Jetstar EBA 2019

[Window heat]

Originally Posted by Rated De

It is actually a little from column A and a little from column B.
Low Fare Airlines whilst a real alternative (like SWA) actually didn't, despite the lack of grandfathering, government ownership or even protectionism actually push Low Wages.
The low wage phenomena was driven by consulting firms with a spreadsheet approach to running airlines.

They included:

• $50(or so) million of seed capital
• Multi user terminals
• Leased fleet
• Terms and conditions whereby more of the salary/wage was at risk.

The idea was have a go and see how it works. That there have been scores of start ups and failures in Europe is testament to :

1. The limitation of unit cost control
2. Response of established carriers.

Key in this was the oversupply of pilots, usually self funded such that an "airline" had minimal investment in and as such was low risk strategy.The externality borne by the "applicant" who probably paid for testing and attendance. In the case of Ryanair uniforms too.
Perhaps the saddest irony of the Jetstar model is that instead of complimenting the full service offering, myopic management focused on IR and setting work groups against each other. Convicted criminal former CFO Gregg said precisely that at a Parliamentary enquiry: "Jetstar would add competitive tension to labour unit cost" (paraphrase)

Not content, myopic management driven by spreadsheets saw JQ the answer to everything. Doing so they neglected the Achilles heel of low fare airlines: yield.
Jumping the shark is a Qantas specialty so they took JQ International. They hide it in the accounts but it bleeds cash just like the franchises.
For an airline the size of JQ it exhibits classic overscale tendencies: Too much capacity for the revenue it generates.

Mr Evans has his work cut out for him.

The stellar expansion enjoyed by JQ pilots at the expense of Qantas pilots is well documented. Pilots quickly gained promotions while Qantas languished.
The business is now over scale. That means JQ pilots have a fight on their hands.
As JQ was deployed against Qantas, it is probable Qantas will be deployed against JQ as will Network aviation or others in a conga line of acquisitions.....
If Mr Evans and JQ surrender any ground then the revenue margin, already narrow, may well invert!

That’s a great précis of my industrial experience in the company. The industrial wedge of JQ took over from “convergence with Virgin” when Borghetti pushed their cost base through the roof. The average QF pilot has had a 10 year career freeze at the expense of the JQ investment, all in all a positive experience for those who chose to go Orange. Joyce is so invested in JQ that he cannot let it fail, despite being overscale as pointed out. Just as Dixon was setting up himself for a massive payout over the years leading up to the Allco buyout, Joyce is setting up his payout, if JQ costs go the way of Virgin, the share price tanks and he stands to lose millions.