Jet* and Japan..A Failure
J* subsidy
The only reason that J* is making money on their Japan routes is because QF mainline has a contract leasing all the freight capacity on the flights. This is guaranteed income on every flight despite the fact that few flights carry any freight. This is just a way of subsidising and keeping the paperwork look right.
Also, Qantas catering divisions were instructed on what price they would tender for the J* intl contract - well below normal commercial rates and below cost.
Also, Qantas catering divisions were instructed on what price they would tender for the J* intl contract - well below normal commercial rates and below cost.
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I was unaware of the freight contract Going Boeing, but freight will always yield more than passenger. Very good point.
You do not have to be full upstairs to make a good living with a full belly locker.
Best regards
EWL
You do not have to be full upstairs to make a good living with a full belly locker.
Best regards
EWL
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GB,
There are many facets of the J* business that are puzzling and the lack of transparency in the accounts only hightens my interest. I suspect the industrial aims of J* make it almost impossible to see any real numbers. I do hear persistent rumours about members of the executive not convinced about J*/J* Asia/J* Int however it appears the elephant scrotum wins the day.
Many elements of the group are paid below market rates for "services contracted" to J*. It begs the question of transfer pricing??
If these transactions were disclosed, both from a taxation and accounting perspective we could more accurately gauge the contribution margin. My hunch is that it performs well below the spin eminating from the mouth of Joyce or Dixon.
There are many facets of the J* business that are puzzling and the lack of transparency in the accounts only hightens my interest. I suspect the industrial aims of J* make it almost impossible to see any real numbers. I do hear persistent rumours about members of the executive not convinced about J*/J* Asia/J* Int however it appears the elephant scrotum wins the day.
Many elements of the group are paid below market rates for "services contracted" to J*. It begs the question of transfer pricing??
- Freight
- Catering
- Maintenance
- IT support
- Flight Planning
- Personnel transfers
- Ground Handling
- Fuel
- Spares
- Aircraft purchases
- Simulator training
- EP and Cabin crew training
If these transactions were disclosed, both from a taxation and accounting perspective we could more accurately gauge the contribution margin. My hunch is that it performs well below the spin eminating from the mouth of Joyce or Dixon.
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That may be true.
But it saves your arse.
The facts of the matter are this.
If JQ did not exist within QF someone would have set it up. It would then not be protecting the high yield parent business but stealing business away. Qantas would be forced to compete or die.
With their high cost base (look at manpower costs v revenue as a % in annual report) the only way to compete successfully would have been to aggressively cut costs or bleed red ink.
One is business saving, the other is certain death.
Qantas adopted the strategy they did, which is a very good one IMHO, and were gifted the rates of pay by a naive and industrially raw group who had endured years of McGowen. Anything was better than that!
JQ has saved a lot of mainline QF jobs which would have been cut had QF attempted to directly compete with any new LCC.
I don't think there is anyone who thinks that the strategy adopted is bad, however there are a lot of people who are sick of JQ being used as a benchmark for future T&C's. Tightness in the employment market will determine whether or not the current T&C's on offer at JQ are in the ballpark.
AJ is naive in the extreme if his LCC model relies on one group of employees and their wages. What he fears is the flow on affect to other sections of the business but if he had the nouse he would be able to handle that with a simple supply and demand argument.
If I were a VB pilot or a "Go Cat" one I would see JQ as more of a threat to my job than if I was at QF. JQ is there to protect the high yield business. Dixon has always been at pains to point out that the money in the business is made by the mainline product QF (see any investor presentation).
QF pilots, get over it. JQ pilots, get into 'em for a good increase in T&C's now. Strike whilst the iron is hot or you will never get another chance. The most important EBA for pilots in this country currently being negotiated is yours as it will determine the benchmark going forward for many many years. Good luck.
But it saves your arse.
The facts of the matter are this.
If JQ did not exist within QF someone would have set it up. It would then not be protecting the high yield parent business but stealing business away. Qantas would be forced to compete or die.
With their high cost base (look at manpower costs v revenue as a % in annual report) the only way to compete successfully would have been to aggressively cut costs or bleed red ink.
