Jetstar Group CEO Update

Transcript

Gareth EvansWell, this is a really exciting announcement for the Jetstar group. We're bringing in new technology. The aircraft will be more efficient. So we'll have a lower cost base which is obviously incredibly important for low-cost carrier, but the flexibility that it brings to the group is fantastic, as well. To have an aircraft type that can move between a domestic network situation in Australia and an international network potentially flying from the East Coast of Australia into a significant market for Jetstar like Bali is huge. These will be high utilisation aircraft flying during the day in domestic Australia, and then we'll be able to fly them back of the clock out of Sydney and Melbourne, up to Bali, and that will free up 787–8's currently doing some of that flying. This isn't about replacing the 7-8's on Bali, but taking some of the flying on to the 321neos and freeing up some of the 7-8 capacity to add additional destinations or additional frequencies to the rest of the Jetstar international network. A network which is performing incredibly strongly.

The east coast Bali stuff is getting towards the edge of the range. So you've got some opportunities into Indonesia, obviously you've got opportunities across the Tasman as well, and potentially across the Tasman from the West Coast of Australia, as well, so it's that sort of range capability that you're looking into if you're talking about Australian based aircraft. Potentially there's things you could do up to the Pacific islands, as well, in the future, but all of this is a few years away. The first aircraft comes in 2020. We certainly know that we've got these opportunities to free up 787's which is going to be hugely beneficial. Fundamentally they're going to be doing a lot of flying domestically in Australia, but it does open up these new markets within that range circle for us. Longer term with the order stream potentially could go into other of our Asian airlines, into Singapore or Vietnam, or into Japan at some point in the future, and it will open up new markets for them as well.These are aircraft that are starting in 2020 and coming in between 2020 and 2022, the first 18. Then the reminder of the order would be beyond that.

It would be Australia based. We've got a fleet of 11, and there's always good business cases. These are fantastic aircraft. So there's been a lot of business cases put on the table recently, but we would not have the aircraft to be able to take advantage of them. This gives us aircraft time on 787's to do that. We won't make a decision until we get close to the time because as you know, in aviation things change quickly, good markets turn into average markets. Markets that today may not be performing brilliantly may well be strong markets by then, but this does give us the opportunity to add significant increase flying to new destinations or new frequencies to existing destinations with a super efficient, new generation, wide-body jet.

It effectively gives a 787 growth in a really efficient way for the period up to 2022.

China's a huge opportunity. There's phenomenal amounts of growth. It's also quite a difficult market, as well. It's hugely competitive, and the Jetstar group today flies in to, I think it's 20 destinations in China, either on RPT or charter services from the combined Jetstar businesses out of Singapore, out of Vietnam, out of Japan, and then the one service that comes out of Australia. We've got a big presence in China today without actually having a business based in China, or a lot of flying that comes out of Australia. We're going to continue to work on our China strategy. We're going to talk to our Chinese partners. We're going to work through what potential models may or may not work. Obviously a 787 is a great vehicle for flying into markets in China, but you've got to be really strategic about China because whilst there's huge opportunity, there's huge risks, as well. You've got to get the model right.

China is a huge opportunity for airlines based everywhere. There's going to be significant growth between Australia and China. There's going to be significant growth between everywhere and China. It's how we tap into that growth in a way that's sustainable and profitable over the long term that's going to be key for us. I think every airline in the region, every airline in the world is looking at what they're going to do in China. We have a really strong position today, both with the Qantas brand and with the Jetstar brand. We're going to be working very hard on what our strategy's going to be to participate in that growth going forwards.

I think the opportunities are significant. I mean, Vietnam is a hugely attractive destination for Australians, and the Vietnamese people are travelling more and more, as well. We've seen that this route from Melbourne up to Vietnam has performed very, very well in the early stages. Still, obviously it's a new route so you've got to go through that start up curve, but it's ahead of our expectations and we truly believe that Vietnam is going to be a huge destination for us in terms of the connectivity, or the traffic flows between Vietnam and Australia. The fact that we then have a domestic network within Vietnam so that we can provide customers not just one destination in Vietnam, but multiple destinations in Vietnam, is an added bonus as well. It's a very important market for us.

The performance of Jetstar Vietnam has significantly improved. I mean, the market was over supplied 12 months ago and prior. That level of capacity growth has reduced the market, has grown into the capacity that was put in the previous year now, so we're seeing good strong yield improvement. That's certainly helping Jetstar Vietnam's profitability, so we're very pleased with the performance of that airline. The opportunity now is where can we grow that makes sense, and how can we continue to make sure that we have a profitable future for that airline.

