Blending Full Service And Low Cost Airline Products: The LCCs’ Perspectives

Transcript

Bertrand Grabowski:We're going to talk about low-cost carriers. There's no conferences without having a specific panel of, on LCCs. But on this one, you know, it's a little specific because we have at the same time insider and outsider. We have 2 CEOs of LCCs in the region. And we have 2 service providers of full-service carrier and LCC. So we're going to have both inside of you and the outside you in this world. Of course, you know, we're not going to go forensic on every single aspect of the LCC world in Asia in 45 minutes, but I hope that we can touch some of the most important and critical questions for the business. So let me briefly introduce the gentlemen that we have on stage. I mean, some of them are very well known to, to you guys, starting with you, Benyamin. You, you are the CEO of AirAsia X. You joined in January 2015. You have been in the group for many, many years, 10 years before, 2010, almost 10 years. And before being in AirAsia X, you were involved in every, you know, activity of M&A in the group. And before that, you were an investment banker. Nobody is perfect. I was a banker myself. Then we have Otto here. Otto, you are the Vice President of Asia Pacific for Inmarsat. Inmarsat is very well known. You're, you know, providing communication platform to all kinds of carriers in the region. You have been in the region for quite some time, and before that you had some various positions in a wide collection of airlines from Fiji to Air Berlin. I hope Air Berlin was a long time ago. 5 years ago. You were also the Deputy CEO of Malef, you worked for Amadeus, you worked for KLM Group. And I think I haven't passed anything. Kevin, in the middle. Kevin is representing Bluebox Aviation Systems. You're the CEO and a member of the board. Bluebox Aviation Systems was born in January 2017, but it's a result of a merger of various brands that you sponsor and, in fact, arrange. You start your career as an engineer. You work for the UK government on some military project, the torpedo project. And then you move to everything which is related to in-flight entertainment. And I think your contribution will be interesting in this panel to find out, you know, how can you contribute to enhance ancillary revenue, because that's, that's part of the challenge for LCC. And last but not least, my good friend Barath. As you can see from the beautiful t-shirt, he's from Jetstar. He's the CEO of Jetstar Asia.

Benyamin Ismail:Thank you.

Bertrand Grabowski:Bara has been in the industry for, you know, 20 years. You escaped for a couple of years to go to the energy sector, and then you find it terribly boring and you came back with airlines. Thank you for that. You start your career and you spend quite a number of years with Jazeera, which is a low-cost carrier established in Kuwait, and you were one of the very instrumental persons to to establish Sahab, a leasing company, and there's not many leasing companies successfully attached to an airline, and Jazeera was one. So let me start, gentlemen, with a general question on LCC in Asia. I mean, the story, the LCC story in Asia starts a bit more than a decade ago. What we have seen in the US is that as early as the end of the '70s, we have seen a few brands mushrooming here and there. In Europe, you know, it started 10 years later. We had very strong brand in Europe, Ryanair, EasyJet, and I was wondering if we could discuss the specificity of the Asian market compared to what we have seen emerging in, in the US and in Europe. My question is, do you see some, some, you know, specificity in the Asian region, the ways the business has been growing? I mean, today we have, you know, I counted back of the envelope yesterday, last night, we have about 25 brands, LCC brands in Asia. It's still, you know, a very impressive number. Is there some fundamental differences between the US market, the European market, and the Asian market? Up to you, Benjamin, to start with.

Benyamin Ismail:Okay. Hi, everybody. For us, I think, you know, just on Friday, AirAsia X turned 10, 10 years old. It's our birthday. And it's great to be the first, I guess, low-cost carrier, long-haul low-cost carrier in Asia. And I think, you know, for the first, I guess, 4 years, we were pretty much trying to define ourselves, whether it works or whether it hasn't. But in reality, I think coming down to now 10 years, you know, we're 30 aircraft big. It's been very successful for us. I think we're growing into markets that you don't believe that people can go. We're very high density, 377 seats. And the only reason it works is because I think the market in Asia is very buoyant. I think traveling has become pretty much just similar to how Europe and US is. It's very, it's part of your disposable income and people are keen to travel. And the good thing about Asia is, which is where Europe or US don't have, is we are surrounded by ocean. So people has to fly with us. So, you know, I think in terms of Australia, Japan, North Asia, we're pretty much there. And I think the key important thing as well in this, in this environment, it's a very low-cost environment, you know, in terms of costing. So it allows you to really price yourself pretty competitively versus your full service or anywhere else. And we don't have competition versus trains or Shinkansen or Buses. So really, I think it's buoyant. And I think, you know, we were growing at a 40% capacity last year, and load factor was up 3 points. So I think, and that is not seen just with us, it's seen with Jetstar, it's seen with all the other low-cost carriers in the region as well. So I think the market is very buoyant in Asia.

Otto Gergye:Okay.

Bertrand Grabowski:Barath, your contribution.

Barathan Pasupathi:Bertrand, as you've said in the previous panel, expounded on this, there's huge differences. Let me talk about the differences between the US, Europe, and Asia. If you look at it, there are huge single markets in the US and Europe, highly deregulated, highly deregulated versus a very regulated market in Asia. Now, but one thing is common between all of us is that LCCs have actually phenomenally grown traffic, phenomenally grown traffic. Ben talked about the 40% clip growth in AirAsia. At Jetstar, we have measured the growth in our markets. We've got 5 brands. across Australasia and 11 787s in the group. But where we have grown the markets, for example, in Singapore, together with the LCCs operating out of here, the whole market has grown by 35%. Just before coming on stage, I talked about the huge growth plans in Changi and Terminal 5. You've seen KLIA growing to KLIA2, but there's very, very unusual specifics in In our market compared to the US or Europe, where you have many secondary airports in single-source markets, in Asia, with ASEAN Open Skies being a shifting goalpost, we don't have that many secondary airports to go to. If you talk about the only one good secondary airport I can think about in this part of the world is in Thailand, Don Mueang. But Singapore used to have an LCC airport, but no longer so. So there's interesting dissimilarities and similarities, but one underlying tone that all of us can agree is that LCCs have grown the overall market and we're here to stay.

Bertrand Grabowski:Thank you. I mean, Kevin, Otto, you're executives having a global view worldwide to the full-service carriers, the LCC carriers. You sell your product, you know, not only in Asia Pacific but also the rest of the world. Are you seeing differences in culture, in the way to approach market between what, you know, LCCs are effectively doing in this region and the rest of the world? Yeah, I mean, I think the, um, I mean, there's a number of differences.

Kevin Clark:I mean, all markets, as you rightly say, the LCC phenomenon has been a phenomenon. It's grown the market. It's not just taken share out of mainline carriers, it's made the markets much bigger in all of the, all of the geographies. But I guess You know, when you step onto a walkway, when you, you know, you're conditioned by the environment that's round about you. So, you know, this is the market that's, I can say, least mature in the sense that the other markets are more mature, so the starting points are different. There is, I suppose, the fortunate contribution of geography, as you rightly say. If you take the US, for example, physically, it's, you know, it's a market that you can, you could drive to if you wished for most of it, but flying Flying's an option, whereas here for many places it's the principal option, so there's that impact. The other bit, I think the biggest difference that we see, and we do participate in all markets, is just the raw ambition. The raw ambition to grow is much more, I would say, palpable in the Asian market than it is in the other markets. And that's not to say there isn't ambition, but you only have to look at the backlog or the orders for aircraft to just, if you If you took that as a sort of measure of how ambitious is the market, it's phenomenal. It's phenomenal here.

Otto Gergye:Well, as everyone's mentioned, it's the growth that changes or makes the Asia-Pacific region stand out from Europe and North America. And what that means is that the pace of growth is so high, we're talking double-digit growth rates. We've got middle classes here that didn't exist 15, 20 years ago who are taking flights. And that will— and we're seeing it now in the solutions that we have with electronic payments and many other things, that this region, based on the sheer amount of growth and the infrastructure that is available, they need to be more innovative. It needs— it's a more innovative region, and it's happier to embrace new things, more so than markets like Europe, North America, even Australia, which are much more mature. So they are much more open, the region is much more open to embracing new technology, new ways of doing things, and different solutions. One, because, you know, they're not that mature. Second, because, you know, with this type of growth in such short a period of time, it necessitates that type of thinking.

