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Jetstar - Performance “meeting expectations”; “holding up well”

3-Nov-2008
Jetstar CEO, Bruce Buchanan
Jetstar CEO, Bruce Buchanan
  • Performance “meeting expectations”; “holding up well” in current global economic slowdown;
  • Continues to grow as parent slows in Aug-08;
  • Current focus on “near Asian strategy” as further B787s delays become a reality;
  • Goes for the jugular with announcement of trans-Tasman expansion; New Zealand-North America B787 services also a possibility.

Jetstar stated its performance is “meeting expectations” despite the industry “facing numerous challenges” in the current global economic slowdown. The Australian economy is rapidly cooling, with the Reserve Bank slashing interest rates in two bold moves over the past months, totalling 1.75%. However, according to the airline’s new CEO, Bruce Buchanan, the airline is confident travel trends seen in recent years will continue at the same pace, citing “quite healthy” forward bookings.

Similarly, Qantas Airways outgoing CEO, Geoff Dixon, stated that while corporate and leisure travel bookings have fallen, Jetstar is "holding up very well", as the tougher economic times results in a transfer of passengers to the LCC.

Jetstar stated it remains "very focused on tackling any changes in demand and booking profiles over the foreseeable and future period".

Continues to grow as parent slows in Aug-08

Jetstar continued its growth path in Aug-08 transporting 842,000 passengers (domestic and international), a 15.7% year-on-year increase, boosted by the continued expansion of Jetstar capacity as Qantas mainline contracts. Qantas Domestic and Qantas International reported passenger reductions, of 6.2% and 6.4%, respectively, in the month, resulting in a slight reduction in total Qantas Group passengers of 0.8% year-on-year.

Qantas Group passenger number growth: Sep-07 to Aug-08

As a result, Jetstar's percentage of total Qantas Group passenger traffic increased in both domestic and international markets in Aug-08, to represent 26.2% of total Group traffic (Jetstar domestic comprising 21.3% of total traffic and Jetstar International 4.9% of the total, compared to 19.0% and 3.5% respectively, in the previous corresponding period).

Qantas Group passenger numbers by carrier in Aug-08 (%)

Expansion continues, but at a slower rate

In Aug-08, Jetstar reported a 21.5% year-on-year capacity (ASKs) increase (+15.2% for domestic and +25.9% year-on-year for international operations), while Qantas Domestic and Qantas International reported reductions of 1.4% and 2.6%, respectively. The low cost unit now provides 17.6% of total Qantas Group capacity (ASKs, domestic and international).

Qantas Group passenger capacity and traffic growth by carrier in Aug-08 (% change year-on-year)

However, Jetstar's Aug-08 capacity (ASK) growth was the lowest it has been over the past 12 months.

Qantas Group capacity (ASKs) growth: Sep-07 to Aug-08

Domestic load factors fall across the board in Aug-08

Meanwhile, load factors deteriorated across the Australian domestic network, with Qantas Domestic, Qantaslink and Jetstar Domestic all reporting reductions, of 2.9 ppts, 5.3 ppts and 3.4 ppts, respectively. Internationally, Qantas reported a 2.6 ppt load factor reduction, with Jetstar International the only business segment reporting a load factor improvement, of 8.5 ppts to 77.1%.

Qantas Group passenger load factor growth: Aug-07 to Aug-08

Due to the high levels of industry capacity growth and discounting in the Australian leisure segment, total domestic yield (Qantas, QantasLink and Jetstar domestic) in Jul-08 and Aug-08 fell 2.3% year-on-year (excluding exchange), although international (Qantas and Jetstar International) yield increased 6.3% year-on-year (excluding exchange).

Two-brand strategy key to Qantas Group's success

Mr Buchanan stated he believes Qantas Group's two-airline strategy is key to the Group's success, stating it gives the airline "the best position of any carrier globally" in terms of responding to changes in demand patterns or downturns in particular classes of travel.

Qantas is one of the few airlines in the world to have successfully run a full-service premium carrier and LCC in parallel.

Current focus on "near Asian strategy" as further B787s delays become a reality

Jetstar, meanwhile, stated it expects further delays to the delivery of its first B787, which is now expected to be delivered in mid-2010, instead of Nov-09, due to the Boeing machinists strike. Jetstar parent, Qantas, currently has firm orders for 65 B787s, with options and purchase rights for another 50. The first 15 aircraft (which were originally scheduled to commence delivery from Aug-08) will be used by Jetstar.

