Newcomer gets a fare lesson (Robert Gottliebsen)
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Newcomer gets a fare lesson (Robert Gottliebsen)
Thurs "The Australian"
Newcomer gets a fare lesson
Robert Gottliebsen
November 18, 2004
VIRGIN chief executive Brett Godfrey has had a life-changing experience - it is called $29 fares personally delivered in big quantities by Qantas chief Geoff Dixon via Jetstar.
Six months ago Godfrey was talking about using Virgin's cost advantage over Qantas to become the biggest domestic carrier, and taunting Dixon that Virgin could run Jetstar on a cost per available seat per kilometre of 6.5c, well below the Qantas achievement.
Yesterday, there was none of that talk and Godfrey was simply aiming to increase yields and earn bigger profits for Virgin shareholders.
In this dramatic change you can see very clearly the hand of Virgin's major shareholder, Patrick Corp, and its chief executive and Virgin director, Chris Corrigan.
When Corrigan achieved a big cost advantage over P&O after the 1998 waterfront settlement, he did not go for big slices of market share. Rather he sat back and enjoyed the profits and consequent share price rise.
When Godfrey declared his aggressive hand last May, Dixon knew that if Virgin achieved its aim, Qantas would be decimated, and so he had to draw the line at a 65 per cent Qantas market share. He set out to teach Godfrey a lesson that the Virgin chief would never forget.
Using both Jetstar and Qantas he slashed prices, forcing Godfrey to respond by reducing his yields by a whopping 12 per cent.
At the same time Virgin load factors slumped. Yesterday Godfrey confessed he never expected Jetstar to offer big numbers of flights priced between $29 and $39 -- well below cost. But in an ironic twist, Qantas could deliver punishment to Virgin and yet increase profits substantially.
Godfrey's timing had been all wrong. He launched his attack when Qantas had a full armoury -- Qantas had more extensive hedging of fuel costs; it was increasing its fleet with lower-cost aircraft; its overseas business was booming; and it was achieving significant cost reductions both in its base operation and through Jetstar.
Indeed, Dixon used the war to accelerate his cost-reduction programs. When Godfrey announced last August that Virgin's profit was down 22 per cent he and the Virgin board were shocked at the savagery with which the share market attacked the stock. They conducted a total reassessment of strategy.
Virgin began the process of looking for higher yields and it expects to go further in the current year. At Qantas, Dixon might say: "I have taught the newcomer a lesson and called his bluff, so I will ease off on the aggression and allow yields to rise."
But the next battleground will be new aircraft. In the half-yearly profit announcement Godfrey said that Virgin had no plans to order more aircraft to take advantage of its lower-cost base. Qantas is bringing in only replacement aircraft.
But what happens when the market rises and it is expansion time again?
One Virgin strategy will be not to try to start another war and expand by a third of the demand increase.
Another view is when demand rises again, Qantas might not have as much power in its arsenal, so Virgin may expand to take 50 per cent of the new business and so creep up its total market share.
My guess is Godfrey harbours an aim to use his cost advantage to creep up the market share, but he will be more careful in the future.
The share market clearly expects that now Virgin is not aiming to be No1, its profit will soar.
Virgin earned at an annual rate of 12.2c a share in the June 30 half year (last year 17.3c) and its share price is on a price-earnings ratio (PE) of 16.4.
Qantas is on a PE of only 10.
Of course, while Virgin and Qantas were arm-wrestling, the owners of Australia's airports, led by the master fee charger Macquarie, increased airport charges.
Godfrey says that they have risen threefold since 2001 and are among the highest in the world. Whereas they represented 5 per cent of Virgin's costs in 2001 they are now 15 per cent.
Much of the cost reductions that Qantas, Virgin and Jetstar have engineered has simply gone into the pockets of Macquarie and the other airport owners. Virgin wants the ACCC to intervene but that will be a hard road. Higher airport charges may be a long-term legacy of the war.
[email protected]
===========================================
Newcomer gets a fare lesson
Robert Gottliebsen
November 18, 2004
VIRGIN chief executive Brett Godfrey has had a life-changing experience - it is called $29 fares personally delivered in big quantities by Qantas chief Geoff Dixon via Jetstar.
Six months ago Godfrey was talking about using Virgin's cost advantage over Qantas to become the biggest domestic carrier, and taunting Dixon that Virgin could run Jetstar on a cost per available seat per kilometre of 6.5c, well below the Qantas achievement.
Yesterday, there was none of that talk and Godfrey was simply aiming to increase yields and earn bigger profits for Virgin shareholders.
