Jetstar Asia Runs Into Cutthroat Price War

[Wirraway]

Australian Financial Review

Jetstar Asia Runs Into Cutthroat Price War
Tansy Harcourt

Friends or foes? Depends on the circumstances for Qantas and Singapore Airlines.

Just last year they were in talks about co-operating on maintenance facilities and training for the new Airbus A380. Then, they hoped, it could be the start of closer ties.

Now, the two airlines are engaged in arguably the toughest airfare battle seen in the Singapore region.

The war began when Qantas moved aggressively onto Singapore's turf with its own new airline.

That airline, a low-cost carrier called Jetstar Asia, is a joint venture with the Singapore government's investment arm, Temasek, which is also the major shareholder in Singapore Air, and two local businessmen.

Jetstar Asia is in Singapore Air's backyard. It competes directly for Singapore Air's customers and eventually for those of Singapore Air's own new low-cost airline, Tiger Airways.

Not surprising, then, that Singapore Air, which enjoys operating without the watchful eye of a competition regulator upon it, has moved swiftly to protect its markets.

Fares on the three initial routes that Jetstar Asia operates have collapsed since Qantas came into the market in December.

Before low-cost carriers entered the fray, Singapore Air and Hong Kong's Cathay Pacific advertised return fares of about $SG450 ($360) on the once high-yielding Singapore/Hong Kong route.

When low-cost carrier Valuair started in mid-2004, it advertised fares of $SG260 on the route, prompting Singapore Air and Cathay to drop their fares to about $SG300.

Jetstar Asia entered the market last month with fares of $SG176. Singapore Air's fares then dropped to $SG98. Valuair, Cathay and Jetstar Asia now all offer fares of about $SG140.

On Jetstar's other major route, Singapore-Taipei, prices have followed a similar trajectory.

Before Jetstar, Singapore Air's return fare on the route was about $SG600. Jetstar Asia launched with introductory fares of $SG236. Now a return Singapore-Taipei fare will set passengers back as little as $SG98 on Singapore Air and about $SG216 on Jetstar Asia.

If the past few months are any guide then Singapore Air and three low-cost carriers its own Tiger Airways, Valuair and Jetstar Asia could be too many for the city-state of 4 million people.

If the market was limited to Singapore Air and Jetstar Asia then it would not be unreasonable to expect their highly competent and experienced chief executives to find a new (slightly cheaper) market equilibrium that also allowed them to make a profit.

But the external pressure from airlines such as Malaysia's AirAsia, which also services Singapore, is likely to prevent any cosy duopoly from forming.

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[Icarus2001]

What is with "Singapore Air's"!!! They are called Singapore Airlines or Singapore International Airlines. Is Tansy trying to be funky and cool?:rolleyes:

"Hong Kong's Cathay Pacific" Really? Owned by the UK Swire Group? So that would be "Singapore's Singpore Air" then?

[BAE146]

..................and just like Ziggy and TELSTRA , Dixon and QANTAS are going to get their asses kicked on this one !!!!!!!!!!!

You really have to know what you're doing when you start up business in Asia......................even if they do love their neighbours ! :p

[Kanga767]

I've just spent a few hours each day last week in Singapore airport.

I must admit that said company seems barely a 'smear in the underpants of life' for South East Asian Aviation. As such will probably meet similar fate.


K

[Don Esson]

You are so correct Kanga! While ever they fly vity pairs that are serviced more than adequately by the likes of SIA and Cathay, Jetstar Asia will be little more than a very insignificant player. SIA and Cathay have for example perhaps ten trips a day between Singapore and Hong Kong, and is able to carry/match Jetstars daily capacity in not much more than half a daily service. That so, they can easily match Jetstar's lowest fares with ease and thus attract the price conscious punters with price and full service.

Maybe this is one of Qantas' worst recent decisions as Asia is so unlike Oz in more ways than one? It's just that those in the bunker at Mascot can't see much beyond Virgin. It used to be Ansett, only the name has changed.