Bertrand Grabowski:Thank you. Let me, let me, before, you know, going to ancillary revenue, let me bring to you a subject of profitability and bring some contrarian view here when we compare Asia to the rest of the world. I think what we have seen for full-service carriers, the IATA statistic is telling us this, is that, you know, Asia is not particularly profitable. when it comes to airline transportation. If you look at the split of the $32 billion that the airlines are going to deliver this year in terms of operating revenue, you realize that 50% is coming from the US, which is quite a change to a decade ago. And out of the rest, there's about 25% which is Europe and 25% which is Asia. It's not terribly impressive given the size of the market and the growth. It's your ambition. So when I'm hearing from you guys, you know, growth and ambition, you know, the banker that sleeps in me says, what about profitability? And when I compare, you know, the operating margin of brands like the Ryanairs, the EasyJets, and I'm not talking about the Frontier or the Spirit, I'm being modest here, with that kind of operating margin that we're seeing for LCC in Asia, there seems to be some kind of gap. So my question to you guys is that, do you expect that you will catch up in terms of profitability with your, you know, your comp— your peers in Europe or in the US, or is that something more structural which will prevent you to increase your, to improve your operating margin?

Barathan Pasupathi:For me, Bertrand, I think it's, It's a combination of both factors. Let's talk about age and stage and maturity of the airlines. If you look at what I spoke about, huge single markets scale, and the carriers, you name it, EasyJet, Ryanair, Southwest included, if you look at their profitable pools and you look at their scale, they're huge. Yeah, that comes to regulation in Asia. There, in a virtually free market, They could move easily to secondary airports. We are limited in this part of the world. And the other one on yield. If you look at the general yield situation of carriers in Southeast Asia, they're lagging behind that in the US or Europe. Now, if you look at all the growth that is coming in place, some of the growth coming into Southeast Asia is actually not profitable at all. It's not profitable at all. We are very capital disciplined in the Jetstar Group. Every single aircraft or unit we take in has to have a minimum return on invested capital, and unless we see this, we don't deploy the asset in our markets, or with the 5 brands, we are able to rotate the units across where they need to operate. Now, will Asia be able to catch up? We are positive it will. But it will take time. You've seen a number of consolidations already happening here, one very close in Singapore just recently in the last 2 years. We see some level of consolidation in Indonesia. We're hearing there could be more coming up, but the market has to rationalize itself before we see any catch-up to the levels of profitability. You've also heard of Warren Buffett now investing in the airlines in Europe. I think he's got close to $8 billion of capital because he sees consolidation happening there. Here, consolidation has to happen at some point in time.

Bertrand Grabowski:Benyamin, your view on profitability versus growth?

Benyamin Ismail:Well, in my theory, you know, I think, you know, in terms of that 25% you said in Asia, to be honest, I think that 25% is all contributed from low-cost carriers.

Bertrand Grabowski:That's true.

Benyamin Ismail:The reason is because We're growing at such a phenomenal rate, Jetstar, us, Tiger, Lion, and everything else. We are very profitable in terms of growing because it's all new growth. What you see the opposite side is the full-service carriers. I mean, I don't know whether you can name one, every full-service carrier in Asia.

Bertrand Grabowski:We're just between ourselves, nothing will be repeated outside this room.

Benyamin Ismail:No, most of the full-service carriers are either refleeting, they're replacing the fleets, They have issues or they're losing money. So really entirely, if, and, or either that they are too busy trying to compete with the low-cost carriers.

Bertrand Grabowski:So you don't have one name but 5 names to mention, right?

Benyamin Ismail:So really entirely, I think the key focus is for us to be in that 50% bracket is for both of us to be profitable. And I think that is the market because ASEAN, 800 million people, I can't see why we can't be in that 50% bracket. So I think once They grow to a level where they can make money. I think Malaysian Airlines is getting there. Garuda is getting there. TG is getting there. Once they grow to that scale that we are, I think we'll be up there as well in the 50%.

Bertrand Grabowski:Okay. So both gentlemen, you believe that you will be able to catch up with what we're seeing as a peer reference in US or Europe?

Benyamin Ismail:Of course. Of course. And also in US as well, what we've seen as well is they went through an overcapacity. They consolidated and the yields moved up. And really, I think that's what we need to do as well in Asia. That's important as well.

Barathan Pasupathi:And if you look at the top 5 airlines in the world in terms of margins in the LCC space, Jetstar is there together with you guys. And the reason why we're there is that even though we have the long-haul aircraft, we use it very appropriately in markets together with a good short-haul narrow-body aircraft as well.

Bertrand Grabowski:Kevin, Otto, do you have a view? Profitability compared to, you know, the other clients that you have outside the region?

Otto Gergye:Well, I mean, one, profitability, but if you have a look at the region, as Barra pointed out, it's so disjointed compared to the European Union. And Ben says it's 800 million people across 25, 30 countries that all have their own set of rules, regulations, And that, in an airliner, in any industry where you need to reinvent the wheel for each market that you go into, makes it extremely, extremely difficult to work on the scale that you can in other markets where that's just possible, but hasn't always been possible. And we see what the European Union has done for airlines such as EasyJet, Ryanair, and what the deregulation in the '70s did for Southwest in the US. So that, that time needs to come in Asia, but I still think it's, it's a fair way off.

Bertrand Grabowski:Kevin?

Kevin Clark:Yeah, I think, I mean, I agree with all, all that's, that's been said. I mean, I remember I said earlier on, part of you're conditioned by where you start from, and it started at a point where the market is, you know, it's a different market, it's got physical constraints, you can't get rid of those physical constraints, that's going to have an impact on the cost, the costs will always be there. If you're looking at tapping into markets where it's opening up discretionary income, then that discretionary income is, is new income that wasn't there before that people will use to travel, but it's not the same income as someone sitting in London will have as discretionary income or elsewhere. So, so it is kind of marginal discretionary income, so maybe it's, it's unreasonable to expect that that's going to drive the same, the same levels of profitability. So I think the gaps will close. Whether they'll ever get to zero, I don't know, but they'll certainly, they'll close.

Bertrand Grabowski:Staying on profitability, one tricky question comparing Europe with Asia is the average stage length that you guys have compared to the Ryanairs, the EasyJets, or the Wizz Air that we're seeing in Europe. I mean, when in Europe you fly 6 hours, depends where you are, but you're past Ural Mountains or you're in the middle of the Atlantic. When you fly 6 hours in Asia, you're staying in Asia.

Benyamin Ismail:Yeah.

Bertrand Grabowski:And you guys have that network to cover, you know, very long stage lengths. Do you think that that specific stage length average for you guys compared to your European cousin is a positive factor to enhance CLCC or a negative factor and a challenge?

Benyamin Ismail:Well, for us, I think—

Bertrand Grabowski:That question was not on the script.

Barathan Pasupathi:I apologize.

Benyamin Ismail:No, it's okay. I mean, for us, it's slightly different because I I think the rule of thumb is basically Ryanair and your easyJet and the short-haul AirAsia. I mean, your average stage length or hours is probably about 2.5 hours. That's your sweet spot. For us, it's a bit slightly different because we're long-haul. But we can go up to 10 hours, but it may not be feasible for us. I think for us is the sweet spot for us, which is where you mentioned around Asia, is about 6 hours, 6 to 8. And that gives us the ability to do more rotations on our aircraft, which means more profit. So for us, it's 6 to 8 hours.

Barathan Pasupathi:And we look at Jetstar Asia's portfolio of routes, we have a combination of stage lengths between 2 to even 5 hours. But it all depends on the market we're flying. And the reason why we even fly— we're just launching a flight to Okinawa directly from Singapore. It's 5 hours. But we realized that it's a market that's untapped. for LCCs out of Singapore directly, and it's a full-service regional unscheduled operation. So we combine stage lengths with yield propensities in each route, and so that we have a combination of that. Yeah, we don't think that has to be a disadvantage.

