work practices but entirely separate contracts of employment with lower rates of pay and the block bidding system removed (pilots are simple rostered) and flight attendants in a similar vein who are rostered (much more flexibility and closer to departure date capability rather than the nearly 3 month lead time of the currently enshrined seniority based bidding system which of course helps with planning) and they are required to clean the aircraft on a turnaround rather than paint their nails which leads to a speedier turnaround and better fleet asset utilisation. let alone the cost of cleaners who during the day only empty the toilets and they do the deep cleans overnight. First time round with its incarnation of an LCC (that it later shut down because it was not low cost) Air Canada had its own pilots (and possibly even flight attendants who transferred) all on Air Canada conditions and rates of pay. It was afterall the labour contracts foisted on AirCanada by the Canadian government when Canadian Pacific went belly up and taken over by Air Canada (because it became a virtual monoploy) that sent Air Canada bankrupt the first time.
    As they say, too much of a good thing will kill you in the end, and the market is pretty ruthless in slaying those that have over-indulged themselves. The existing employees of Qantas and other legacy carriers should remember this. Only have to remember back a short time to Ansett as an example, albeit it as not all the employees fault, but they certainly contributed to it and the unions were away with the pixies and most intransigent, and Toomey was too gutless to take a stand. All history now. Let us hope that Qantas does not end up with a similar history. It has every potential of being the same and suffering death by a thousand cuts unless it can get its costs in order in an extrememely difficult and competitive business, and one where you are often at the mercy of your stupidist competitor (generally those backed and/or owned by governments) that suck you into their vortex as they go down the tube.

  3. The Doc

    Ben Beveridge, your comment on SIA cabin crew coming mainly coming from poor Malaysian and Indonesian backgrounds who are bunked 4 in a room in a tiny apartment in SIN is so far from the truth. The vast majority of SIA cabin crew are Singapore citizens and PRs. The junior ones make between S$4000 to S$7000 (on a good month) a month, largely tax free, plus bonuses and wage supplements. Not too different from QF flight attendants I suspect, or perhaps even slightly more.

    Many young Singaporeans who have maids from the Philippines and Indonesia at home line up to work as SIA cabin crew.

    Jetstar Asia also enjoys accelerated depreciation schedules of its aircraft. If that were the be all and end all, then they should be making millions today.

    SIA is also not funded by its sovereign wealth fund parent, but instead seeks to give it and other shareholders a return. With a dividend yield of the last 3 years of 8-10% per annum, this is far better than what QF has returned to its shareholders for the past few years and possibly for the next few – absolutely nothing.

  4. Ben Beveridge

    I have nothing against Singapore Airlines. It is one of the best airlines in the world by all measures (probably the best) and Qantas I understand uses it as a benchmark. I was pointing out that it has many advantages that Qantas does not have, the main one being its hub position geographically and its fifth freedom traffic rights and the fact that the Singapore government has invested heavilly in making Changi Airport one of the best in the world. You refer to Jetstar Asia based in Singapore. You are quite correct, it is able to leverage what Singapore offers and it has made inroads into the Asian market in a very short time and it is profitable (i.e. it does actually ‘make millions’ as you say, even though carriers like Cathay Pacific and Singapore Airlines slashed their fares by about half on Jetstar competitive routes as soon as it entered the market). In regards to Singapore Airlines flight attendants you do not dispute that they hire many from Malaysia and Indonesia and provide them with special accommodation and I do not dispute that the majority are Singaporeans. You do also not dispute that their flight attaendants are on term employment contracts and that they ‘let go’ flight attaendants that do not fit through the template.
    I was primarily criticising Ben for his constant Qantas bashing and I particularly object to it becuase I kinow tha he knows better and is intentionally putting a negative skew on almost evrything that happens at Qantas and that he obviously has a personal tistaste for the current management just as he did before when the airline was headed by Dixon.
    People in general should not be so critical of Qantas. It is a great airline but it has genuine problems that in 99.9% of the case are not of its own making and the executive management are endeavouring to address these within the paramaters that it has. The bottom line is that Qantas is at the end of the line (not located in a hub) hence cannot pull from multiple markets to feed its hub services, it has a relatively small home market base (22 M people) who are not renownede for their loyalty for anything Australian (unlike most foreign nationals in regards to their home country) and all the major carriers that operate into Australia keep increasing their capacity into and out of Australia because it has a strong economy and a strong AU dollar and a middle class with disposable income for holidays and the government facilitates this with very liberal aviation policies.

