Jetstar Asia CEO Update

Transcript

Barathan Pasupathi:At Jetstar Asia, we had— we have had probably one of the most difficult years in the 10, 11-year history of the airline. The last year has been phenomenal. From a market which has been very driven by overcapacity and yield reductions in the market, we were probably the only guys who came up first to say that this cannot go on 2 years ago, and we are seeing the fruits of those difficult decisions we made. We retracted capacity 2 years ago from moving from 19 to 18 aircraft. We right-sized capacity to markets. We focused on cost reduction, massive cost savings last year in the business. We reduced costs by 6% in Singapore, and we built on codeshares and interline to deliver a very fabulous result as part of the whole Qantas and Jetstar Group. Growth has to be earned. We are looking at sustainable performances. Sometimes being too big in markets where there's overcapacity is not necessarily good. If you've seen how the way we have done that, even though we have reduced our fleet in Singapore to 18 aircraft, we have grown more ASKs and capacity by working our aircraft harder, by putting more passengers on the aircraft and having better load factors to interline and co-chairs. I see the next 18 to 24 months as still being very fragile in the markets. Yes, it's true that we are seeing airlines turn the corner at this moment with good yields coming in the markets, fuel prices low, everyone is getting excited, but the time is not yet to grow. We see this in a couple of markets in the last 6 to 7 months. We've seen RASK actually increase compared to capacity growth, and capacity growth was actually zero. After retraction in the last 7 months, capacity growth was nil up to October. But post-October this year, you're going to see airlines add capacity on routes like Singapore-KL, Jakarta-Singapore. Now, we can— I basically, it's my personal view, I consider this as being irrational when the market capacity has not already been absorbed by market demand and growth is not now. Not yet, but airlines have to deliver profitability to earn that growth. We have actually added capacity in the main metros. I talked about Jetstar being the only low-cost carrier to fly to Siem Reap and Phnom Penh in Cambodia. Come northern winter, we'll increase capacity. In Bangkok, in peak season, we actually increase capacity. Come seasonal calendars, seasonal peaks, we add more capacity in Kuala Lumpur, in Manila, and in Bangkok. Given the third and fourth rights we have. Now, the secondary market you talked about specifically are Da Nang, Palembang, and Pekanbaru. Let's talk about Da Nang. Customers in Singapore have been waiting for us to start the route. In some extent, I'll say customers— the market in Da Nang was waiting for us. It was only served by a regional full-service carrier with prices of almost $800 a leg return fares. We have come into the market and they've already seen the benefits of that. We have some amazing bookings in the first couple of weeks of Da Nang. Come November 21st, when we launch the first flights, we're confident that we'll make the market work. Now, the other 2 secondary cities in Sumatra are Pekanbaru and Palembang. We talked about how congested Jakarta is for international traffic out of Indonesia. There's a lot of momentum in building international traffic out of these ports. These airports— Jakarta is probably operating at 250% to 300% given its capacity. These airports are only at marginal, probably at 35% to 40% of the capacity with latent demand waiting to be absorbed. So we see the drive there by the tourist bureau, we see the drive by the airports, and hence we are confident that we can make it work as well. Interestingly, but it has got to go to the bilateral rights or the ASAs in place from each jurisdiction, Da Nang is going to be a great example. We'll add the code. Multiple codeshare partners will have the code. In Palembang and Pekanbaru, we'll add the code on multiple partners. Some partners like Emirates may not be able to add the code at the moment, given the right situation between Singapore and Indonesia and UAE, but we can interline with them on the routes. We have a strong roster of codeshare interlined passengers. Would you believe Turkish Airlines? Lufthansa, part of the Star Alliance group, is actually working with us, a non-Star Alliance member in Singapore, and we benefit from the model. The reason why we do that is we have learned on the back of the Qantas relationship, the dual-brand strategy, working with Qantas as a full-service carrier. We've plotted the model across multiple carriers. Emirates was a brilliant example, and Qantas moved the hub to Dubai. We now leverage on that, and you will, you will be surprised at the number of partners we'll be adding down the road. We have a lot of knocks on the door, but we take time to develop this relationship, get the systems and settings right, get the product experience and the customer experience set in as well. Some existing interline partners will be upgraded to codeshare. Some are new partners who want to be codeshare partners or interline partners. So we have a number of requests coming in. Airports are getting smarter. I think to some extent you guys have helped. In the main as well, along with IATA, ICAO. This whole awareness that there has to be a formula for airlines to spur and stimulate growth has been fantastic because we see a number of airports coming on the bandwagon. Changi is an amazing airport. We talked about Changi in this conference. We talked about how in Europe, given the age and stage of European airports, there's maturity in marketing incentives. And how they engage airlines, that will come to the rest of the world. What we are actually seeing is some favorable signs that airports are coming forward from being reactive to being proactive. Normally airlines take the engagement to the airports. I'm seeing the reverse. I'm seeing some of the secondary airports come to us airlines. I'm seeing they have seen How the other airports have tasted success with what they've done, and they want the same. Palembang and Pekanbaru, great examples. When we reached out to Angkasapura too, they were very forthcoming. I gave you the numbers that they were underutilized. They were not even operating to 50-60% of the volumes they can do. They see Jakarta as being congested. They want to push international traffic. And they engaged us, they invited us. And so we came to the table with Angkasapura 2. We had a dialogue with them. It's a fabulous dialogue. They are stimulating growth. We have a formula with them which is fabulous. We believe it will contribute not only to the airport, both ways in Singapore and Indonesia, but to tourism as well. Slots are the new rights. We talked about that at the conference. Secondary airports Interesting, but we need to make it work. You want to schedule services to secondary airports, we need to start out somewhere with 2 or 3 services and build this up to a daily service. I'll give you some markets. We've been in Siem Reap, we've been in Medan. Low-cost carriers flew into Medan and they pulled out of Medan. We stayed on, and today it's one of the best performing routes in the network. It takes a bit of time because every airline has a portfolio of routes. We have a net— in our network, we don't fly to Europe and we have no ambition to fly to Europe from Singapore for Jetstar Asia. We leave it to the rest, the full-service carriers coming in. However, we take all these European passengers from these full-service carriers coming into Singapore who want to look for a collaboration with non-Star Alliance airlines like us. And bring them to the secondary markets. If we can find enough feed from the full-service carriers, yes, we will look at opening up more secondary points. But where there is a latent demand or no— there's no low-fares competition in some markets where only a full-service carrier is existing, a regional full-service carrier, that's an opportunity for a low-cost carrier. Da Nang is one. Palembang and Pekanbaru, ideal examples.

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