One is business saving, the other is certain death.
Qantas adopted the strategy they did, which is a very good one IMHO, and were gifted the rates of pay by a naive and industrially raw group who had endured years of McGowen. Anything was better than that!
JQ has saved a lot of mainline QF jobs which would have been cut had QF attempted to directly compete with any new LCC.
I don't think there is anyone who thinks that the strategy adopted is bad, however there are a lot of people who are sick of JQ being used as a benchmark for future T&C's. Tightness in the employment market will determine whether or not the current T&C's on offer at JQ are in the ballpark.
AJ is naive in the extreme if his LCC model relies on one group of employees and their wages. What he fears is the flow on affect to other sections of the business but if he had the nouse he would be able to handle that with a simple supply and demand argument.
If I were a VB pilot or a "Go Cat" one I would see JQ as more of a threat to my job than if I was at QF. JQ is there to protect the high yield business. Dixon has always been at pains to point out that the money in the business is made by the mainline product QF (see any investor presentation).
QF pilots, get over it. JQ pilots, get into 'em for a good increase in T&C's now. Strike whilst the iron is hot or you will never get another chance. The most important EBA for pilots in this country currently being negotiated is yours as it will determine the benchmark going forward for many many years. Good luck.
Last edited by What The; 1st Dec 2007 at 22:46.
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what the
'manpower costs v revenue'
these costs also include management, the highest in the asia/pac region.
don't expect any significant change soon even with costcutting
'manpower costs v revenue'
these costs also include management, the highest in the asia/pac region.
don't expect any significant change soon even with costcutting
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Qantas catering divisions were instructed on what price they would tender for the J* intl contract - well below normal commercial rates and below cost.
Gate Gourmet is the cateing supplier for JQ not Qantas Flight Catering!
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Gate Gourmet is the cateing supplier for JQ not Qantas Flight Catering!
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Good load factor indeed Rated.
BUT.............what is the yield and return per flight with DOCs and nasty things lilke infrastructure taken into account?
One can fly around all day with full aeroplanes, and still go out backwards if an airline is "paying" passengers to fly with them.
I hope that is not the case.
Best all
EWL
BUT.............what is the yield and return per flight with DOCs and nasty things lilke infrastructure taken into account?
One can fly around all day with full aeroplanes, and still go out backwards if an airline is "paying" passengers to fly with them.
I hope that is not the case.
Best all
EWL
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Letsgorated,
I think you are making up stuff to satisfy your hate of JQ, I can tell that the load factors to Japan out of syd are over 85% and cairns, although not doing as well as syd is sitting around 70%, they are the facts.....
I think you are making up stuff to satisfy your hate of JQ, I can tell that the load factors to Japan out of syd are over 85% and cairns, although not doing as well as syd is sitting around 70%, they are the facts.....
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The reason there is no mention of yield is because there isn't much. Anyone can sell a seat for next to nothing and claim a full aircraft, whether it returns the cost of capital over the life of the asset is another thing entirely..
The J* Int business case carries so many assumptions it will not add to "group" profit.
Unfortunately we never see the real figures.
However maybe our "management" are really "the smartest guys in the room"
The J* Int business case carries so many assumptions it will not add to "group" profit.
Unfortunately we never see the real figures.
However maybe our "management" are really "the smartest guys in the room"
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Doesn't fuss me a lot but exactly why would Dixon et al set up Jetstar if it doesn't make money? You can't really say it is to lower wages because if they did that it would add to profits wouldn't it? And if its not returning an adequate return on capital (is QF itself?) then they would be losing money there so why do it?
Just asking
Just asking
Last edited by genex; 16th Jan 2008 at 09:13.
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a fair question genex.
I have my own suspicions based upon the reality that to look at the mainline fleet and route structure you see a serious problem.
As such reinventing the wheel with a statement of lower cost base implies it is the staff responsible for the inability of mainline to allegedly return its Cost of Capital.
If a market is unviable with a mainline product, an Australian Airlines product what ensures it is viable with a J* product.