I think with any airline you've got to get your network right. Networks will change and evolve over time. I think I said we're effectively operating into brand strategy into Singapore with Qantas. Qantas is growing it's services into Singapore, and we seen some changes to Jetstar's services between Australia and Singapore as a result of that, and the ability then to re-deploy some capacity. I think it's four new routes that Jetstar Asia has started in the last six months. That's a fantastic opportunity. With any business, performance drives growth. We are seeing profitability from Jetstar Asia today, and that's good to see. We will look to grow this airline if we can see that the demand's out there and that the performance is out there, and that the opportunities are out there. We have this very flexible order stream with the 320, 321 Neo's that we can call off to give us, really, a fantastic aircraft to grow with should the market mean that we've got the capacity to do that.

It's the dual brand strategy in action. It's about making the best use of putting the right brands on the right market, making the best use of your assets. Clearly we're putting more capacity on from the Qantas point of view as the hub returns to Singapore. Primarily, Melbourne, Perth, to Singapore is not a pure leisure route from an Australasian point of view. Having the Qantas brand on there, based on all of the data and all of the information that we have, is a better use of group resources and re-deploying the Jetstar Asia leisure flying to other markets like Clark and like Okinawa, for example, is a better use based on where we see the traffic flows today. That's the beauty that we have about having all of this flexibility and models within the portfolio. We can change and flex as markets move and change and flex.

One of the benefits of a low-cost carrier is it's ability to shift capacity around to take advantage of opportunities or to move away when markets dynamics change. In aviation markets evolve all the time. Routes evolve all the time, what was a good route can turn into a poor route for various reasons, or what was a poor route can turn into a good route. You've got to have that flexibility. What we're doing here is doing that. We're responding to market change. We're moving our assets around to optimise where we have them flying today. In the future as markets evolve, we may well have some more of those destinations back on the map, but today you're trying to optimise your network to fly to the destinations where the demand is, in conjunction with Qantas and the other airlines within the Jetstar group.

We see Jetstar Japan as a huge opportunity. There's 166 million people in Japan and still very low penetration from a low-cost perspective. We're building that business together with our partner over time. We've got a good domestic franchise. We've got a short haul international franchise, as well. There's a strong market growth between Australia and Japan, so we've seen Qantas grow between Australia and Japan, as well. Again, we will grow where the market demand exists, but we can see huge possibilities for the future of that business.

Domestic New Zealand is fundamentally fairly mature market, just like domestic Australia is a mature market, so the levels of growth are not going to be phenomenal. We saw an opportunity. We've been looking for long period of time at the possibility of deploying Turbos in domestic New Zealand to add to the jet operation. Given some changes that happened in the Qantas domestic fleet, we had the opportunity to re-deploy some assets that became spare effectively in domestic Australia into domestic New Zealand. That's been very successful in terms of what it's done for those regional routes, where we're operating to places like Palmerston, northern Nelson, and Napier, and those sorts of things. Bringing low fares to those regional communities within New Zealand. We've seen significant growth on those routes as a result of that. They are the right aircraft, the turbos are the right aircraft for those markets. Performance in New Zealand is going pretty well, but it's not market where, I don't think we're going to see phenomenal growth. It's a mature market in domestic New Zealand, and we have a very large and sizable competitor in that market, as well.

A lot of the dots are already connected. Our network team always has a list of opportunities that it's working on, and potentially would like to add. That means, you've got to take a plane from somewhere else or you've got to liberate that flying time. So again, where we see there's opportunities that are better than the existing network, we will make the changes. We're not about pouring capacity into the market for the sake of it. We've got to grow in the right amount, the right way going forward so it matches the demand growth within the market, and we do that very much in conjunction with Qantas, as well. Where there are opportunities to shift and adjust our network and add new points to points we will, but having said that, a lot of the point-to-points in Australia are already covered.

It's an interesting market. It's one that's very attractive to Australians going overseas. There's the opportunity there to grow. There are seats available under the bilateral, so we're looking at whether we've got the capability and the capacity to add small frequency to what we're already doing in Fiji.

It was great to meet some people within the low-cost community. There's some familiar faces in there that I know previously, but there's also some new faces. For me moving into this new role, that's always good to see. It's always good to connect with your industry colleagues. I think the conversations of the questions about the use of technology and the way that low-cost carriers and premium carriers can work together, on some of the panel sessions that we're on yesterday and today, are asking the right questions. It's, for me, three, four months into the role, it's actually good just to be exposed to some of the topics that are being talked about in this section of the industry.

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