Recorded at CAPA Global LCC Summit, 1-2 Mar 2018

In Conversation with Jetstar Group CEO Gareth Evans

Jetstar Group, CEO, Gareth Evans


Peter HarbisonLet's start at the top. I mean obviously not having to wear a tie makes a great difference to a lot of-

Gareth EvansAbsolutely. Or a suit.

Peter HarbisonOr a suit. Our friends in Singapore have been smart enough not to wear ties for a long time. But there is a serious side to it. I remember when the low cost movement started, this was really part of de rigueur. It was part of the uniform. And it actually does have a bit of an impact on the way people think, I think. Isn't it?

Gareth EvansI think it does. I think you've gotta... As I said there, you've got to understand your customers. You got to put your customers at the heart of everything you do. My customers are almost entirely leisure based. They don't... They go on holiday. So, when I was handing out the prize to the 250 millionth customer they were there in their shorts and t-shirts with their kids running around quite as they should be, on their way to the Gold Coast for holidays.

You don't want somebody turning up in a tie and suit in those environments. So, yes. And it... It is... There's a mindset shift. I'm actually going through that mindset shift right now, moving from a... Running a premium airline to a low cost airline, you do have to think slightly differently.

Peter HarbisonWell, as you were saying with... Physically too with infrastructure the... You've got to have a lounge if you're a full service carrier operating internationally.

Gareth EvansYeah.

Peter HarbisonMaybe one day we'll have them for low cost carriers much for frequently too, but it's a way away. What I wanted to talk about particularly, the... And I think this is one of the things that intrigues everybody in this business. Given that Qantas was really the first group that established a sensible dual brand that actually worked, and it's been, as you've said, extraordinarily successful.

The two aspects to that though are actually keeping them together and keeping them apart. Now, geographically Jetstar was set up in Melbourne and there were some kind of staff seconded to that. Alan Joyce, in particular, of course. But it's been... It was very much separate to start with and that caused a lot of ructions and network planning and so on in the early days.

But now, and particularly for this audience up here, I think it's really interesting now that you... As you mentioned in three, four weeks time we're going to have Qantas coming back here, using this as an international hub again. And, as you said I think, relying on Jetstar probably to feed a lot of its Asian traffic through.

So, it's going to be really hard to keep that division, isn't it? In terms of management, but also in terms of product.

Gareth EvansYeah. So, look. It's an interesting time and I was lucky enough actually to be there right in the beginning for Jetstar. I was actually in the first project management meeting that took place at the start of Jetstar to set up Jetstar. When Alan walked into the room as the guy leading the project I was on the Qantas side all way through that.

But Jetstar was set up deliberately separately. Separate city, separate aircraft type, separate systems that don't talk to the Qantas systems. And that was part of its success. You've got to keep it separate because the mother will not be able to resist the temptation to pull its cost base into the child.

And that... but it... the separation has to be only so much. The stories, I think the Go story at British Airways, I think there's a story of Sir Rod Eddington driving home. This is way... 10 years or so ago when Go was set up and hearing the CEO of Go. And now it's Go's new routes, which rules BAs most highest... Best performing routes.

So, you've got to have a level of collaboration or else the child goes rogue and eats the parent. And I think we got the balance right. However, 13 years on... Testa's a fully grown up airline. 133 aircraft in. They are right across the region. The benefits now come from pulling these airlines closer together, driving the synergies out in the gaps that sit between and working out where we can more smartly and better work together as one.

Not as one airline but as one commercial entity, strengthening the dual brand. Not just in Australia, but strengthening the dual brand in Japan, strengthening the dual brand in Vietnam, strengthening the dual brand in Singapore. And the connectivity of passengers across the hub in Singapore is going to be a significant benefit to both the Jetstar brand and the Qantas brand when the network change takes place.

So, I think we're moving into the next evolutionary stage for us where we don't have to worry about the cost base being impinged upon. We're too big for that as Jetstar. It's now about how we get the learnings, because what I've seen in the first three months is that there's an awful lot that Jetstar can learn from Qantas, but there's a hell of a lot that Qantas can learn from Jetstar.

And so, bringing these two together will be a much more powerful outcome.

Peter HarbisonI wanna come back to that, but give us an example of some of the things that Qantas can learn, that you're seeing from the early days.

Gareth EvansOh, look. I think there's certainly a level of operational simplicity that takes place in Jetstar and streamlining that takes place in Jetstar that there's no doubt that Qantas can learn from, particularly on things like the turns. The way that Jetstar does procurement I think has got very much learnings that can take place into Qantas.

And the... just some of the cultural elements as well. The way... the dynamic of the way teams come together within Jetstar has definitely got benefits if we can replicate some of that within Qantas. There's quite a long list, mind you. And that absolutely works the other way as well.

So, I'm bringing some of those down to Melbourne as a result. But no. The next stage, I think, of transformation right across the group includes some significant benefits from the synergies that exist between the two airlines.

Peter HarbisonComing back specifically to Singapore too, you were obviously very much involved in the decision to bring the hub back into Singapore as opposed to flying the metal through Dubai in and your international role. Now you're on the other side of it. And you were saying. I think you got about 100 services a week into China and the rest of Asia, not all through Singapore.

But in terms... and therefore, using Jetstar as the connection over Singapore into Asia, that presumably puts a fair bit of pressure though on changing the model, doesn't it? Because it you wanna have a reasonably seamless connection in terms of brand and product, you've got to start making adjustments. Is that the case?

Gareth EvansLook, I don't necessarily think so. I think what you've got to be is clear to your customers what it is that they're getting. And we've had connectivity between Qantas and Jetstar through Singapore for a long period of time. This just enables us to supercharge it. And I think from a Qantas Group perspective, if I go back in history we... We've always struggled with partners, hubbing partners in this part of the world.

Who should it be? This? Well documented conversations have gone on in the past with airlines in this... A number of airlines in this region about partnerships. But we've actually got one. It's within our own group. It's a significant airline with a significant sized hub.

What we don't want is to kill just our Testa Asia's model. Absolutely not. It's a low cost carrier and it needs to continue to be a low cost carrier. But there's value there if we can flow passengers from one to the other across the hub.

You've just got to be clear with the customers about what it is that they're moving onto, because at the end of the day if somebody's coming down to... From Europe and they want to do one stop over Singapore to Okinawa or Clark or Manila or wherever it might be, then they're buying the network effectively.

You're clear to them about who they're flying and what the product is, then you can... You absolutely can run one model into the other model.

Peter HarbisonSo, you wouldn't, for example, like AirAsia X have done, contemplate having anything like almost lie flat?

Gareth EvansOn Jetstar? No.

Peter HarbisonI thought I might get that answer, but I thought I'd ask the question anyway.

Gareth EvansAlan Joyce might kill me if I said yes.

Peter HarbisonIt's his baby, isn't it, really? And in the other points. In Japan, in Vietnam where... And maybe even one day in Hong Kong. Who knows? But in those two places you've got I think pretty successful operations. Japan particularly. Vietnam's obviously much more of a challenge in terms of where that market's at. But, Japan you're going to start gonna start going more international? Is that the direction?

Gareth EvansYeah. So, I mean, we're very pleased with how things are going in Japan. It's having a very good year. It's making a good level of profitability. We're adding aircraft in and there is growth there. We've added additional ports in the domestic market. So, we're bedding down that operation domestically and growing.

We also got the international services as well. We're about to start up our third base. And so, the operation is growing. We would very much like to continue to grow, working together with our partner, JAL. And the long haul low cost model out of Japan is certainly very attractive.

That's not something that's gonna happen next week or next month or even next year. You've got to have the right aircraft type and for the mission that you're talking about. But we'll continue to work closely with it, JAL and the other shareholders to build the business, get it in the right place to take growth. And then that growth can come in all forms, but certainly we're very interested in exploring the long haul opportunities out of Japan.

We think that's a huge market.

Peter HarbisonInteresting, because AirAsia X is looking in that direction as well out of Japan. And talking of equipment, you mentioned the 320 Neo long range aircraft. And you've talked about them only in the context of Australia, Australia and Bali. But, is that... Are these aircraft that are actually suitable to come into this market [inaudible 00:10:49] to your other partners?

Gareth EvansAbsolutely. So, the first 18 that we're... Which we... Which we announced last week are slated for the Australian operation. But absolutely. This is a big order and the great thing about the model that we're operating is we can move aircraft around. We've absolutely done it in the past. Take an aircraft, place them off the core order into Japan, into Vietnam, into Singapore.

Or actually shifted aircraft out of certain markets, into other markets. So, it's very flexible. But, this is an order for the whole group and where we've got opportunities, where we've got business cases then absolutely. We will place these aircraft into those Asian businesses to take advantage of whatever our opportunity might be out there.

That is suitable for these super flexible long range, narrow body aircraft.

Peter HarbisonAnd in the process of taking those in Australia, you're freeing up some seven, eights, which are in Bali and domestically. Would they look like... Perhaps be based in Asia as well?

Gareth EvansLook, I think that's a more difficult one because that would be an additional aircraft type for... In that particular airline. So, if you're gonna do that then you've gotta think about that more longer term. You've gotta make sure you've got the right fleet size within that particular airline as well.

So, you wouldn't rule it out. You never rule out anything [crosstalk 00:12:14].

