Jetstar’s chief sees blue skies ahead
JETSTAR may have put a hold on expansion into new markets but chief executive Jayne Hrdlicka believes there are significant opportunities within its existing footprint as it enters its second decade.
Dismissing gloomy prognoses from some industry experts about the airline’s Asian businesses, Hrdlicka predicted Jetstar would succeed and continue to grow in its chosen markets.
“The next decade is really exciting for Jetstar because all of the things we’ve done to set ourselves up for success are going to start paying off dividends over the next 10 years as the foundations we set start to really come to life,’’ she said.
“And it all comes down to really being clear about each market we’re working in and what it takes to be successful in that market, thinking about that market through the eyes of our customers in that marketplace and our *people in that marketplace because that’s what drives great outcomes.’’
Jetstar’s strategy came in for criticism earlier this year when the group reported a first-half loss of $16 million, down from a profit of $128m in the previous corresponding period, and parent company Qantas put the brakes on expansion into additional markets until conditions improved.
The losses were blamed on pressure on yields, particularly in Southeast Asia, as well as a $29m share of associate losses, fuel costs and foreign exchange impacts. They came as the airline faced overheated markets in Singapore and Australia, although its domestic arm remained profitable, as well as problems getting its Jetstar Hong Kong start-up going and establishing a second base for Jetstar Japan in Osaka.
Media reports over the weekend suggested its New Zealand unit was failing to gain traction with customers against Air New Zealand.
The reports have been a fillip for unions, which partly blame Jetstar for the woes at Qantas, believing it has been cross-subsidised by the full-service carrier and used to replace high-paying jobs with cheaper equivalents.
But as Jetstar celebrates the 10th anniversary of its operations, Hrdlicka argues the airline’s first decade has been a success and its decade has been a success and its achievements can only be seen as impressive. She says they are far beyond what was imagined when it started flying with 14 ex-Impulse Airlines Boeing 717s in May 2004.
Led at the time by current Qantas boss Alan Joyce — Geoff Dixon was Qantas chief then — the airline began life amid predictions it would fail because no full-service airline at that stage had managed to successfully run a low-cost offshoot. It now has more than 120 aircraft operating to 64 destinations in 16 countries and passenger numbers have grown from 315,000 in its first year of operation to more than 27 million this year.
“In the course of 10 years we’ve touched the lives of over 140 million people and helped them do things they couldn’t otherwise have done with their lives, either visiting family and friends or having great life adventures or starting small businesses, growing small businesses,’’ Hrdlicka says.
“It’s pretty extraordinary the impact that we’ve had as a business and we’ve employed a lot of people in the journey. We started out with roughly 700; today we’re over 7000, and 400 of the original 700 are still with the company.’’
And despite this year’s first-half loss, Hrdlicka says the group has generated more than $1 billion in profit for its shareholders over the past decade while exporting its dual brand low-cost carrier model throughout Asia. In the process, she says, it has built “one of Australia’s few homegrown multinationals with nearly $4bn in revenue’’.
“We’ve changed the face of aviation in Australia, we’ve changed the face of aviation in every market we’re currently operating in,’’ she says, noting the change is not always comfortable for established industry participants.
The US-born former Bain consultant does not dismiss increased domestic competition from Tigerair Australia under the umbrella of Virgin Australia, but says Jetstar’s main focus remains its own business.
“For us, competition’s great,’’ she says. “It does sharpen the mind, it keeps everybody focused. We all understand that low fares are part of the story. We’ve got to earn the right to our customers’ loyalty every day we fly.’’
She agrees the Singapore market, where the group is a 49 per cent partner in locally based Jetstar Asia, is flooded with too much capacity that will take “a couple of years” to absorb even if the various players take a measured approach.
“We announced February that we were suspending growth in Singapore and very shortly after AirAsia announced they were pulling back and Tiger announced they were pulling back,’’ she says. “So I think there’s recognition across all players that there’s too much capacity in the marketplace and that needs to be soaked up.”
On the delays in Hong Kong, where the Jetstar Hong Kong joint venture faces stiff opposition from incumbent airlines as it tries to get regulatory approval, she is “quietly optimistic but not taking anything for granted’’.
Jetstar HK, a joint venture with China Eastern and local conglomerate Shun Tak, had hoped to start flying last year and had approved the purchase of nine Airbus A320s. It recently sold three of the aircraft but still has six sitting on the ground. Hrdlicka says the aircraft sale is aimed to give the company “greater flexibility in navigating what could take quite a long time’’ as it seeks its air operator’s certificate.
Nonetheless, she remains positive about the market and believes Hong Kong remains a significant opportunity.
She is more upbeat about the airline’s joint ventures in Vietnam and Japan.
Jetstar Pacific is majority owned by Vietnam Airlines and caused considerable heartache in its early days when it became embroiled in a Vietnamese government investigation that saw Australian executives prevented from leaving the country.
It has undergone a restructuring in the past two years and Hrdlicka says it is now in a good position, with a fleet of six Airbus A320s providing lower operate costs and good revenue growth. The offshoot has more aircraft on the way and in recent months started international services to Macau
“I think it’s in a really good position for the future,’’ she says. “It’s growing and I think it will be a nice little business.’’
Jetstar Japan, whose partners include Japan Airlines, is going well and is a business “that’s gone from strength to strength’’ as it helped stimulate the Japanese travel market.
Hrdlicka believes it will be “a phenomenal business’’ and that the delays in getting a second base established in Osaka base will work their way through the system.
“When you look at the underlying operational metrics of the business, you see a great success story and I think that’s why people get very excited about it,’’ she says. “We’re delivering very respectable on-time performance — we’re top of the market from an on-time performance standpoint — our load factor is very high, our RASK (revenue per available seat kilometre) and the customer scores from an NPS (Net Promoter Score) standpoint are the highest in the Jetstar Group. They’re on the same level that Qantas would get domestically in Australia.’’
Japan also embodies something Hrdlicka sees as an essential ingredient in Jetstar’s future: the ability listen to and learn from the local culture.
She says the airline has evolved in terms of customer experience, the way it uses its staff and what it sees as its horizons. This has included the use of new technology to improve service for passengers, introducing new planes, such as the fuel-efficient Boeing 787, and in ancillary offerings.
“We’re now one of the most multicultural businesses operating out of Australia and we’ve learned a lot through that experience,’’ she says.
“So one of the great lessons we’ve learned is the need to listen and learn and evolve and to change quickly and to see the opportunities and do whatever we need to do to adjust operational settings and commercial settings to deliver on that opportunity.’’
Despite Hrdlicka’s optimism, there are still many who believe Jetstar has bitten off more than it can chew in the competitive Asian market. The Jetstar boss argues the Asian strategy is not as well understood as it should be because of the way it’s structured. The common branding leads many to assume that Jetstar owns the airlines.
“Effectively we have investments in each of our foreign operations,’’ she says
“The businesses are run by local boards, they all have a local chair. We participate on the board, we provide services to those businesses but they’re locally run businesses and we make fixed investments in those businesses depending on the business.