Jetstar Unveils Costs to Silence Sceptics
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Jetstar Unveils Costs to Silence Sceptics
Fri "Australian Financial Review"
Jetstar unveils costs to silence sceptics
Growing stockmarket scepticism about claims Jetstar will have lower costs than Virgin Blue has prompted Qantas to take the unusual step of revealing in advance its expense projections for the new airline.
Qantas believes its budget carrier will start with a cost base of 8.25 ¢ per available seat kilometres, below the figure Virgin Blue outlined in its prospectus of 8.72 ¢ per ASK.
What's more, once Jetstar has moved to an all A320 fleet, Qantas believes the forecast the figure will slide even further, to 7.8 ¢ . That compares to the 10.3 ¢ that analysts estimate Qantas mainline operates on.
But despite Qantas's efforts to convince the market, few seem to believe the mantra. Most are of the view that Jetstar's real costs will be blurred into Qantas.
``They have not been clear as to what constitutes the Jetstar cost base . . . so there is an issue as to what degree the mainline carrier will subsidise the low cost carrier,'' said senior consultant with the Centre for Asia-Pacific Aviation, Ian Thomas.
For budget carriers that make money through high volume, low margin, the cost per unit capacity is one of the most important measures.
Even Virgin Blue, which has dazzled the Australian market with its neat combination of cheap seats and strong profits, has comparatively high costs by global budget model standards.
Over in Malaysia, AirAsia claims its cost per ASK at a staggering US2.5 ¢ (a figure queried by many), while easyJet produces costs per ASK of about UK4.14p .
The market view is that Virgin Blue's own cost per ASK will have fallen since its prospectus was printed last year, because of the appreciation of the Australian dollar against the US dollar. Goldman Sachs JBWere predicts their costs will fall to 8.09 ¢ per ASK in 2005.
For its part, Virgin Blue gives little credence to Qantas's claims on cost per ASK over at Jetstar.
``It is very easy to come up with what you want for a business unit but what really matters is your overall group costs,'' said Virgin Blue's head of strategy David Huttner. ``Any company can shuffle around costs between its various business units whenever they choose.''
But despite the cynicism about what costs will actually be attributed to Jetstar, the market likes what it sees in terms of forecasts.
``The market will be initially sceptical of this but will have to reward the detail if achievable Jetstar should be a phenomenal success,'' Smith Barney analyst Jason Smith said in a research note. ```He who has the lower cost base will win the war, in our view.''
If early indications are anything to go by, it will be a war. Qantas chief executive Geoff Dixon has again vowed to prevent the march of Virgin Blue, both through its mainline carrier and Jetstar.
Qantas said it has about 66.2 per cent of the domestic market, and Virgin claims about 30 per cent.
``This is our line in the sand and we will provide the capacity and infrastructure to defend it against Virgin Blue and the other carriers,'' Mr Dixon said.
Qantas will announce the route network and pricing for Jetstar next week
============================================
Jetstar unveils costs to silence sceptics
Growing stockmarket scepticism about claims Jetstar will have lower costs than Virgin Blue has prompted Qantas to take the unusual step of revealing in advance its expense projections for the new airline.
Qantas believes its budget carrier will start with a cost base of 8.25 ¢ per available seat kilometres, below the figure Virgin Blue outlined in its prospectus of 8.72 ¢ per ASK.
What's more, once Jetstar has moved to an all A320 fleet, Qantas believes the forecast the figure will slide even further, to 7.8 ¢ . That compares to the 10.3 ¢ that analysts estimate Qantas mainline operates on.
But despite Qantas's efforts to convince the market, few seem to believe the mantra. Most are of the view that Jetstar's real costs will be blurred into Qantas.
``They have not been clear as to what constitutes the Jetstar cost base . . . so there is an issue as to what degree the mainline carrier will subsidise the low cost carrier,'' said senior consultant with the Centre for Asia-Pacific Aviation, Ian Thomas.
For budget carriers that make money through high volume, low margin, the cost per unit capacity is one of the most important measures.
Even Virgin Blue, which has dazzled the Australian market with its neat combination of cheap seats and strong profits, has comparatively high costs by global budget model standards.
Over in Malaysia, AirAsia claims its cost per ASK at a staggering US2.5 ¢ (a figure queried by many), while easyJet produces costs per ASK of about UK4.14p .
The market view is that Virgin Blue's own cost per ASK will have fallen since its prospectus was printed last year, because of the appreciation of the Australian dollar against the US dollar. Goldman Sachs JBWere predicts their costs will fall to 8.09 ¢ per ASK in 2005.
For its part, Virgin Blue gives little credence to Qantas's claims on cost per ASK over at Jetstar.
``It is very easy to come up with what you want for a business unit but what really matters is your overall group costs,'' said Virgin Blue's head of strategy David Huttner. ``Any company can shuffle around costs between its various business units whenever they choose.''
But despite the cynicism about what costs will actually be attributed to Jetstar, the market likes what it sees in terms of forecasts.
``The market will be initially sceptical of this but will have to reward the detail if achievable Jetstar should be a phenomenal success,'' Smith Barney analyst Jason Smith said in a research note. ```He who has the lower cost base will win the war, in our view.''
If early indications are anything to go by, it will be a war. Qantas chief executive Geoff Dixon has again vowed to prevent the march of Virgin Blue, both through its mainline carrier and Jetstar.
Qantas said it has about 66.2 per cent of the domestic market, and Virgin claims about 30 per cent.
``This is our line in the sand and we will provide the capacity and infrastructure to defend it against Virgin Blue and the other carriers,'' Mr Dixon said.
Qantas will announce the route network and pricing for Jetstar next week
============================================
Nunc est bibendum
When translated into local cost of living though....or even using the Big Mac index. 4p in the UK will generally buy you about the same as 4 cents in Australia. Anyway, it's all lies, damn lies and statistics! 