Peter HarbisonIt gives a lot of flexibility, isn't it?

Gareth EvansYou don't ever rule out anything in aviation, but that is a slightly more complex one than simply putting an A321 Neo into Singapore, into Japan.

Peter HarbisonWhere they're used to the 320 family here?

Gareth EvansYeah.

Peter HarbisonLet's switch dramatically. One of the really interesting things, and I don't think you went into it a lot but, is the way that your brand in Australia particularly, but obviously elsewhere as well, is able to segment the market. You... And when we say segment the market, that is the outcome of a whole lot of data that's developed from the operation of both Jetstar and Qantas.

In that process you're obviously creating a massive data bank of people's behaviour. Your tourist as well as business, as I am. Well, I'm mostly just business because I don't have time for holidays, but [crosstalk 00:13:05].

Gareth EvansAh, come on, Peter. I've seen you in shorts.

Peter HarbisonIt's not a nice sight, is it? Just run us through this process. It's a very interesting one. And I think probably you've argued, but you've segmented the market probably more effectively than anybody else, any other airline because you've had this dual brand approach to things.

Gareth EvansYeah. Look, and it's developed over the years and got more and more sophisticated. Probably in the early days it was fairly unsophisticated. And we've had lines in the sand and high level market shares out there and probably in the early days it wasn't a lot more sophisticated than that.

But over time it has become increasingly so that it is drilled right down to a very, very granular level by market, by time of day, by day of week. We have 12 million Australians who are Qantas frequent flyers. That is half the population of the country. And the population of the country includes a lot of children as well, a lot of elderly people who don't fly a lot.

You've got... So, of the core flying population it's significantly more than half. And we leverage that information tremendously. I think another interesting just little statistic... We did a... We did a survey about 12 months ago and I think it's about 60 percent of Australians do not realise that Jetstar is owned by Qantas.

So, they see it as very separate and the brands stand for very different things. And we're not segmenting the market on the same on the same aircraft. We're segmenting the market by brand. And I think that's actually just a key piece of information because if that's... The customers don't see us as connected.

They see us as very different and offering different experiences, depending on whether they're travelling for business or for leisure, whether they are premium leisure or low cost leisure. But when we started Jetstar we thought that the market would be segmented by network. There would be Jetstar routes and there would be Qantas routes, and that's not been the case.

All the routes, pretty much all of it, there's a few that are exclusively one brand or the other. But all the routes have both brands on, and it's about getting the balance right, communicating and targeting with laser focus what market segment you're going after.

Peter HarbisonThat astonishes me that so many people would not realise it's part of the Qantas group, and which actually gives you an advantage I guess in terms of differentiation and... One of the areas where quite often there isn't a lot of differentiation is actually in pricing on the same routes, particularly on the Sydney, Melbourne, Brisbane sectors.

How does that work? I can often get a cheaper fair on Qantas than I can on Jetstar and at a similar time almost.

Gareth EvansYou certainly can from time to time. Clearly, not all the time. Jetstar... Qantas' got a significant revenue premium to Jetstar. The revenue management teams are separate. Actually, revenue management across the whole Jestar group is run out of Melbourne, so there's a lot of connectivity from a revenue management point of view across Jetstar.

But they are separate, one based in Sydney, one based in Melbourne. They talk to each other a lot. And obviously they're particularly setting the price levels, they talk to each other. But most of the time we let that run. Where we do see things that are maybe not logically then we'll call it and we'll get the guys together.

But we let it run and I would say that as a result of that 98 percent of the time it works pretty well. There are circumstances where we do have Qantas cheaper than Jetstar, but it's not very often and-

Peter HarbisonAnd actually, in that respect it sounds like a fairly healthy signal in fact that you've got that overlap.

Gareth EvansIt is, yeah. We see certain events. Ed Sheeran's out in Australia. It's great for Jetstar when we have those sorts of events taking place. People, you know. We sell out pretty quickly. And the way revenue management works is probably on some of those day at those particular times we may be more expensive than Qantas. Yeah

Peter HarbisonGood. I'm glad you're saying 'we' now. That really, it's instinctive than them.

Gareth EvansAlright, okay. Yeah. I'm gonna have to play this back and see if I got it wrong at any stage. It's... Yeah, exactly.

Peter HarbisonLook, we've got a few minutes for a couple of questions if anybody's got one. Yeah, over there. Joe. Can we get a mic? Thank you. Do you know Joe? Joe, just introduce yourself if you would for Gareth.

Joe LeaderCertainly. Gareth, Joe Leader. I'm the CEO of APEX, the Airline Passenger Experience Association. I flew my family last Christmas on Jetstar from Hawaii to Melbourne. It was a great experience and I had two questions that I wanted to ask you today. First of all, I always look at the DNA of an executive when they come into a new role.

