low cost carriers

Jul 15, 2014

Qantas says half sale of Jetstar Asia report is speculation

Is the Indonesian interest in Qantas controlled Jetstar Asia reported by Reuters a further sign of distress in the Qantas low cost franchise?

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

 

Lion Air is not without its critics in Indonesia: social media

According to Reuters, it’s not just most of Jetstar Hong Kong’s fleet that is up for sale, but half of Jetstar Asia, which has been up and running since 2004.

However according to Qantas the report that Lion Air of Indonesia wants a share of the action in the Singapore based Qantas owned and controlled franchise is ‘speculation’.

The Qantas response so far is equivocal. It didn’t say the reports were ‘wrong’ or ‘right’, and there would be Qantas investors who would be keen to see the Jetstar franchise sold, in full or part, just as there would be some who would like to see the Qantas ‘loyalty’ program sold in full or part while it might command a suitable price.

There are some ‘dots’ in the Jetstar picture that might merit connecting, or at least, keeping in mind.

At the end of February Qantas announced that it was suspending Jetstar Asia expansion. More recently Jetstar’s CEO in Australia, Jayne Hrdlicka described Jetstar as “growing within its own footprint” and even more recently than that, substantial orders for future delivery of Airbus A320s were pushed back beyond 2020.

From late last year it became apparent that Jetstar was taking delivery of A320s for its stillborn project Jetstar Hong Kong, and for the delayed expansion of Jetstar Japan, for which there was no work. These jets were parked idle at various locations, while Qantas as the owner would have continued to pay lease and finance charges, storage and fixed labor fees related to unavoidable fixed costs running collectively into millions of dollars a month at their peak.

In PR speak, they were referred to as ‘operational spares’.

Jetstar international has also experienced route or frequency cutbacks despite taking delivery of a small tranche of Boeing 787-8 Dreamliners.

Jetstar’s Australian operations have reported poor and declining traffic statistics with the jets flying emptier, and on yields described as being lower than in the previous corresponding year.

Those figures pointing to Jetstar operating in this country more than 30 percent empty are incompatible with the high utilisations required for a successful low fare airline. It is a situation also seen in the much smaller Tigerair Australia operation which is 60 percent owned by Virgin Australia.

In the bigger picture the low cost airline model in Australia, and across much of Asia, is performing poorly, and in the case of the Tigerair franchise based in Singapore, so badly performing that it abandoned its Tigerair Mandala operation in Indonesia on 30 June after earlier being forced into a retreat from a financially damaging venture in the Philippines.

Lion Air of Indonesia is currently the fastest growing low cost carrier in SE Asia, although not without its critics in Indonesia for its poor safety record and what some perceive as a risky business strategy.

According to Qantas Jetstar Asia is a Qantas controlled entity based in Singapore in which 51 percent of the company is owned by a Singaporean national. The ownership structure of Jetstar Asia has been criticised as a sham, for much the same reasons, correctly or otherwise, that Virgin Australia Holdings is criticised as being a sham.

However the government of Singapore has been a strong supporter of Jetstar Asia, while denying the use of similar ownership structures to the Kuala Lumpur based Air Asia franchise, which has long wanted to set up a Singapore based Air Asia operation, even though it has succeeded in creating similar satellite Air Asia enterprises in Thailand, India and Indonesia, and has recently announced plans to try a second time in Japan.

The somewhat delicate question that is posed by the Reuters report is whether or not Singapore would be as accommodating for Indonesian part ownership or effective control of a Jetstar Asia franchise which one could assume would be rebranded as a Lion Air franchise.

The Reuters report, which has not been categorically denied by Qantas, doesn’t make it clear what would happen to the total Qantas interest in Jetstar Asia, but it is safe to assume that Indonesia’s Lion Air group would not invest in something in which it didn’t exercise effective control, anymore than would be the case for Qantas.

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