Bertrand Grabowski:Okay, good. Ancillary revenue, of course, obviously that's critical for LCCs. I'd love to have Kevin and Otto's view on You know, what you perceive as, you know, the, the, as specific in Asia on LCC buying out what you guys are selling, which is, you know, communication, in-flight entertainment. I mean, how do they, how do they approach you to make it, you know, adequate for enhancing the ancillary revenue? What's the nature of the discussion you have with, with them?

Kevin Clark:Well, I suppose I mean, the first point is whether it's a mainline carrier or an LCC, the conversation is different. We're essentially in the business of providing platforms for keeping people essentially, to start with, entertained, and on top of that then there's ancillary revenue. And for a mainline carrier, it's mostly entertainment. When it's LCCs, it's, yes, there's a bit of entertainment and lots of ancillary revenue, and the conversations around how can you drive that, and it could be Simple as gated access to the entertainment, all the way through to some quite sophisticated advertising, click-through, fulfillment, fulfillment on the aircraft to fulfillment off the aircraft. Route lengths do have an impact. So if someone's flying a 6-hour flight, then they're more likely to get bored sitting on a 6-hour flight than they will on a 2-hour flight. So it becomes more relevant, and the kind of capabilities that are delivered to passengers are different depending on the the nature of that particular service. So our conversations are generally conditioned by, you know, what's the nature of the airline, what's the nature of the routes they're flying, and what are the aspirations of the systems. And then we find there is a very, even below the level of the region, there is a very, when you get into ancillary revenue, there's a very focused discussion around, okay, how does the, you know, what's available to me as an airline from, if it's advertising, For example, you know, the advertising revenue driver can be different depending on where you're originating and where you're ending up. So it becomes a much more sophisticated conversation than just here's a platform that will play movies and keep people distracted for 6 hours or whatever.

Otto Gergye:What we've found in our surveys is that in all of the countries where we do these surveys about in-flight connectivity and who wants it, The Asia Pacific, the demand is the highest. So here people will say, you know, over half of the people that we've polled, that they will switch airlines or, or fly with an airline that has it as opposed to one that doesn't, all things being equal. Um, further to that, 70% are willing to pay for it in some form. So as Kevin said, the longer the flight, the more chances are that you pay for it. Now, as an LCC, you look at this as as an ancillary for which there is great demand, for which you can put a margin on and sell it to the customer. So those things sell well with no logistics involved. So there's no catering cart, there's nothing, it's all done online. You pull out your phone and off you go and you pay for it either before or when you're in the aircraft. So it's a very, very clean, easy ancillary once it's installed and once it's there. And if we have a look at the connectivity and the Wi-Fi expectations in Asia, and someone said this morning there are more smartphones than there are toothbrushes.

Bertrand Grabowski:Yeah.

Otto Gergye:So there is a huge demand to be connected on an aircraft. And I can see it, I can see, or we speak to airlines and they see connectivity becoming the number one ancillary in future, surpassing even seat selection. So that's basically the conversation that we do have with airlines in this region, especially low cost.

Bertrand Grabowski:So, so obviously the question is how much, you know, your client is willing to pay for that ancillary service. When I was trying to compare again the portion of ancillary revenue to total revenue between Europe and Asia, here again, you know, I see that Asia needs to catch up here. I mean, the figures are similar, but Sometimes outstanding. You know, if I take an example that I know very well, which is Wizz Air, 40% of the revenue of Wizz Air is our ancillary revenue, which is absolutely amazing. The average in Asia is more around, you know, the 20, 25, borderline 26, 27, but not higher than this. The US is a case in itself, a big case, but a case in itself.

Otto Gergye:Yeah.

Bertrand Grabowski:So, Benjamin, Barath, do you think that, again, there is a glass wall here that you can't climb? Or do you think that you would be able to effectively have clients paying for the services that Otto and Kevin are effectively giving you?

Barathan Pasupathi:And at Jetstar, it's probably a third, a third of annual revenue on passenger fares. We're not where the US or European airlines are. We believe there is a bit more runway to go in terms of what we can get in that pool, and we do see our customers on board in their personal devices. You take any flight, you just walk the aisles, you'll see everyone on their iPads or Samsungs or phones. And yes, on the 787s, we have an IFE product that we do have a good upsell. In the ANZAL space, we believe there's also an opportunity, but maybe I could get some clarity. What I understand is the satellite technology in this part of the world isn't as mature as that in Australia or Europe, or it's just getting there.