You coming from Qantas from CFO to CEO of international kind of gives a good indication as to some of the areas of focus for you moving forward. So, Peter's questions about international expansion and your answers about efficiencies really give good insight. Where do you think you'll use that backdrop do drive Jetstar further and faster?

And my second question is around the creativity aspect. Looking at Jetstar as a carrier, I think there's so much more that you can do to make revenue and think differently from the industry. So, Peter asked you about lie-flat seat. I think of Jetstar and I say, "Wow, that could be the airline that finally does the Z-access lie-flats that no major carrier would ever do of stacking up people."

But Jetstar could get away with it. What are your areas of creativity in terms of driving Jetstar Group as its CEO since the end of last year?

Gareth EvansOkay. Let me try and remember all of that. So, the experiences that I've had, I've been very lucky in my career. And aviation as we all know is a wonderful industry, and I've been very lucky to have had the ability to move around such a fantastic organisation. I think being the CFO brings a significant level of discipline, a focus on the bottom line, a focus on cost.

But also, I have a very strong understanding of what is and isn't possible, what this organisation is and isn't capable of. And I think that is gonna be very, very helpful from a cost point of view and from an operational point of view. Deep in the heart of the cost base and the operation.

So, I'm gonna bring a laser focus on cost with a deep knowledge of where I'm being bullshitted to be frank, and what is possible within the organisation. I think the second thing, my experiences of international mean I'm focused on customers. And I've... I'm actually going through a bit of a head space realignment right now that I'd sort of talked about.

I don't... I can think about customers differently in a low cost carrier, and I'm doing that, but I will be very, very focused on customers, the experience we provide to customers, a clarity around that and some of the things that I talked about in the speech. And that's... And the other thing I bring probably from the international experience is the network knowledge as well and the power of networks and the power of connectivity on networks.

I think the second point of view... I think we have to... Where are we gonna innovate? Well, I think we're gonna try and innovate everywhere. I wanna leverage the power of the culture of the organisation. I'm not a... I talked about bring the two airlines closer together. I'm not about turning Jetstar into Qantas.

I'm about preserving the unique culture, the enthusiasm, the can-do attitude, but we have to innovate around technology. We will be dead in the water if we don't because everybody else will zoom past us. We've got unique data, unique relationships, a massive network. We should be in a position to do this better than pretty much anybody else from a low cost perspective and pretty much anybody else from a premium perspective as well.

So, we gonna get that right and that is where we are going to focus. Z-beds and stacking passengers. Well, that will be interesting when that comes along. And we'll be open to any ideas, but that's probably not the forefront of my mindset at the moment. But it's those things that I talked about. Cost, it's customers, it's technology.

Peter HarbisonGood to hear. I think probably one more question if there's anybody.

Christian HylanderChristian Hylander from MasterCard here. A great discussion. Great discussion. I have a question around the data insights that you talked about. You mentioned you leverage your 12 million Qantas frequent flyer members, partly also your members. But being such an international carrier probably with a lot of members or passengers coming from other markets than the 12 million put up... I assume sits to a large extent in Australia-

Gareth EvansAlmost exclusively, yes.

Christian HylanderSo, my question to you, do you envisage or do you already use third party data to leverage that data insight?

Gareth EvansLook, look. Yes, we do and we're working around personalization and predictive analytics and customer segmentation to try and provide a personalised experience, a tailored experience for those customers who we don't know. Clearly, anybody who's a frequent flyer and puts their frequent flyer number in, we know them intimately, but somebody in Singapore or in China or in Japan who's never flown with us before, we don't know.

But how can we leverage data predictions? These people look like these people, and therefore we should be offering them this sort of experience, this sort of... These sorts of products. Yeah, we're working on those sorts of... That sort of leverage of data and we do use third party information as well.

But yes, it's... We've got a great headstart. We've got a huge amount of information on a huge number of people, but there's a significant... As you say, a number of our customers we don't know, and it's how you extend the experience and the personalization set to provide those customers a personalised experience. It's gonna be a big challenge, a big part of what we're working on.

Peter HarbisonAmong the many challenges. Gareth, I'm afraid we're gonna have to stop. I'm going to be in real trouble with my-

Gareth EvansI was just starting to enjoy myself.

Peter HarbisonI know. So was I. But anyway, thanks very much for being with us. In fact, if you've got the time we can... Our next panel is about LLC subsidiaries in full service airline groups. So, you might see a bit of the other side of it as well if you want to stay around. But anyway, ladies and gentlemen, thank Gareth very much.

You were very entertaining and useful.

Gareth EvansThank you.

Peter HarbisonThanks Gareth.

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