Jetstar Group CEO Update

Transcript

Gareth Evans:Well, you know, 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 a low-cost carrier. But the flexibility that it brings to the group is fantastic as well. So 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. And these will be high-utilization 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 787-8s currently doing some of that flying. And this isn't about replacing the 787-8s on Bali, but taking some of the flying onto the A321neos and freeing up some of the 787-8 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, you know, 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 787s, 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. Well, these are aircraft that are starting in 2020 and coming in between 2020 and 2022, the first 18, and then the remainder of the order would be beyond that. So it would be Australia-based. We've got a fleet of 11, and there's always good business cases, and these are fantastic aircraft. So There's been a lot of business cases put on the table recently, but we've not had the aircraft to be able to take advantage of them. This gives us aircraft time on 787s to do that. We won't make a decision until we get closer 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 increased flying to new destinations or new frequencies to existing destinations with a super-efficient, new-generation widebody jet. It effectively gives us 787 growth in a really efficient way for the period up to, you know, 2022. So China, China is a huge opportunity. Phenomenal amounts of growth. It's also quite a difficult market as well. It's hugely competitive. And the Jetstar Group today flies into, I think it's 20 destinations in China, either on RPT or charter services from the, the combined Jetstar businesses out of Singapore, out of Vietnam, out of Japan, and then the ONE service that comes out of Australia. So 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. And so 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. So 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. But 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, we're going to be working very hard on what our strategy is going to be to, to participate in that growth going forwards. I think the opportunities are significant. I mean, Vietnam is a hugely attractive destination for Australians and, and the Vietnamese people are travelling more and more as well. So, you know, 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, that startup 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 domestic network within Vietnam so that we can, you know, provide customers not just one destination in Vietnam but multiple destinations in Vietnam is an added bonus as well. So it's a very important market for us. So, you know, the performance of Jetstar Vietnam has significantly improved. I mean, the market was oversupplied 12 months ago and prior. That level of capacity growth has The level of 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 and that's, that's certainly helping Jetstar Vietnam's profitability. So we're very pleased with the performance of that airline. The opportunities now is where, where can we grow that makes sense and how can we continue to make sure that we have a profitable future for that airline. So I think like with any airline, you know, you've got to get your network right and networks will change and evolve over time. I think I said, you know, we're effectively operating a 2-brand strategy into Singapore with Qantas. Qantas is growing its, its services into Singapore and we've seen some changes to Jetstar's services between Australia and Singapore as a result of that and the ability then to re-deploy deploy some capacity, and I think it's 4 new routes that Jetstar Asia has started in the last 6 months, so that's a fantastic opportunity. With any business, you know, 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, and we have this very flexible order stream with the A320, A321neos that we can call off to give us, you know, really 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. I mean, 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, as the hub returns to Singapore. Primarily, you know, Melbourne, Perth to Singapore is not a pure leisure route from a, from an Australasian point of view. So having the Qantas brand on there based on all of the data and all of the information that we have is a better view, better use of group resources and redeploying 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. And 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 its ability to shift capacity around to take advantage of opportunities or to move away when markets, you know, market dynamics change. And 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, is doing that. We're responding to market change. We're moving our assets around to optimize where we have them flying today. In the future, as markets evolve, we may well have some more of those, those destinations back on the map. But today you're trying to optimize 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. It's 160 6 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. But 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 a fairly mature market, just like domestic Australia is a mature market, so the levels of growth are not going to be phenomenal there. We saw an opportunity, you know, we've been looking for a 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 redeploy some assets that became spare effectively in domestic Australia into domestic New Zealand. And that's been very successful in terms of what it's done for those regional routes where we're operating to places like Palmerston North and Nelson and Napier and those sorts of things, bringing low fares to those regional communities. Within New Zealand. And we've seen significant growth on those routes as a result of that. So, you know, they are the right aircraft or the turbos are the right aircraft for those markets. Performance in New Zealand is, is going pretty well, but it's not a 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. So our network team always has a list of opportunities that it wants to— that it's working on and potentially would like to add. But you've got— that means, you know, 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. Mm-hmm. We're not about, you know, pouring capacity into the market for the sake of it. We've got to grow in a— the right amount, the right way going forwards that matches the demand growth within the market. And we do that very much in conjunction with Qantas as well. So, but 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 a— it's an interesting market and there's There's lots of, you know, 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, you know, the capability and the capacity to add some more frequency to what we're already doing in Fiji. It was great to start 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. And for me, moving into this new role, that's always good to see. It's always good to connect with your industry colleagues. And I think the conversations and the questions about the use of technology and the way that low-cost carriers and premium carriers can work together, and some of the panel sessions that were on yesterday and today, are asking the right questions. So, but it's, it's But for me, 3, 4 months into the role, it's actually good just to be exposed to some of the topics that are being talked about in this, in this section of the industry.

Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.