Otto Gergye:It's already there.

Barathan Pasupathi:Yeah, that's good. Yeah, and what we have experimented on different products, I think we've seen other carriers do that as well, the drop-off rates have been quite alarming and high. So we are very careful in terms of how we get into that bandwidth, but we'll get there.

Benyamin Ismail:I think for Asia and for us, I think the key thing is where you compare it to Wizz Air or Ryanair and EasyJet is the purchasing power is much greater in Europe than in the US. So just looking, you know, I go through my ancillary numbers very detailed and I compare myself to Jetstar. for the same meal that I sell on my board and I compare it to their price, we're still about 10 Singapore dollars cheaper out of Kuala Lumpur because the purchasing power in Singapore is much larger. So then it ups up your total revenue amount.

Otto Gergye:Sure.

Benyamin Ismail:So for us, 75% of our traffic is coming from Malaysia, people going outbound. So, and I love, and for the Australians to go on my flight, they're buying a meal For $3 Australian, and that's like a steal for them, you know. And for us, $3 Australian is not affordable for most Asians in Asia. So it's a bit different. But yes, there's room to grow. And we're trying to make the non-core ancillary a bit more attractive. As you know, we signed up with Inmarsat as well to have Wi-Fi, especially on our long-haul flights. Where we're not just looking at just Wi-Fi connection, we're using that as well for other purposes where we want to stream it for streaming content in terms of movies. We want to use it to do online shopping. So really, it's not for one purpose. So therefore, it's a lot of items that we want to plan to do. And other than that as well, we're looking at, yes, as Jetstar was saying, you know, we, a lot of people are bringing their own tablets and all that. So we're trying to— take advantage of that so that people can use the Wi-Fi to stream all kinds of movies. So really, I think, and the most important thing is affordability, and we've discussed this before. As long as you have the right price and enough bandwidth, people will buy. And I, on my 55-minute flight here to Kuala Lumpur, from Kuala Lumpur to here, I can't live without data. And I think for a 6-hour flight, it's important to have it. So yeah.

Kevin Clark:I mean, there is a, again, it depends on how far I wish to take it. There is quite a lot you can do on an aircraft without the connectivity part. The connectivity is, is there and it's, you know, very useful and helpful, but there's a lot that can be done without the connectivity. So the streaming of movies on an aircraft, that can be done from a server, you know, that's still on the aircraft, it's not coming from the ground. So there are ways in which you can step towards getting, you know, the full service but start the ancillary revenue somewhat earlier.

Bertrand Grabowski:Okay, moving on to the next subject, there's one that we obviously cannot avoid when we talk about LCCs, long haul. LCC. You know, not to go archaeology, but, you know, we all remember the Freddie Laker of late '60s, something like that. And in this part of the world, we had some, you know, some initiative back in the late or early, late '90s, like Oasis Hong Kong.

Otto Gergye:Yeah.

Bertrand Grabowski:Which was not exactly a success. And then, I mean, you guys emerged with the strengths of a global brand. In Europe, you know, we have seen Ryanair, EasyJet, Wizz saying, no thanks, we'll pass on it. We have seen Norwegian saying, I'll take it, and I grow, you know, ballistic on all kinds of routes. Bara and myself, we were discussing just before the panel started on, you know, Yield versus growth for Norwegian. I think probably a winter will be difficult for them. Who knows? Here in Asia, you know, Benyamin, you lead the charge. You have a significant commitment to grow. You work very hard to improve profitability. Is there space in Asia for long-haul low cost? Of course you're going to say yes, but I expect more. You know, detail on this.