In this dramatic change you can see very clearly the hand of Virgin's major shareholder, Patrick Corp, and its chief executive and Virgin director, Chris Corrigan.
When Corrigan achieved a big cost advantage over P&O after the 1998 waterfront settlement, he did not go for big slices of market share. Rather he sat back and enjoyed the profits and consequent share price rise.
When Godfrey declared his aggressive hand last May, Dixon knew that if Virgin achieved its aim, Qantas would be decimated, and so he had to draw the line at a 65 per cent Qantas market share. He set out to teach Godfrey a lesson that the Virgin chief would never forget.
Using both Jetstar and Qantas he slashed prices, forcing Godfrey to respond by reducing his yields by a whopping 12 per cent.
At the same time Virgin load factors slumped. Yesterday Godfrey confessed he never expected Jetstar to offer big numbers of flights priced between $29 and $39 -- well below cost. But in an ironic twist, Qantas could deliver punishment to Virgin and yet increase profits substantially.
Godfrey's timing had been all wrong. He launched his attack when Qantas had a full armoury -- Qantas had more extensive hedging of fuel costs; it was increasing its fleet with lower-cost aircraft; its overseas business was booming; and it was achieving significant cost reductions both in its base operation and through Jetstar.
Indeed, Dixon used the war to accelerate his cost-reduction programs. When Godfrey announced last August that Virgin's profit was down 22 per cent he and the Virgin board were shocked at the savagery with which the share market attacked the stock. They conducted a total reassessment of strategy.
Virgin began the process of looking for higher yields and it expects to go further in the current year. At Qantas, Dixon might say: "I have taught the newcomer a lesson and called his bluff, so I will ease off on the aggression and allow yields to rise."
But the next battleground will be new aircraft. In the half-yearly profit announcement Godfrey said that Virgin had no plans to order more aircraft to take advantage of its lower-cost base. Qantas is bringing in only replacement aircraft.
But what happens when the market rises and it is expansion time again?
One Virgin strategy will be not to try to start another war and expand by a third of the demand increase.
Another view is when demand rises again, Qantas might not have as much power in its arsenal, so Virgin may expand to take 50 per cent of the new business and so creep up its total market share.
My guess is Godfrey harbours an aim to use his cost advantage to creep up the market share, but he will be more careful in the future.
The share market clearly expects that now Virgin is not aiming to be No1, its profit will soar.
Virgin earned at an annual rate of 12.2c a share in the June 30 half year (last year 17.3c) and its share price is on a price-earnings ratio (PE) of 16.4.
Qantas is on a PE of only 10.
Of course, while Virgin and Qantas were arm-wrestling, the owners of Australia's airports, led by the master fee charger Macquarie, increased airport charges.
Godfrey says that they have risen threefold since 2001 and are among the highest in the world. Whereas they represented 5 per cent of Virgin's costs in 2001 they are now 15 per cent.
Much of the cost reductions that Qantas, Virgin and Jetstar have engineered has simply gone into the pockets of Macquarie and the other airport owners. Virgin wants the ACCC to intervene but that will be a hard road. Higher airport charges may be a long-term legacy of the war.
[email protected]
===========================================
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Seems like the battle has just begun. How long will it be before the low cost operaters start reporting losses. It doesn't matter how good a LCC is, if there's a buck in it you will always get competition.
The other interesting part about all this is that Qantas may have the Jetstar thing right, although it's early days yet. Maybe if Qantas mainline is profitable enough they can endure the price war longer than VB, time will tell. One thing is for sure, selling tickets for less than $50 can't last forever.
The other interesting part about all this is that Qantas may have the Jetstar thing right, although it's early days yet. Maybe if Qantas mainline is profitable enough they can endure the price war longer than VB, time will tell. One thing is for sure, selling tickets for less than $50 can't last forever.
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And what happens to Jet* in about 4-5 months when all their crews are over annual hours?
How are the new reduced block times affecting on time performace BTW?
Somethings got to give in this.
How are the new reduced block times affecting on time performace BTW?
Somethings got to give in this.
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Uncommon Sense,
Jetstar is the leading carrier in terms of on-time departures and arrivals, outperforming Qantas and Virgin by a considerable margin.
There is a thread on this forum containing the exact statistics for recent months.
Jetstar is the leading carrier in terms of on-time departures and arrivals, outperforming Qantas and Virgin by a considerable margin.
There is a thread on this forum containing the exact statistics for recent months.
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Jetstar is the leading carrier in terms of on-time departures and arrivals, outperforming Qantas and Virgin by a considerable margin.