[Chief Chook]

You really have to know what you're doing when you start up business in Asia
You've hit the nail squarely on the head there BAE146.
I suspect Dixon and Co know little of Asian work "ethics", the Jekyll and Hyde personalities, and the reason many people who have worked in Singapore refer to it as The Lyin' City.

SQ is Singapore Inc.
For Dixon to think he could nuzzle in and cut himself a piece of the action in Singapore's territory, was delusional in the extreme.

[Wirraway]

www.thisislondon.co.uk/news/

Tiger feeling the force of tsunami
Jake Lloyd-Smith, Evening Standard,
17 January 2005

TIGER Airways, the low-cost Asian carrier backed by Ryanair founder Tony Ryan, said today its route to Phuket had been hammered by the tsunami, but vowed to continue serving the Thai island.

Tony Davis, the bmibaby veteran recently appointed Singaporebased Tiger's chief executive, said its daily service to Phuket was now operating just one-quarter full.

Davis said Tiger, 16% held by Ryan's private investment fund, was set to slash fares to help revive the route.

Tiger also serves the Thai capital Bangkok and Hat Yai, a city in the south of the country.

Its founding shareholders would within weeks decide whether to pursue further, rapid expansion that could delay a hopedfor breakeven within its first year of operations, or retain its current fourplane fleet, he added.

Tiger launched flights last September.

Its other major backers include Singapore Airlines, which holds 49% of the company, and Temasek Holdings, the Singapore government's main investment fund, which has 11%.

'Post the tsunami, and with the fuel price rise, we've had a few knockbacks,' Davis admitted in a briefing on the company's strategy.

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Dow Jones

AirAsia To Focus On Current JVs In 2005
By Carolyn Lim
Of DOW JONES NEWSWIRES

KUALA LUMPUR (Dow Jones)--AirAsia Bhd. wants to focus on growing its existing business and won't enter new joint ventures this year, Group Chief Executive Tony Fernandes said in a recent interview.

Southeast Asia's biggest low-cost airline has grown at a breakneck pace since Fernandes and his partners bought it in December 2001.

It has set up two major joint-ventures in the past 13 months, expanding into markets over 10 times the size of its home base Malaysia, which has 25 million people. And in October, the group launched an initial public offering - Malaysia's largest in 2004.

The rapid expansion has raised concerns AirAsia was overextended and losing focus - two pitfalls Fernandes is keen to avoid.

"Let's take a breather. It's been a furious three years. 2005 is a year of improving our quality, delivering on the three countries we have," Fernandes told Dow Jones Newswires. "There will be future JVs, but definitely not in 2005 and probably not in 2006."

At the center of AirAsia's 2005 plans is the growth of domestic routes in Indonesia - the base of its latest joint venture and home to over 200 million people.

"Indonesia will be the best domestic market of our three main markets. It's where our main growth will be," he said, but declined to provide specifics on growth.

AirAsia has filled an average 70% of seats on four Indonesian domestic routes since its 49%-owned joint venture there, PT AWAir, began flying in December 2004, Fernandes said. AWAir will carry a million passengers in its first year of operation, he said.

Thai AirAsia - the airline's 49%-owned joint venture with Shin Corp. (SHIN.TH) - will fly about 1.2 million people in its first year, he added. It began operations in February 2004.

Some breathing room will also help AirAsia better face competition from new rival Tiger Airways Ltd.

Singapore-based Tiger, 49%-owned by Singapore Airlines Ltd. is keen to start flying into AirAsia's backyard.

"We are working very hard to have services to Malaysia liberalized," Tiger's newly appointed Chief Executive Tony Davis told Dow Jones Newswires in an interview. "Malaysia has a strong low-cost airline in AirAsia. We are happy to compete and think that will benefit both economies."

Tiger is also expanding into Indonesia, having just obtained air traffic rights to Jakarta, Medan, and Padang.