Benyamin Ismail:But, you know, I think when you look at long-haul low-cost, I think if you look into more detail, it only works if you have a group of AirAsia families. Because, you know, AirAsia Berhad, the short-haul guys, I mean, they have close to about 90 aircraft out of Kuala Lumpur. They feed 45% of my traffic. You know, I don't sell just point-to-point. I get 30% of Chinese going down to Australia, I got 25% of Indians going down to Australia. These are the kind of things. If you were just purely point-to-point, in my opinion, you'll struggle. Because, you know, take Norwegian for example, they're very point-to-point market. They come here on London to Singapore. It's very tough. I think you need to find a connectivity to go onwards into the region. I think for us, we have that. So, and as well, we rely a lot, you know, AirAsia Japan just started in Nagoya last week. So once they grow their domestic operations into 10 aircraft, then I can go there and feed into the domestic operations. So these are the kind of things that we have as a family, and we will continue to do that into our operations, and that's why it's successful into the long haul.

Bertrand Grabowski:So you're playing the integration to the group, and this is a way forward?

Benyamin Ismail:Correct.

Barathan Pasupathi:At Jetstar, we transitioned from the Airbus A330s to the 787s, so we have 11 of them in the fleet. Wonderful aircraft. We achieve some of the highest profitabilities on the wide-body aircraft, and the reason why we do that is from Ben's point. One, we network all the different airlines. Melbourne-Singapore connects to Jetstar Asia. Australia-Narita connects to the Jetstar Japan network. In Australia, Saigon connects to the that's a Pacific network. Second, we choose the O&D destinations that are unserved by full-service carriers where we have latent demand. Australia-Bali, it's one great example. You know, we bring close to a million, or well, it's 800,000 Australians to Bali from Australia on the 787 fleet. And Australia-Honolulu. So where there's untapped markets, we go in with the wide-body aircraft. But we're very selective. We used to have a wide-body operation out of Singapore, but if you see markets where you have a huge overlap between full-service carriers and low-cost carriers, we then choose the right markets to put the aircraft in. So certain markets work well, but not everything.

Bertrand Grabowski:I'd love to challenge you on the choice of wide-body aircraft that you guys made. I mean, you talk about 787-8. You have new 330neo coming in. Isn't it the case that you would probably improve your yield if you would use, you know, 10-year A330 as opposed to a brand new 787, or some A330s which are available cheap, being 6 or 7 years versus the expensive neo? I know you got a fantastic price.

Benyamin Ismail:Yeah.

Bertrand Grabowski:I would ask how much and you wouldn't tell, probably, but it's a spectacular acquisition price. But nonetheless, I mean, your clients do not care whether they fly, you know, a brand new 787 or a 10-year-old A330. So why have you, why have you decided to go new expensive widebody?

Barathan Pasupathi:I'd like to pick up the comment you said our clients do not care, but you can ask the audience. The clients in Asia care very much about customer experience and service. That's one thing we're big at the Jetstar Group about, and why we chose the 787s. We had fantastic fuel economics on the aircraft, and also the experience on board is phenomenal. So that's why we went, went to the 787s, and we've seen some huge load factors on all our flights. So in terms of product selection, I think we've done the right, right selection. In terms of using aggressively in the markets we've used to, we are using So that's great returns there as well.

Benyamin Ismail:Well, for us, I think, you know, the A330neos, they tested it 2 weeks ago, it flew. So we're waiting for our delivery end of next year. And the good thing is it's 15% fuel efficient. That gives you the ability to price much better. But of course, in the short term, while I wait for that aircraft to come, I need to grow.

Otto Gergye:Yeah.

Benyamin Ismail:So basically what we're looking at as well in the market is to, to your point, is to get secondhand 10-year aircraft or 12-year aircraft to come in only to do routes where I know that the margins are very high. For example, China, all those routes where I can potentially use those aircraft to marginalize. If I use that on an Australian route, then it may not make sense. So on the shorter routes, on the 6-year lease, I don't mind doing it on the short term and later just replace it with the So it's not a big strategy, but a small strategy just for the meantime just to supplement my growth. So that's it.

Bertrand Grabowski:It's a fair statement and almost a platitude that you guys are a threat for full-service carriers. In Europe, we have seen some kind of response coming from the big guys like BA, Iberia, Lufthansa, Air France-KLM, and kind of similar pattern here. here in Asia. Are those initiatives credible and do you feel the heat coming from full-service carriers or is that something that you would disregard?

