Consumer sentiment weak, says Jetstar chief
Qantas' budget offshoot, Jetstar, concedes consumer sentiment remains weak as it battles Tigerair for price-sensitive leisure travellers in the domestic market.
The difficult trading conditions come as Qantas reached an in-principle agreement with the pilots' union for a new four-year deal covering short-haul pilots, which includes an effective pay freeze for 18 months.
Speaking in Sydney on Friday, Jetstar chief executive Jayne Hrdlicka said capacity was moderating in the domestic market but consumers' appetite to spend had shown no sign of picking up since earlier this year.
Jetstar boss Jayne Hrdlicka concedes demand for the airline's domestic services has been disappointing. Photo: Ben Rushton
"We have not seen an improvement. Capacity is rationalising [but] underlying demand is not growing at the pace we would love to see it," she said at the American Chamber of Commerce.
"There is no doubt that we see a weak consumer environment. That is coming through in retail numbers, too."
While the focus has been on Qantas and Virgin Australia in the domestic market, the battle between Jetstar and Tigerair has been just as intense.
Weak consumer sentiment weighs on the performance of the two budget airlines more than their full-service parents.
Virgin has dampened expectations for the expansion of Tigerair in the domestic market, and Ms Hrdlicka indicated Jetstar would also be "very disciplined" when it came to growth.
She highlighted the fact that Singapore-based Jetstar Asia resisted the temptation to follow its competitors in south-east Asia in significantly boosting capacity over the past two years.
Virgin does not expect Tigerair Australia, in which it has a 60 per cent stake, to become profitable until 2017.
Jetstar sunk to a $116 million underlying loss last financial year, from a $138 million profit a year earlier, due to stiff competition in air-travel markets in Australia and south-east Asia, as well as higher costs from its offshoots Jetstar Japan and Jetstar Hong Kong.
Meanwhile, Qantas' short-haul pilots will begin voting on October 17 on whether to accept a new pay deal, which includes a 3 per cent annual wage increase for the first three years and a 1.5 per cent rise for the fourth.
Negotiations over a new pay deal have been dragging on for more than two years.
Under the terms of the in-principle agreement, the pilots will not receive back pay, which will count as an effective pay freeze similar to that for other parts of the airline's workforce.
Qantas is hopeful of sealing an agreement, but some pilots question whether their colleagues will support the deal.
Earlier this week, the licensed aircraft engineers' union said its members were likely to accept an in-principle deal reached with Qantas for a new enterprise agreement covering about 1500 staff.
As part of a side deal, about 65 engineers who were forced to take redundancy this year would have the chance to return to Qantas.
The pay freezes are a significant part of Qantas' goal to strip $2 billion in costs from the company over three years.