Here's an extract of an interview he did with CNBC about half a year ago.
, changes now he's to be in charge and responsible for the whole show or will the perceived balance of power Geoff vs Marg. reverse with Leigh vs Alan.
How absolutely controlling will he be or will the board under Clifford be more hands on than perhaps missing in action in the past?
CNBC PODCAST
Welcome to Managing Asia I’m Christine Tung
The low-cost airline industry is picking up here in Asia but so is competition.
One late starter, Jetstar Airways, has managed to stay profitable from the start.
Today we meet the man navigating the Australian budget carrier.
Alan Joyce is a high flyer in every sense of the word, his familiar with airports flying at least once a week to oversee his companies operations, he is the CEO of Jetstar Airways, the low-cost subsidiary of Australian airline Qantas. Joyce who has been in Aviation for 19 years says he’s hooked on the industry, even applied to become a pilot many years ago.
Joyce; I think when you get the smell of jet fuel in your nostrils you get addicted to the industry. I’ve now been 20 years just about in the industry and I started straight out of university and have never looked back.
We have a benefit we believe in new aircraft
Tung; Joyce didn’t make it as a pilot but his career took off. He worked for Irish airlines Air Lingus before joining Australian airlines Ansett Airlines in 1996, he left a year before it collapsed to join Qantas, but Ansett’s demise made a big impact on him and the countries aviation industry.
Joyce; Absolutely at Ansett in its last few years wasn’t aggressive enough to protect it’s position. Didn’t get it’s costs out, didn’t manage it’s business effectively, and I think it teaches you in a business that you have to act decisively and fast and not underestimate your competition otherwise you could end up as a dinosaur as Ansett did.
Tung; Joyces big break came when Qantas appointed him to set up a low cost subsidiary in 2003.
Joyce; We went in very skeptical because not full service airline had ever successfully set up a low cost carrier, so a bit of apprehension but great excitement at the opportunity that that created, it’s something you have to grab when opportunities like that only come across your life once so it’s something you have to grab when it does.
Tung; In May of 2004 Joyce launched Jetstar Airways, he had built a business model from scratch, tapping on the experiences of seasoned players around the globe.
Joyce; We went through every low cost carrier that we could research and we decided to look at what we thought were the best examples of what.. of the best low-cost carriers in the world and try to learn from them. At the same time we took all the failures and particularly the failure that were set up by full service carriers and tried to learn lessons of what went wrong so we didn’t repeat them. We knew we had to be the lowest cost operator and we targeted a ten percent cost level below Virgins. So how did we do that, we said lets look at every aspect of the airline and figure out how we could get an advantage, we developed what we called production driven scheduling where the aircraft returned to its home base every night and the aircraft is on minimum turns so we maximize the rostering of crewing and the aircraft and today we think our cost base is 15 to 20 percent below Virgins, its grown every year since our operation.
Tung; You talk a lot about crew but one big part about how you control cost is to keep the wages of pilots low, that met with some opposition unions who said that this was eroding pay and conditions, how did you deal with this very sensitive issue?
Joyce; Well one thing I’d say it wasn’t keeping the pay of pilots low, I think we pay the pilots a fair amount and some of the salaries and a Captain in Jetstar still can get paid, by flying over the 75 hours a month - when he gets overtime, still can get paid close to $200K dollars a year in salary.
Tung; But these unions are very demanding.
Joyce; But they are, and Qantas pays a lot more for the same aircraft. For our view was always that Qantas was overpaying and and and that was a legacy issue over a period of time and the market was very different. We work, we’re very engaged with our pilots, most of our pilots came from two organizations, Impulse Airlines and Ansett Airlines, and they they they knew what it was to go through a failed organization, that was our business. Now our Chief Pilot is an example, when Ansett, he came from Ansett, massive amount of experience of flying the A320 which we fly. When Ansett went bust he was gardening for a living, he was mowing laws and he was dumping grass into containers, um he did that for a number of months, couldn’t get a job. When Jetstar started and we paid decent wages, decent opportunities, um he was so engaged to get back into the employment field as most of our pilots are.
Tung; So how did you get the unions on your side in the end.
Joyce; We ended up going around, we do roadshows all the time to our staff we communicate to the staff about what the competition is like, why we need to be competitive on cost, why our market dictates to us if were not competitive on cost we could be out of business. We explain to them the logic of the returns we need to give to shareholders for investment. The explain to them the opportunities for growth, and their a sensible bunch of individuals, cleaver individuals, they listen, they understand your logic and the persuasion of argument and discussion and get them engaged in the business is the way we’ve always moved forwards.
Tung; Since its launch, traffic has surged, gaining more than 15% market share within Australia. Joyce attributes a large part of Jetstars success to its independence from it’s parent carrier.
Joyce; A lot of the failed low-cost carriers set up by full-cost carriers, failed because they didn’t get the right cost base and they ended up compromising, we call it death by a thousand lashes and the they compromises happen because you’ve decided you’ll get Qantas to do this and and little bits at a time.
Tung; You didn’t want to get caught in that?
Joyce; And we didn’t want to be caught in that, so we decided we had to be zealots, completely independent, different city, we’re in Melbourne, Qantas is in Sydney, um and you know that gave us a huge independence, has it’s own stand alone operation and it’s costs are real and that’s what we achieved.
Tung; How do you balance the need to stay independent and yet still enjoy some of the synergies that your parent offers.
Joyce; That’s that’s having the best of both worlds which I think we do. So when we buy fuel, er, we do that as a group activity because there’s a benefit to both so we go out there and put our our fuel purchases together and get a massive discount. But other things like Engineering, you know Qantas is a lot more expensive, so we don’t, when we tender it and find them expensive we don’t use them, we go else ware. And it’s that absolute commitment to using the lowest cost supplier in every category and what benefits the organization and we find that’s really important.
Tung; By the time Jetstar took off, your domestic rival ,your biggest rival, Virgin Blue already had a four year head start, what did you have to do to catch up?
Joyce; Well we started very big at the start and that did cause a few teething problems. Because we started with 15 aircraft, that was one of the important things, to get to that critical mass. And Secondly we had to spend, we spent a lot at start up, we spent 20 Million on marketing the brand, with in, and we got a lot of publicity, we did a lot of stunts, a lot of things to get publicity. And within a few months of operation we had a 98% brand recognition, unheard of, which really helped because we had to beat Virgin, such a great brand, we had to have something that was very well recognized and that would mean a lot of spending, a lot of commitment and we’d pay back the money within the first year.
Tung; Today you own more than 15% market share of the Australian domestic market and you are facing new competition from Singapore’s Tiger Airways. What are you doing to protect your turf?
Joyce; Well our turf is the low fares leadership and having the lowest costs to deliver on that low fares leadership. And we are doing everything in our power to make sure our costs are below those of Tigers so we can economically sustain delivering those airfares and that commitment. Um, it’s great having, um, more and more competition because I think it keeps everybody on their toes, it’s bought an air of excitement back to my organization, challenge is always very good. The new boy on the block always get the publicity but were very much focused also on Virgin because that’s still the bigger threat for us going forward.
Tung; Today in Australia you fly to around 20 destinations, can you continue to grow without cannibalizing your parent Qantas business?
Joyce; Yes, I think over- over the last few of years we’ve discovered with the flying community that is a relationship of how the two airlines work together to decide on routes, we, we have figured out how to use both brands, sometimes we’ve made a mistake like we used both brands on Hamilton Island and it did cannibalize Qantas and Jetstar wasn’t making money, it didn’t work. Qantas is no longer going to Hamilton. Recently we’ve had a major success in Honolulu, both carriers flying to Honolulu, both are making money, Qantas never made money on Honolulu. Qantas is just growing it , Jetstar is just growing it, our competition is suffering because we are both doing very well. So we’re learning as we are going, how to use this very successful pincer movement, two brand strategy to get the best for both airlines and it’s a very effective tool.
Tung; In the last three and a half years you know Jetstar has tripled it’s size, carried over 22 million passengers, you now operate a fleet of twenty four aircraft, where do you see Jetstar three to five years from now?
Joyce; Well we see it even being bigger, we’ll probably be in three to five years, we’ll probably be ten to twelve times the size when we originally started, we’ll be mostly an international carrier, most of our revenue will come from overseas. We’ll have a fleet of probably close to a hundred aircraft by that stage which will make us one of the biggest players in the region and there’s not many airlines in the world which are up to that size, we have the momentum to keep on growing at that rate and have a Pan Asian brand that’s equivalent of Ryan air of Europe or Southwest of the US.