Merged: JetStarization Of Qantas Finished
October 16, 2009
The Australian
AFTER a difficult year, Qantas is starting to see signs of an upturn in demand, particularly in economy class, according to chief executive Alan Joyce.
Speaking after what he calls a "bath of fire" in his first year as Qantas chief, as he had to deal with the global financial crisis, failed merger talks with British Airways and swine flu, which cost the airline $90 million in business from Japan, Mr Joyce also said Qantas was looking at increasing economy and premium economy seats in some international flights to boost returns.
That could mean ditching first-class seats on some short international routes.
He also said there would be no more replacement of Qantas routes with Jetstar flights.
Jetstar's future expansion would come from organic growth, including eventual flights to southern Europe.
"We are seeing some life in the marketplace," Mr Joyce said in an exclusive interview with The Australian.
"We are seeing, in recent months, the volumes being a bit better than we were expecting.
"Yields are still terrible but we are getting some high seat factors, which is a good sign.
"The first prerequisite of getting the yields back is that the demand is there."
Mr Joyce said Qantas's seat factor was "two to three points" ahead of last year.
"Our yield is still bad -- it is still over 20 per cent down internationally and in the low teens down domestically, but volumes are better than expected."
The airline's profit fell by 88per cent to $117m for the year to June, but it was one of the few international airlines to report a profit for the financial year.
A difficult second half was offset by profits from the Qantas Frequent Flyer business, although Qantas International lost money.
Mr Joyce said Qantas was looking at reconfiguring its long-distance aircraft, including the A380, to boost the number of economy-class seats, for which demand had been stronger.
That could mean ditching first-class seats completely on some routes.
"One of the things we are looking at is what is the right mix of seats and how they should be laid out to optimise the amount of revenue-generating capacity on each aircraft," he said.
"We are still going to be a first-class airline -- we are absolutely committed to that -- but do we need first-class everywhere?"
"We need it to London and to LA, but where should first-class be apart from that?"
Before the global economic crisis, he said the A380 had more than 70 business-class seats, "but maybe now we only need 50, and more premium economy".
"Economy is going very well at the moment. Maybe we could do with more economy seats."
He estimated reconfiguring seats in the current environment could boost the yield from some flights by as much as 8 per cent.
Irish-born Mr Joyce, who was responsible for the start up and successful launch of the low cost Jetstar airline, has decided the replacement of Qantas routes with cheaper Jetstar services has reached its limitations.
When appointed, concern was expressed that he was going to further "Jetstarise" Qantas.
"This year we will grow Jetstar by 24 per cent and Qantas is going to be reduced by 5 per cent but that is a function of returns," Mr Joyce said.
"If things turned around, I could easily see, in a couple of years when the business market is returning, that Qantas could have a greater growth than Jetstar. We have decided that, with Qantas, we have gone to a minimum network, a network we can't drop below.
"There will be no further replacement of Qantas flights with Jetstar. That's it."
In the past year, Mr Joyce has replaced Qantas routes from Cairns and the Gold Coast to Tokyo with Jetstar flights, both routes that largely service leisure travellers from Japan.
He said this had been critical in heading off potential losses of $100million on the routes.
But he said the Sydney-Tokyo route would remain a Qantas service because it was primarily aimed at business travellers.
He said replacing Qantas's domestic flights in New Zealand with Jetstar services had also turned around a loss of $30m on the routes last year with a break-even situation for the group.
In the longer term, he said there were plans for Jetstar to expand into leisure destinations of southern Europe, which could include Athens, Milan or Rome.
"Rome and Athens are where Qantas has some history of operating," he said.
"There were good loads but the yields were terrible.
"With the big Italian and Greek communities here, there is a big visiting-friends-and-relatives market."
Mr Joyce said the Pacific route to the US was a "blood bath" and predicted one of Qantas's competitors would eventually drop out of the market.
Delta Airlines and Virgin Blue's V-Australia, which began services last year, are the two major competitors with Qantas on the Australia-US routes.
"Qantas is the best performing airline on that network," he said.
"It has a better seat factor and better yields. All the rest are losing money."