If the answer is lower costs, where are they?
If your only claimed differential is labour costs, these are at best minimal differences. They are not that different.(however they are closely guarded at Q) What is different is who pays for the infrastructure. Much of it is gifted from mainline Qantas. As such is J* likely to do better?
The cost as claimed by J* may be lower, but the cost to group is little different.
In my opinion no. The brand has little penetration into the target markets. The product inferior than many of its direct competitors. Many of the markets it flies to are thin one way markets, with extremely elastic demand.Combine this elastic demand with low yield and I would ask serious questions as to the justification for this model. What actually underpins it?.,
For me the answer lies not in non seen financial details (they are hidden for a reason) I suspect with a further re-election of the coalition and development of workchoices we would have seen wedge politics on a grand scale. To me it is an industrial tool. The lack of credible financial information(externally audited stand alone accounts-with transfer pricing issues addressed) only deepens my suspicion.
I have my own suspicions based upon the reality that to look at the mainline fleet and route structure you see a serious problem.
- Fleet average age increasing
- Poor route structures
- lack of investment
- Tunnel vision with respect to business development
As such reinventing the wheel with a statement of lower cost base implies it is the staff responsible for the inability of mainline to allegedly return its Cost of Capital.
If a market is unviable with a mainline product, an Australian Airlines product what ensures it is viable with a J* product.
If the answer is lower costs, where are they?
- Same fuel burn
- Same enroute charges
- Same terminal and landing charges
- Same acquisition costs of capital equipment
- Same establishment costs at an airport from type writers to telephones..
If your only claimed differential is labour costs, these are at best minimal differences. They are not that different.(however they are closely guarded at Q) What is different is who pays for the infrastructure. Much of it is gifted from mainline Qantas. As such is J* likely to do better?
The cost as claimed by J* may be lower, but the cost to group is little different.
In my opinion no. The brand has little penetration into the target markets. The product inferior than many of its direct competitors. Many of the markets it flies to are thin one way markets, with extremely elastic demand.Combine this elastic demand with low yield and I would ask serious questions as to the justification for this model. What actually underpins it?.,
For me the answer lies not in non seen financial details (they are hidden for a reason) I suspect with a further re-election of the coalition and development of workchoices we would have seen wedge politics on a grand scale. To me it is an industrial tool. The lack of credible financial information(externally audited stand alone accounts-with transfer pricing issues addressed) only deepens my suspicion.
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True, you could be right.
It's not just transfer pricing though....so many of an airline's costs are fixed and need to be allocated on an arbitrary basis. As with transfer pricing hard always to be consistent. Even revenue isn't always that easy to allocate.
Then there's the issue of Tiger, Lion, Virgin et al. Dixon just had to something and JQ was that something. It enabled him to hold off the mongol hordes.
I suspect the truth is in fact in there somewhere, though hard to fathom, and it is commercial property so not going to be easy to find.
Jetstar, can make money where QF mainline can't with reduced labour costs, a single training path based on the Airbus CCQ efficiencies, higher seat density and few of the "frills" that do cost money and may well not pay for themselves in QF.
It's not perfect...but nearly every major airline has done something similar...leveraging off its existing cost and infrastucture base. Dixon is one of the few people to make it work.....albeit with the caveat..."thus far".
It's not just transfer pricing though....so many of an airline's costs are fixed and need to be allocated on an arbitrary basis. As with transfer pricing hard always to be consistent. Even revenue isn't always that easy to allocate.
Then there's the issue of Tiger, Lion, Virgin et al. Dixon just had to something and JQ was that something. It enabled him to hold off the mongol hordes.
I suspect the truth is in fact in there somewhere, though hard to fathom, and it is commercial property so not going to be easy to find.
Jetstar, can make money where QF mainline can't with reduced labour costs, a single training path based on the Airbus CCQ efficiencies, higher seat density and few of the "frills" that do cost money and may well not pay for themselves in QF.
It's not perfect...but nearly every major airline has done something similar...leveraging off its existing cost and infrastucture base. Dixon is one of the few people to make it work.....albeit with the caveat..."thus far".