Joyce isn't yielding all the answers
Comment Tansy Harcourt
It was what Alan Joyce wouldn't say, rather than what did say,
that speaks volumes.
While Qantas Airways is busily preparing for a major growth
offensive through Jetstar, that very same low-cost unit has
flown into turbulence.
Although capacity at Jetstar grew in the second half compared
with a year earlier, underlying earnings before interest and
tax (EBIT) during that time fell 84 per cent to $10 million.
Joyce, usually a free-wheeling seller of the joys of Jetstar,
would not say by how much the yield had declined to get to
such a point. And to be fair, Jetstar is not alone in feeling the pain.
Virgin Blue is likely to have fared worse. The two are
struggling with the tough competition from Tiger Airways
and a drop-off in consumer spending.
The big difference is that the Qantas group may not have
needed to become quite so embroiled in the flight to the bottom
of the aviation market. There are serious question marks
over whether the group has gone too far with its Jetstar
expansion and has unnecessarily sacrificed its high-yielding
Qantas business for the gain of its low-yielding Jetstar business.
When Jetstar was started in 2004 the plan was fro the business
to be an attack dog, sent into Qantas's underperforming leisure
routes with a low-enough cost base to beat its rival Virgin on price.
Now, under Joyce's new plan to grow Jetstar 23 per cent in
the domestic market this year, the airline will have as many
available seat kilometers as Qantas.
It's all well and good for Joyce to be talking up Jetstars full-year
underlying EBIT of $131 million. What is not clear is whether
group profit would have been significantly higher if much of
that business had remained a Qantas Airways route.
After all, it is understood that the bulk if not all of Jetstar's
profitable routes are ones it inherited from Qantas, rather
than routes it started off its own bat.
For every percentage increase in capacity at Jetstar, what
does that do for the corresponding decrease in yield?
On thing's for sure, Joyce is certainly not saying.