  5. Ben Sandilands


    This isn’t about the well known and acknowledged challenges Qantas faces, including those it has made worse or brought upon itself. It is about its own attacks on its people, and even its own customers, and its reliance on a media environment where it is considered untouchable.

    It isn’t untouchable, and where it under performs, or misleads, this should be analysed and reported. I neither hope nor believe that Qantas is necessarily doomed, but I am firmly of the view that the interests of consumers, investors and employees will not be furthered by lazy sycophantic reporting, or the invention or embellishment of excuses.

  6. The Doc

    Don’t disagree with most of your comments – though one thing i must add is that SIA’s cabin crew are all on local terms in Singapore. No extra accomodation is provided for them, and they all earn the same salary and allowances regardless of nationality – Koreans, Japanese, Malaysians, Indonesians and Singaporeans all earn the same.

    The SG govt has invested heavily in Changi Airport, but in the last 10 years, SIA’s absolute pax numbers have not risen significantly, and its marketshare has fallen from 50% in 2000 to around 35% today. Like Australia, Singapore also has a very liberal air services regime, and gives away rights to other countries without asking for much in return for its home based carriers. SIA’s parent company Temasek was one of the initial investors in Jetstar Asia, and since their divestment, Jetstar Asia has grown stronger with only one effective shareholder instead of the original four.

    SIA also has to share limited rights designated to Singaporean carriers with Jetstar Asia, which has 4 frequencies to Ho Chi Minh City compared to SIA’s 2.

    As such, the SG govt has gifted to QF the Singapore hub, designates Jetstar Asia as a Singaporean carrier, and lobbies on its behalf to foreign governments. This is a very good deal with QF will never get anywhere else.

    I also don’t think most of us anywhere in the world are exceptionally loyal to our home carrier. I am Singaporean and love SIA but it doesn’t mean I haven’t taken Jetstar on many short flights within South East Asia. After all, aren’t most of us loyal first to our bank accounts, then the frequent flyer programme? Patriotism won’t earn us free flights…. ha ha

  7. ghostwhowalksnz

    Ben, the Ansett 767s were only delivered from 91 so the oldest ( 4)were only 10 years with the newest (300ER) only delivered in 2001.
    The current 767-300s for Qantas range from 11- 21 years.
    Doesnt match up with your statement that the 767s should have been ‘out of service 4 yrs before’
    At a guess the rest of your narrative doesnt accord with the facts.

  8. ghostwhowalksnz

    Correction to above the Ansett A320s were delivered from 88. The name change from Ansett to Ansett Australia happened in 91. Adds 2-3 years to oldest planes.

  9. Ben Sandilands

    I’m not sure which article you are referring to. When Ansett went broke it had five 767-200s in its fleet which included the two highest cycle 767s that were in service anywhere at the time, and all of them were many thousands of cycles in excess of a mandatory aged airframe check that had been introduced a year earlier.

    Ansett had in fact purchased two lower hours 767-300s from Air Canada following the Easter 2001 groundings, and at the time it folded one of them was in a sealed hangar in NZ being prepared for a new identity and logo.

    NZ had dismantled whole layers of maintenance oversight and provision in Australia, administering the carrier from Auckland. There was no effective maintenance oversight in Australia at all, contrary to the law, and Ansett pleaded complete ignorance as to the existence of the AD.