Would you care to post them or will I?
(Geez. Fancy making GD look good!)
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S H
How about instead of wasting two posts on getting flyingins to post something on this thread, that is apparently on another, you do it.
Than just to keep everyone fighting you can do it all again when the next months figures are released
How about instead of wasting two posts on getting flyingins to post something on this thread, that is apparently on another, you do it.
Than just to keep everyone fighting you can do it all again when the next months figures are released
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OK then.
What have the revised block times done to your ontime performance in the last 4-6 weeks?
Anyone flying the 717 wish to disclose their annualised total hours at current rates? - e.g. what have avergaed over the last 8 months?
What have the revised block times done to your ontime performance in the last 4-6 weeks?
Anyone flying the 717 wish to disclose their annualised total hours at current rates? - e.g. what have avergaed over the last 8 months?
Last edited by Uncommon Sense; 22nd Nov 2004 at 10:24.
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Sonny, sweetheart,
I seem to have got you in a bit of a state with my outrageous comments.
Sorry I haven't responded earlier. Not trawling through pprune on an hour-by-hour basis waiting for you to ask me a question: what was I thinking?
DOT on-time performance figures, September 2004 (the latest ones available):
DEP / ARR
DJ 76.6% / 76.7%
QF 85.3% / 87.0%
JQ 87.6% / 89.7%
Cancellation rates: DJ - 1.8%
QF - 1.6%
JQ - 1.3%
Sonny, darling. In anyone's books an 11% split between departures and a 13% split between arrivals (DJ-JQ) is a "considerable margin".
I'll admit freely that QF and JQ are very close, but the margin is still "considerable" given the fact that when JQ isn't scheduled for 25 minute turnarounds it is scheduled for 30 minute ones. What does QF do? 40, 45 minutes?
My comments were only based on official figures. Getting upset about them isn't necessary, Sonny.
Uncommon Sense,
The DOT figures are one or two months in arrears. The stats for the last few weeks are a little way off yet.
I seem to have got you in a bit of a state with my outrageous comments.
Sorry I haven't responded earlier. Not trawling through pprune on an hour-by-hour basis waiting for you to ask me a question: what was I thinking?
DOT on-time performance figures, September 2004 (the latest ones available):
DEP / ARR
DJ 76.6% / 76.7%
QF 85.3% / 87.0%
JQ 87.6% / 89.7%
Cancellation rates: DJ - 1.8%
QF - 1.6%
JQ - 1.3%
Sonny, darling. In anyone's books an 11% split between departures and a 13% split between arrivals (DJ-JQ) is a "considerable margin".
I'll admit freely that QF and JQ are very close, but the margin is still "considerable" given the fact that when JQ isn't scheduled for 25 minute turnarounds it is scheduled for 30 minute ones. What does QF do? 40, 45 minutes?
My comments were only based on official figures. Getting upset about them isn't necessary, Sonny.
Uncommon Sense,
The DOT figures are one or two months in arrears. The stats for the last few weeks are a little way off yet.
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hey Borg,
I'm pretty sure QF turnaround times for 73's are model dependent. I know for a 400 it is 35 minutes, for a 800 it is 40 - something to do with having to load unload rear hold first. These time were right a couple of months ago however could of changed not sure
cheers
I'm pretty sure QF turnaround times for 73's are model dependent. I know for a 400 it is 35 minutes, for a 800 it is 40 - something to do with having to load unload rear hold first. These time were right a couple of months ago however could of changed not sure
cheers
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Perhaps QANTAS performance figures are riding on the back of JET*.
For example:-
QF 5883 arrived at Brisbane from Cairns last week at 20:50
JQ 883 arrived at Brisbane from Cairns last week at 20:50
Both flights arrived at Gate 38 in Brisbane.
Both flights were conducted in a Boeing 717.
Because this aircraft arrived on time, do QANTAS and JET* both claim that their flights achieved OTP.
Sounds like double-dipping, and manipulation of figures to me.
(And NO Keg, I don't need an Independent Audit to figure this one out)
For example:-
QF 5883 arrived at Brisbane from Cairns last week at 20:50
JQ 883 arrived at Brisbane from Cairns last week at 20:50
Both flights arrived at Gate 38 in Brisbane.
Both flights were conducted in a Boeing 717.
Because this aircraft arrived on time, do QANTAS and JET* both claim that their flights achieved OTP.
Sounds like double-dipping, and manipulation of figures to me.
(And NO Keg, I don't need an Independent Audit to figure this one out)