Barathan Pasupathi:Full-service carriers in Asia, some of them are also getting aggressively at home here, you know, investing in low-cost carriers. And at Jetstar, if I talk about Jetstar Asia in particular, We don't have a domestic market in Singapore. We talked about that. Everything is international. And the way we leverage the very highly efficient Changi in Singapore hub is that we actually codeshare, you know, unlike many LCCs, we codeshare with 6 widebody carriers, Qantas, Emirates included, and Fiji will be the 6th codeshare partner, and interline with 32 other airlines in Singapore. And just coming in, I was just looking at the numbers, it's double-digit now. That's the number of customers we take in Changi on interline and codeshare. So yes, we see the threat coming in from full-service carriers, or the challenge coming in from full-service carriers. So we are reinventing ourselves from just LCCs to be a bit more hybrid in terms of what we do in the markets.

Benyamin Ismail:Well, for us, I think predominantly in Malaysia, we saw that at one stage Malaysian Airlines did come in and become LCC. They've also invested in an LCC, which is Firefly. They've learned their lesson and it's all gone away. So now really, I think the market has become very rational for us.

Otto Gergye:Okay.

Benyamin Ismail:So on the good side, the only threat that potentially we see is potentially other low-cost carriers that try to replicate our model, which is good. So we'll just see how we go from there.

Bertrand Grabowski:Okay, I promise Peter that we will be on time. So the last question perhaps would be a general question for, for you, gentlemen. I mean, if you look at the way the growth has been spectacular in this, in this, this part of the world, the macro environment is obviously you know, very generous for our business. Where do you see really the challenge to continue growing? Is that infrastructure? Is that pilots? Is that regulation? Where do you see the bottleneck?

Barathan Pasupathi:I'll start off. I believe it's infrastructure and costs. Infrastructure and costs for LCCs, for the short-haul LCCs, almost a third to 50% of airfares is on airport taxes and aeronautical charges. So that's a bit different in the US and Europe. And I think we have to be— we have to work with stakeholders in this part of the world, one, to ensure that there's slots available at the airports with expansion going on. But at the same time, when airports expand, be it in Malaysia, elsewhere as well, or Hong Kong, stakeholders are cognizant of what LCCs bring in terms of growth. And taper the expectations on what we have to pay to the kitty to fund those growth.

Bertrand Grabowski:Thank you.

Benyamin Ismail:Well, I mirror the same thing. We have the same issue in Malaysian Airlines, I mean, in KLIA too. You know, at the end of the day, we bring 97% of that airport traffic, you know, and I think they hasn't come to the understanding that the cheaper you charge, the more passengers we can bring at a lower price, but rather instead they up the price double for just to support their kiddie. So I think for that we need to educate that. And the other challenge for us is really going into markets where we are growing so big that getting slots is infrastructure issues that we're trying to get. And for us, low-cost carriers in this region, rightly said, secondary airports are very difficult, you know, and we have to compete with full-service carriers, airports, and all that to get the best timing. So I think that's a challenge for us now in the I mean, Kevin, Otto, what's, what's the bottleneck for you?

Otto Gergye:I think, you know, the bottleneck for us is when we're working with airlines who are hamstrung by the fragmented nature of the market and the regulatory environment which drives their costs. So there's driving up airfares, driving up airport taxes, sometimes unrealistically, instead of being able to spend that money on on value-add services which we provide. So I think that's going to take a long time, or that's going to play a major role for a long time in this region, unfortunately.

Bertrand Grabowski:Kevin, the last word to conclude.

Kevin Clark:Yeah, I think that, I mean, the biggest challenge as we see is, is there are lots of challenges. It's finding those slots, it's finding those places to fly, and all of those things very rightly are at the head of the, um, uh, the head of the mind on, on what are we going to do next as an airline. And that means in terms of thinking about, you know, what we can offer, then, you know, it's somewhere in there, but it's further down. You've got to fly the routes first before you think what you put on those routes. So it's getting the attention, and that's largely because there is so much growth. So it's good in a way, but it's still a challenge.

Benyamin Ismail:Okay.

Bertrand Grabowski:Yeah, I think time is up. It's always a challenge to be the last panel before lunch, but I think we did it well. So Back to you, Peter. Thank you. Enjoy the rest of the conference. Thank you very much.

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