Jetstar Asia Ups The Ante
Thu "Australian Financial Review"
Jetstar Asia Ups The Ante
January 27th, 2005
Tansy Harcourt
The no-frills airline remains undeterred by a fierce price war, writes Tansy Harcourt.
Qantas's Singapore-based airline, Jetstar Asia, has vowed to fight the double impact of cut-throat competition and a natural disaster at one of its first destinations with more services rather than a retreat.
The arrival of no-frills airline Jetstar Asia in December has triggered a brutal price war in the region, as Singapore Airlines responded swiftly to prevent the Qantas-owned carrier from taking its passengers.
But despite prices dropping by as much as 78 per cent since Jetstar Asia moved into Singapore Airlines' home market, Qantas chief financial officer Peter Gregg said there was no need to lengthen the company's forecast for when its low-cost offshoot would make a profit.
"Not yet," Mr Gregg said. "What we are looking at is rapid expansion."
Jetstar Asia had announced that it would fly to destinations across six countries over the course of the next few months, and has now stated it will fly 12 routes.
The decision to expand in the face of increased competition has been a major contributor to the fall from grace over the past five months of Australian low-cost carrier Virgin Blue.
Virgin Blue blamed its first profit downgrade last year on expanding more quickly than it could sell new seats. It was a strategy devised as a pre-emptive strike on Qantas's new Australian budget carrier Jetstar, which started flying last May.
The airline was forced to issue another profit warning last week, after finding heavy discounting on airfares had not stimulated travel as much as first thought.
Mr Gregg, however, said the competition Jetstar Asia faced was far tougher than what had occurred in Australia because there was no competition regulator presiding over prices from Singapore.
"The competition we are seeing is not like that you would experience in Australia because the authorities would not let it happen," Mr Gregg said. Not that he was whingeing, he said, or backing away from a battle.
"We are big boys. We knew the rules going in up there. It's just that people talk about wanting more competition in Australia and, if so, we would like it to be on the same terms," he said.
The call for more competition in Australia has been coming from Singapore Airlines, which is trying to remove the barriers blocking it from accessing routes between Australia and the US.
Singapore Airlines has argued that if Qantas can start an airline competing on its important business routes such as Singapore/Hong Kong, then it, too, should be allowed to compete with Qantas on its most attractive routes.
Singapore Airlines' low-cost carrier, Tiger Airways, said last week it expected to break even in its first year of operation.
Last year, Qantas chief executive Geoff Dixon said Jetstar Asia, would "be profitable within 12 months."
The airline started with services to Shanghai, Hong Kong and Taipei, and announced that Pattaya, Jakarta, Surabaya and Manila would come on line in January.
The airline's projections for Pattaya have been affected by the Boxing Day tsunami, which has deterred travel to Thailand.
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