Boeing B787 delays timeline

Date

Event

Further information

Jun-06

Major component assembly commences.

Test flight set for Aug-07, first delivery for May-08.

May-07

Major B787 assembly commences at Boeing Everett plant.

 

Jun-07

Boeing announces possible delay to initial test flight to Sep-07.

May-08 delivery target unchanged.

Jul-07

B787 rollout at Everett plant

 

Sep-07

First delay announcement - 3 month delay to test flight, due to shortage of aircraft fasteners and integration and supply problems.

Test flight rescheduled to mid-Nov-07 to mid-Dec-07. May-08 delivery target unchanged.

Oct-07

Second delay announcement - 6 month delivery delay, due to "continued challenges completing assembly of the first airplanes," including out-of-sequence production work, parts shortages and remaining software and systems integration activities.

Delivery target pushed from May-08 to late-Nov-08 or Dec-08.

Oct-07

New head of B787 programme appointed

Pat Shanahan appointed VP & General Manager of the B787 programme, succeeding Mike Bair.

Jan-08

Third delay announcement - 3 month delay to deliveries and test flight, due to supplier problems and slower than expected assembly.

Test flight delayed until at least Jun-08, initial delivery delayed to 1Q09.

Apr-08

Fourth delay announcement - 6-month test flight and delivery delay, due to continued problems with suppliers.

Test flight set for 4Q08, first delivery for 3Q09.

Sep-08/Oct-08

Boeing machinist strike

Further details to delivery programme to delay Jetstar deliveries from Nov-09 to mid-10.

The delays, which have already deferred Jetstar's entry into Southern Europe (Rome, Athens, and possibly Munich) to 2010, will further affect the airline's long-haul intercontinental Asia-Europe plans and give AirAsia X further opportunities to expand its international network and presence, with its high capacity A330 fleet, which starts to deliver next month. The carrier has also delayed the selection of its new Southeast Asian hub (the airline is considering Kuala Lumpur, Singapore, Bangkok or Ho Chi Minh City as possible bases), which it plans to use to connect its B787 services to Europe.

While this is the longer-term plan, in the short to medium term, and in response to the B787 delays, Jetstar's growth is being generated by its narrowbody fleet. The carrier's strategy is to expand into Southeast Asia from its Darwin and Perth hubs, using A320 and A321 aircraft.

Jetstar currently has 29 A320s and two leased A321s, with new aircraft due in Dec-08, Feb-09 and Mar-09 to bring the A320 fleet to 32. From mid-09, Jetstar will also commence receiving A320 and A321s from a larger order of up to 108 aircraft, including 68 A320/321 aircraft plus 40 options and purchase rights into the next decade. Some of those aircraft will go to the Qantas Group's Vietnamese investment, Jetstar Pacific, which is initially using Boeing 737s before moving to the A320s.

Goes for the jugular with announcement of trans-Tasman expansion

Jetstar, meanwhile, stated it continues to see "many market opportunities" as part of its near-Asia strategy, as reflected in recent announcements on the commencement of short-haul international flying into Asia from Perth (on 27-Oct-08) and the further development of its hub from Darwin.

Jetstar has also made its much-anticipated announcement of an expansion of trans-Tasman flying, with daily services from the Gold Coast and Sydney to Auckland from 28-Apr-09 with deeply discounted fares (from AUD99 one way, inclusive).

Jetstar plans to base an A320 in Auckland, as it grows its trans-Tasman service from 28 to 42 weekly services from Apr-09. Combined, the two new trans-Tasman services equate to an additional 258,000 seats on offer p/a.

Mr Buchanan stated Jetstar expects to take a "price leadership position" on the new routes, with the airline "committed" to offering the lowest fares in the trans-Tasman market." It is a direct response to Pacific Blue, which recently expanded its trans-Tasman presence with the launch of Sydney-Auckland services.

Jetstar also stated it is "quietly confident" its expanded operations will be successful, despite the competitive pressures that has forced Air New Zealand to enact cuts on the route. According to Jetstar spokesman, Simon Westaway, Jetstar has "thought long and hard about this and from a trans-Tasman perspective we are quietly confident we are going to do well and if people say that is a bloodbath, well, we are happy to swim in it...It is incremental growth. It is our two-brand strategy in play and this is how we are going roll this out."

Qantas, meanwhile, is maintaining its presence on the Sydney-Auckland route (with four times daily operations) signalling the Group's intention to out-muscle competitors.

