Jan 16, 2013

Jetstar doubts fuelled by poor Singapore profit figures

This glaring absence of Asia network at full service fare levels in the Qantas offerings is not something that the partnership with Emirates can ever fix. There is no doubt that Emirates can take over some of the Qantas business flying between Australia cities and Asia, but it can't provide Qantas with alternatives to a Silk Air or a Dragonair.

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

More disappointing results from Jetstar Asia could leave Qantas shareholders wishing the ACCC had risen to the Nick Xenophon challenge to determine exactly how Qantas shifts costs and assets between its full service and low fare brands.

Qantas has always been cagey about releasing precise financial details about Jetstar and other components of its business on the grounds that such data could assist its competitors.  However the truth about Jetstar’s under performance on some routes could also embarrass management.

Apart from saying inconsistent things about the fortunes of the Qantas long haul business, Qantas CEO Alan Joyce has a record of talking up Jetstar’s performance, but not dealing in public with the specifics, and the latest results from Jetstar Asia reflect dismal returns over eight years regardless of whether fuel prices are up or down.

If Jetstar Asia can’t outperform the food sellers in Singapore’s Changi airport over this period of time, when will shareholders get some concise and revealing accountability for a venture that has hundreds of millions of dollars worth of airliners on firm order for delivery in the rest of this decade?

The Asian miracle promised for the Jetstar franchise isn’t working elsewhere in the hemisphere either. It hasn’t worked in Vietnam, where Jetstar Pacific has never reported a profit, and it can’t even begin to work in Hong Kong until the approvals for a joint venture in Jetstar Hong Kong with China Eastern that were supposed to be granted early last month come through.

Jetstar Japan is up and running, and it is too early to say whether it will generate anything like the returns vaguely alluded to in past pronouncements about the Japan venture.

Of even larger interest is the fate of offshore based Jetstar international wide body jets. The A330-200s services that operate out of Singapore to Melbourne, Auckland and Beijing do not appear to be fully utilised according to the schedules. Yet Qantas is repatriating A330s from Jetstar long haul to Qantas domestic services as a tranch of eight Boeing 787-8s are added to the Jetstar fleet from later in the year.

Part of the problem with the Jetstar business model may be that it physically deters people of size from ever flying on its services a second time. There is no shortage of fare bargains on full service carriers throughout the Asia Pacific, and even Qantas is adept or maybe inept at times in offering its full service product at a lower price than Jetstar is, at the same time, for similar journeys.

Similarly, although Qantas has repeatedly talked up the desirability of creating a network of Asia services that will attract more business and higher value fare buying customers, it has failed to develop an offering.

Changing to a Jetstar Asia offering at Changi to continue into other parts of the hemisphere is not a competitive option placed beside the full service and often keenly priced offerings of Singapore Airline’s single aisle subsidiary Silk Air.

Qantas under Joyce is now into the second year of talking up, or at times, no longer talking up, the creation of a premium network in Asia, while Virgin Australia has already started rolling out its code share options with Singapore Airlines and has signaled that more is to come.

This glaring absence of Asia network at full service fare levels in the Qantas offerings is not something that the partnership with Emirates can ever fix. There is no doubt that Emirates can take over some of the Qantas business flying between Australia cities and Asia, but it can’t provide Qantas with alternatives to a Silk Air or a Dragonair.

Nor can derisory returns from an eight year investment in Jetstar Asia ever pay for a significant part of an order for more than 100 Airbus A320s.

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4 thoughts on “Jetstar doubts fuelled by poor Singapore profit figures

  1. moa999

    So a S$4.4m profit on S$473m revenue — 1% net margin – not bad in the context of other international airlines.
    (Even Singapore Airlines only reported 2.4% margin for latest Quarter). All airlines have been whacked by higher fuel prices that they have been unable to recoup from passengers.

    Also no ‘hidden profit’ as Jetstar Asia leases all of its planes so is asset light, thus the Return on Equity/Investment is higher.

    Whilst I agree with the desirability of a Premium based airline for connecting passengers, this is really only true in Business/ First cabins.

    The difference between Jetstar/Tiger/AirAsia and SilkAir one a 1-hr trip to Phuket in Economy is pretty negligible.

  2. J.W.

    the trend over 8 years has been loss after loss.

    Jetstar Asia does not even do widespread connectivity with Qantas flights in Singapore which just seems bizarre.

    The whole franchise concept of Jetstar in Asia is supposed to drive growth and profit at very low setup cost but overall has just turned into a sink-hole for money from the Qantas Group on one-time setup costs (on 3, count em 3!). It is highly likely that the profitability of Qantas International is wearing these costs on the various Jetstar franchises behalf to keep them afloat.

    At some point they are going to have to bite the bullet and admit the magnitude of the disaster and change their strategy to either continue current terminating flights into further ports in Asia (eg ex-SIN or HK), form their own regional carrier (unlikely) or forge a codeshare alliance(s). Jetstar in Asia as it’s exists will likely be rationalised or folded into another operation at some point down the track when there is no more money to be bleed from the Qantas Group.

  3. timjack Elton

    I can’t believe that no one on the Qantas board has twigged to how expensive the current CEO’s strategy has become. The way things are going Mr Joyce will run out of divisions within the Qantas group that is making money.

    Mr Joyce is approaching the next half yearly reporting season for Qantas group, and it will be interesting to see how many inroads Virgin has made on the Qantas domestic market share. All the suspected financial “window dressing” between the Q group divisions may be harder to hide this time around exposing holes in Mr Joyce’s strategy.

    For me, he and Mr Clifford have taken far too long to turn things around, and I think it is fair to say their days may be numbered, as it has become very painful for all to watch.

  4. Harry Rogers

    NO chance “timjack” in this country we reward incompetence.

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