  10. TomTom

    Is it really true that “a senior captain can be paid about ~$350,000 a year and work about 10 hours per month” at Qantas, as stated by Ben Beveridge, above? Especially at Qantas International, which appears to be the object of much of this discussion, do they even have flights that a captain can fly out and back in 10 hours, if he makes one trip?

    The discussion the proceeds to list the plethora of problems with reality which Qantas is challenged to address (“It is a great airline but it has genuine problems that in 99.9% of the case are not of its own making”) and lambastes Ben for saying that Qantas is not what it used to be. So which is it: Qantas has huge challenges which it is finding difficult to overcome or Ben is wrong for saying that Qantas is not what it used to be?

  11. TomTom

    Oh, one other thing: I don’t have a competing percentage to propose, but I wonder if other readers will agree that 99.9% of Qantas’ problems are not of its own making?

  12. Ben Beveridge

    Qantas pilots probably do not get paid $350,00 pa for 10 hours per month.
    There are however many that do get paid $350,000 pa and for flying bugger all hours. Let’s say it 40 hours; that is still a disgrace. If you divide the number of hours worked into their gross pay plus allowances many of the senior captains have a better hourly rate that the CEO of Qantas (and he probably gets paid too much). This is a legacy from the past when Qantas was run by pilots who looked after their own kind and brought in the seniority based block bidding system. This system enshrines poor prodiuctivity and inflexible work practices that also impact operational flexibility and hence there is a large hidden cost within it. You do not see the Low Cost Carriers repeating that mistake. No way. They roster their crew and you take what you are rostered; not having crew select months in advance when they are going to fly and to where.
    What is more you will find most pilots being Liberal supporters and very critical of unions in gerneral. Absolute hypocrits as they are one of the most militant groups you will find in Australia; absolutely inflexible and demanding and constantly implying that they will bring the airline to its knees if they withdraw their services. If they have to go five minutes over time most will simply walk off the the job and leave it to the airline to get a replacement crew. And if they are negotiating with the airline over pay they apply the rules religiously or they call in “sick” on the day knowing that it will disrupt operations as te airline will have to call out another crew member (who may also happen to become sick) and quite probably that they guy they do finally get lives on a farm about 100KM from the airport and takes him yonks to get there. meanwhile the poor suffering passengers think that the airline is S….t. What is more, and something that most people do not realise, is that a part of their “income” is tax free (as it is with flight attendants). You see when they check-in to a hotel when on duty they get an envelope of cash handed to them by the hotel which is equal to the cost of the crew member theoretically eating at the hotel 3 full meals a day (three or four courses plus drinks) in the best restaurant plus morning and afternoon tea. Qantas gets charged for this (the amount that is in the envelope) as it is the entitlement of the crew when on duty under their award. But of course the crew do not dine at the hotel but instead buy a hamburger at a Wimpy bar nearby (or possibly eat what they take off the plane in the case of flight attendants) and pocket the cash. Hotels love it of course. They do not even have to pay for the base cost of the food, and they can charge Qantas full whack as if it was consumed in its entirety. This can be quite a considerable amount of cash on an extended tour of duty (imagine what the amount would be if staying-over in Japan) and unlike most PAYE earners the tax man never sees a cent of it. In an endeavour to reduce costs to be commensurate with actual consumption, Qantas I understand tried to bring in a special credit card for each crew member to pay for their meal expenses as consumed when on a tour of duty. But you can imagine how that went down. Went down like a lead balloon. Never happened.
    Just one more legacy practice built into the high cost of Qantas.

  13. interesting

    In answer to your question Tom Tom – No!!!
    Having said that they love separating flying time from the time you are actually away from base.
    Which means time away from family and loved ones.
    We dont mind paying a mine worker 200k for being away from home, but a pilot responsible for 300 plus lives every day at work is begrudged earning the same.
    If something happens to your child while you are on the other side of the world thats not worth being paid for??

  14. interesting

    “Most Militant group in Australia”
    The pilots wore red ties and made P/A’s to explain what they were trying to protect!
    Please have a tug on the other on as well will you

    You want the most militant collective bargaining in Australia at the moment look no further than CEO’s and their renumeration committees, now there is a closed shop.

  15. Ben Beveridge

    Money I do not imagine covers the stress of being on the other side of the world when something happens to your child. Are pilots that mercenary that they believe money is a succour for this?

    I do not begrudge pilots earning well above the average worker in Australia but I do begrudge there being a system that enshrines dubious work practices and a lack of productivity which contribute to Qantas’ high cost versus its competitors.

    A mine worker you refer to earning $200K pa (more likely $150 K pa, so still a good wage) works about 60 hours per week (fly-in, fly-out also usually 10 days on) to get that. He is also operating in a dangerous and dirty (and generally hot) working environment.
    Pilots are an essential cog in the machine that is an airline, but they are not the whole machine, as some seem to think they are.
    And don’t tell me pilots should earn the same per hour as the CEO of Qantas.
    Very few airline pilots I have met (and I have met a lot and most are nice guys) understand the airline business model and what a tough business it really is. They think it is only about flying planes.

  16. Ben Beveridge

    BTW, I think it is a disgrace what most CEOs of major companies earn.

    It is a conspiracy between the headhunting groups that recruit CEOs (they get remuneration based on percentage of CEO salary) and the remuneration committees and the senior executive; all of which are self-serving.

    This moreso in US, UK and AU than in most countries of the world (except for companies where the CEO may own the company as in India, Russia, China, Indonesia, Brazil etc)

  17. interesting

    I don’t disagree, however Joyce quote about hourly pay was based only on stick time, not duty time and commute time and time away from base etc which significantly changes the actually hourly rate making it much lower.
    And as for being mercenary we all work for money otherwise I could think of a lot better things to do.
    As for being a cog in a machine you are 100% correct and that is why engineering excellence, flight training excellence, fatigue management with rostering and quality of crew accommodations for all crew on board an aircraft are essential.
    As we are all cogs in a machine – however when one of those cogs in the machine breaks it is the pilots and only the pilots who are the difference between the Air France result and the passengers experience of the Qantas A380 incident. I know which flight I would rather have been on.

  18. interesting

    and buy commute time I mean time spent at an airport waiting for the transport to take you to your hotel which is often an hour away from the airport which adds significantly your time at work at each end and start of your day.
    I was not referring to driving from home to the airport.

  19. interesting

    Also sorry for many posts but define the average worker?!
    As I do not think it fair to compare the wage of a doctor to a factory worker or the wage of a pilot to a bus driver. Doctors, pilots, CPA’s etc are all highly trained often highly educated professionals I think if you narrow the pool to similar occupations you will find that the average wage is very much in the triple figures.
    Averages are not always averages and as the saying goes damn lies and statistics.

  20. Ben Beveridge

    I have never knocked Australian pilot capabilities. I also acknowledge that for a pilot to maintain his good salary he needs to maintain his good health, albeit he can get some insurance coverage on loss of licence.
    Sometimes there is an element of luck when something goes seriously wrong with an aircraft and the best pilots in the world cannot save it. For example when the oxygen bottle exploded on the Qantas 747 it could have inflicted far more damage as could have the A380 engine explosion. Thank fully in both cases above the incidents did not create catastrophic damage albeit they very nearly did.
    That being said, flying in an airplane is getting safer and safer even though there are more and more aircraft flying. That has come about by better designed aircraft and the learnings that are passed on to technical crew from past incidents.
    I always feel safe when flying on major brand airline with recent Boeing and Airbus equipment. I have however flown in Africa where I have had grave concerns about the capacity of the crew and the integrity of the aircraft. But I guess even there we do not hear about aircraft dropping from the sky every day. Still apprehensive though every time I go there and have to fly on some of the African airline services. Still some OK ones there (South African, Comair, Egypt Air and even Ethiopian)

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