Jetstar's new New Zealand services are currently supported by Australian bases but Jetstar has also confirmed plans to obtain a New Zealand Air Operator's Certificate.

New Zealand-North America B787 services a possibility

New Zealand is an increasingly important market for Jetstar, as its B787s will be unlikely to operate non-stop to the US from Australia's Eastern seaboard, according to Mr Buchanan. This makes Auckland/Christchurch-US services a very realistic possibility, in addition to services from New Zealand to destinations within Southeast Asia.

Jetstar is also considering operating B787 service to Canada, with Mr Buchanan stating, "that's always a market we've been interested in serving". He added, "you can look at complementing places where we've got strong brand and distribution presence like Japan, rather than bringing them to NZ over Australia, bringing them directly into New Zealand. There are huge numbers of opportunities and it's just a question of which opportunities you go after".

To reintroduce Cairns-Japan link

In other network news, Jetstar announced plans to reinstate air access from Osaka to Cairns through a new three times weekly Cairns-Gold Coast service from 03-Feb-09 that will directly connect with the carrier's daily Gold Coast-Osaka service, following an agreement with the Queensland Government. The carrier previously planned to conclude the A330-200 service by mid-Dec-08.

As Jetstar's newest domestic route, Cairns-Gold Coast will add over 1,000 weekly seats at Cairns and grow the carrier's Cairns operations to 66 weekly domestic and international services by early 2009, covering six domestic markets in addition to daily international services to Singapore (via Darwin) and future Tokyo A330-200 services.

In reinstating the service, Jetstar welcomed an agreement with Cairns Port Authority, the owners of Cairns International Airport, and joint marketing support from Tourism Queensland (TQ), Tourism Tropical North Queensland (TTNQ) and Tourism Australia that assists in the reintroduction of air access by the Qantas Group between Cairns and the Kansai region. Queensland Airports, owner of Gold Coast International Airport, also reached an agreement with Jetstar to support its future Cairns-Gold Coast service.

From Dec-08, Jetstar will operate 19 weekly international services between Queensland and Japan including a daily Cairns-Tokyo (Narita) service, commencing 18-Dec-08. As previously announced, Jetstar will codeshare with both Qantas and Japan Airlines on this service.

Further expansion from Perth

Jetstar has also announced a new wave of growth from Perth, with the launch of three times weekly Perth-Denpasar service on 27-Oct-08, increasing to four times weekly in Dec-08. The carrier is also scheduled to launch Perth-Jakarta service on 28-Oct-08 and daily Perth-Singapore service on 02-Dec-08.

Domestically, the carrier plans to launch daily Perth-Adelaide service (boosting the Qantas Group capacity on the route by 2,400 weekly seats) and three times weekly Perth-Cairns service in Feb-09 (replacing Qantas' existing twice weekly B737 Perth-Cairns operation). Jetstar currently operates a double daily Melbourne-Perth A320 service.

Jetstar's entry on the Perth-Cairns route will boost Qantas Group capacity by almost 60% and is supported by an additional A320 aircraft to be based in Cairns (for a total of three A320s by Feb-09).

Jetstar Adelaide services will grow to 47 weekly frequency by Feb-09 with daily service to Melbourne (11 times weekly), Sydney (daily), Brisbane (daily), Perth (daily from Feb-08), Cairns (four times weekly) and Darwin (four times weekly).

Carbon Offset Programme a "consumer success"

Mr Westaway, meanwhile, stated the Jetstar Carbon Offset Programme has been a "consumer success" since its launch in Sep-07. The carrier attributes its success to the simplicity of the programme, due to its integration into the airline's booking process.

Mr Westaway stated the run rate in terms of conversion for online bookings has remained at "no less than 10%" of online bookings since the programme's launch, with the rate higher to/from environmentally aware destinations. For example, on services to the Ballina Byron region, approximately 20% of bookings adopt the Carbon Offset choice.

Background Information:

  • Wholly-owned subsidiary of Qantas;
  • Currently operates to 40 domestic and international destinations;
  • Plans to significantly expand its narrowbody operations on domestic and short-haul international routes;
  • Currently operates a fleet of 26 A320-200s and six A330-200s (servicing eight international long haul markets in Asia and the Asia Pacific);
  • Has order for 68 A320/A321s and is expected to receive the first 15 B787s of Qantas' recent order for 65 B787s (plus purchase rights for another 50);
  • Has transported more than 29 passengers since it launched domestic services in 2004.

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