For his part, Fernandes says he sees no need to operate from Singapore. AirAsia flies to Singapore from Thailand, and also operates out of a base at Senai airport in Malaysia's Johor Bahru, just across the border from the city-state.

"I said (Singapore) was a good market and I still subscribe to that, though Johor is better," Fernandes said.

Although AirAsia posted fiscal first-quarter net profit of just MYR10.5 million, Fernandes is confident the airline will meet the MYR159.9 million full-year net profit forecast in its initial public offering prospectus.

"We were actually ahead of where we thought we would be," Fernandes said of the quarter ended September 2004, when jet fuel prices rose about 85% on year to nearly $60 a barrel.

Thai AirAsia turned marginally profitable in December 2004, and Fernandes expects AWAir will do the same by end-2005.

He downplayed concerns Thai AirAsia will suffer significantly from falling arrivals at tsunami-hit Phuket, which accounts for about a fifth of its flights.

"Our Phuket-Bangkok flights have never changed, we're still doing three flights a day," he said. Those flights are about 70% full, he added. "People have short memories in the end...So I think people will return (to Phuket)," Fernandes said.

Despite the current focus on Southeast Asia, China is an area for future growth and Thai AirAsia will begin flying from Bangkok to Xiamen in April, Fernandes said. Xiamen, in Guangdong province, is one of the mainland's biggest industrialized zones.

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Copyright © 2005Dow Jones & Company Inc. All rights reserved

[Kanga767]

...and, while observing goings-on in KL. Air Asia is going to be the VirginBlue of the SE Asia market. Whip their backsides it will.


K

[Wirraway]

Wed "The Australian"

Jetstar Asia growth slows
Steve Creedy
January 19, 2005

GROWTH at Qantas's Asian airline investment, Jetstar Asia, is expected to be slower than earlier targets in the wake of the tsunami disaster and aggressive pricing from rival Singapore Airlines.

Qantas chief executive Geoff Dixon said he did not expect the tsunamis to have the same effect as the SARS epidemic.

"We're finding with Jetstar Asia there's a lot of capacity there, which we knew, and the terrible events there have obviously affected bookings, at least in the initial stages," he said. "As to the pricing of our competitors, the only thing I can say is it's been interesting."

Qantas owns 49 per cent of Jetstar Asia. A further 19 per cent is held by Singapore government investment arm Temasek Holdings and the balance by Singaporean investors. The airline flies four Airbus A320s and started services last month with introductory one-way fares of $S48 ($39) to Hong Kong, $S88 to Taipei and $S28 to Pattaya, generating 3 million internet hits in the first week of sales. Its everyday fares start at $S88 to Hong Kong, $S118 to Taipei and $S59 to Pattaya.

Mr Dixon said he was surprised by Singapore's moves to undercut Jetstar Asia's pricing on its new routes. He said airlines usually matched launch fares but it was unusual to undercut them.

However, there were no plans at this stage to review the airline's growth plans.

"Its growth plans have always been limited a bit by the availability of rights (to land and take off)," he said. "It's obviously not a big investment for Qantas but it's one we take seriously."

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[Sunfish]

Told you so. And of course Chairman Dixon is spending management time on Jetstar instead of Qantas. Sack him now.

[Kaptin M]

This was the quip that caught my attention,Mr Dixon said he was surprised:eek: by Singapore's moves to undercut Jetstar Asia's pricing on its new routes. He said airlines usually matched launch fares but it was unusual:uhoh: to undercut them. What world has this man been living in?
Go to ANY travel agent anywhere, and check fares of one airline against those of another, between the same destinations.

Truly amazing stuff, coming from the CEO of QANTAS!:ugh:

[PureRisk]

As we all know operating an airline in asia is on THEIR TERMS.
Qantas will NEVER beat singapore at this game. It is SINGAPORE's airline and is endlessly funded by the government. This could be a very very expensive mistake and lesson for little Dixon.