View Full Version : When you wish upon a star .......

7th Dec 2003, 23:10
Mon "Sydney Morning Herald"

When you wish upon a star ...
December 8, 2003
Paul Sheehan

The launch by Qantas of a no-frills airline gives new hope to the whole economy, writes Paul Sheehan

While the dramatic elevation of Mark Latham generated a media fever, at the same time another, less theatrical, development took place which will have a more practical impact on the country - and much sooner. It received about one-hundredth the attention. You can't beat a good horse race.

The key word is JetStar.

The birth of JetStar will have a ripple effect on the Australian economy, and even on corporate morality in this country. It will be more significant than the emergence of Virgin Blue, which has already changed the face of Australian travel. Today, Virgin Blue will debut on the Australian Stock Exchange with a market value of more than $2 billion after small investors rushed to buy the stock. They want to be part of this fast-growing success story.

JetStar is going to be a much bigger story.

You have to admire the enthusiasm of the Virgin punters. The airline business may be glamorous but it is also subject to irrational forces. In the same week that investors snapped up Virgin shares (there were 10 times more bids than available stock for today's float) we learnt about Bruce Simpson, the New Zealand software engineer who built his own cruise missile at home. Simpson has received inquiries from interested parties in Pakistan, Lebanon and China.

It would take just one shoulder-mounted anti-aircraft missile, such as the Stinger, fired from inside an urban area at a large commercial airliner to cause a crisis for the world's huge travel and tourism industry. The only reason it hasn't already happened is that a year ago, on November 30, a shoulder-fired missile missed an airliner with 261 people on board which was taking off from Mombasa airport in Kenya. The missile missed because it was too close. It could not lock on.

Imagine the impact if it had. A Stinger missile fired into any airliner is a Stinger missile fired into every airline.

Airlines have become front-line soft targets in the struggle against terrorism, a role for which they did not volunteer. Thus the modern airline needs to be fundamentally sound to survive a world whose growing inter-connectedness magnifies disasters such as September 11, 2001, then SARS, and the rising toll caused by al-Qaeda and its imitators. Which is why JetStar is so important. It will create the stabilising ballast against external shocks for the entire Australian airline industry and especially for the national flag-carrier, Qantas.

Over the next two years, Qantas will build a low-cost domestic carrier with a cost base even lower than Virgin's, giving Australia two large, competitive, well-managed airlines with ultra-modern fleets offering simple, relatively cheap air fares. Honesty and transparency have arrived, at last, to Australian air travel. The entire economy will benefit.

The brilliance of the JetStar deal has yet to be understood. No full-service carrier has ever been able to spawn a viable, low-cost domestic carrier but, in JetStar, Qantas will have its legacy of quality welded to one of the lowest cost structures of any airline in the world. "We think we'll have the cheapest airline in the sky," the CEO of Qantas, Geoff Dixon, told me on Friday, which is why he has placed a huge order (in Australian terms): 23 jets, with options on 20 more. A confluence of elements underpins his optimism.

 Cost of aircraft: Qantas has chosen the Airbus 320s to stock JetStar and acquired them at a super-competitive price. Airbus was determined to break the grip Boeing has had on Qantas for 50 years, and the A320s have cost even less than Virgin Blue's fleet of Boeing 737-800s, most of which were acquired after airlines cancelled dozens of orders after September 11, 2001. JetStar will also lease its planes, not own them.

 The Impulse deal: the acquisition of Impulse, which appeared to be just a mop-up operation, has emerged as a key strategic move. It gave Qantas the operating certificate it needed to start a new airline, plus the pilots and the route system. All 140 Impulse pilots have signed an enterprise agreement that has lower costs than Virgin Blue.

 Fuel efficiency: the A320 offers state-of-the-art fuel-efficient aircraft and JetStar will benefit from the bulk-buying of aviation fuel through the much bigger Qantas.

 Streamlining: 80 per cent of tickets are expected to be sold on the internet and there will be no expensive frequent flyer program to maintain.

 Low maintenance costs: Air New Zealand also operates the A320 and has bid for JetStar's maintenance business. This would provide Qantas with lower maintenance costs while Air New Zealand gained greater income and economies of scale. In other words, Qantas is positioned to reap many of the synergies it would have achieved from its de facto merger with Air New Zealand, which was stopped by both governments.

This synergy is a beautiful thing to Dixon. "There is the opportunity to lock in a long-term relationship with Air New Zealand," he said. "Our relationship is already strong. They have the A320 and it would give their maintenance operation a critical mass. We also see ourselves as an Australasian airline. Our main market is Australasia, not Australia.

"The big thing for us [is that] the market is growing and we can't compete with Virgin. They have a lower cost structure. They easily took 30 per cent of the market, so there is no doubt someone was going to come in. We wanted to respond from a position of strength, not weakness."

Qantas has never been stronger. It is now the 10th largest airline in the world in terms of passengers carried and in the top 10 in terms of market capitalisation - not bad for a mid-level economy. Its competition is also strong. Qantas competes with 41 airlines on its international and domestic routes and two-thirds of them are government-owned or subsidised.

Airlines are more than just companies. They are symbols and leading economic indicators. So the fortunes of JetStar will carry more than the burden of corporate failure or success. Much more.

The big airlines are called flag-carriers for a reason.

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Willie Nelson
9th Dec 2003, 10:01
Could be wrong but I thought that a QF spokesperson only the other day said that "70% maximum" was what they were working on at this stage as there are always going to be those that cannot deal with computers.

I'm also a little confused, was there not discussion that stated that these jets were purchased by QF at approx. US$50 mil. a throw. Now they are leased. Is that were the ILFC or Allco Multilease or whatever comes into it ?...........Please explain


Buster Hyman
9th Dec 2003, 10:12
Interesting point Willie. I see no press releases from Airbus abut any Jetstar orders. Not a mention at all on their website. Strange considering they got the deal ahead of Boeing...or did they? Perhaps they are leased.:confused: