Bye Bye Qantas Hello Jetstar

[Sunfish]

Folks, let me introduce you to the biggest killer of businesses on the planet; profitless growth.

Qantas, aka Jetstar has a very bad case of this disease.

Conventional wisdom is that the seat flies whether the aircraft is empty or full and if you can sell that empty seat for one dollar, even one cent , you are making more money.

However there is a countervailing argument in my opinion; the value proposition. This basically states that if your product is ****, then it doesn't matter how little you charge for it, people will buy something else which they perceive to be better value for money even if it is more expensive.

For example, Coles supermarket sells potatoes pretty cheap, but when you get the bag home and open it, you find they are all Second or Third grade and require a lot of peeling to remove the cracks and blemishes - not a good value proposition at all compared to buying first grade unblemished potatoes from your local specialist. Similarly with bread, meat and a lot of other products.

My contention after flying Qantas domestic and Jetstar is that Jetstar is a poor value proposition. Furthermore, catering for Bogans permanently consigns you to thin margins - profitless growth.

The smart money these days in marketing is not into discovering how many customers you can attract by charging less, it is the reverse: discovering how much premium a customer is willing to pay for what you can offer. This is why Melbourne's coffee shops have these simply insanely large menus; they are trying to discover exactly how much a customer will pay for a coffee that is precisely to their taste.

Airlines like ANZ have understood this, they offer meal options, drink options, bag options, seat options. They on sell accommodation, tourism, car hire, etc. automatically. Qantas domestic and international is able to do the same if it keeps its staff, anyone remember the 1970's "fading blue denim" section on the Kangaroo route? What does Jetstar do? One size fits all! Prices are down and staying down!

Then of course there is the opportunity cost argument; time is not free. What else could management and staff be doing that would earn more money for the business than engaging in profitless growth? When I ran an OEM manufacturing business I had a lot of customers who turned out to be cheapskates and general pains in the backside, my good customers I hung onto like grim death. The cheapskates I deliberately got rid of by overpricing and then recommending them take their business to my competitors - that left me with spare capacity to go looking for more good customers, and over time build up a stable of clients who were prepared to pay a good price for a superior product.. What is Jetstar doing? Filling it's aircraft with cheapskates.

Jetstar thinks that price and market share will protect it and to some extent they are right, but meanwhile they will leak any and every customer that can afford to pay a little more to other airlines, leaving Jetstar with the Bogans because they are trying to discover how little a customer will pay, not how much he will pay - profitless growth. Furthermore, when the economy turns down further, the bogans won't fly at all.