Qantas to Decline as Jetstar Soars
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A fully audited set of accounts(forJ*) will put the arguement to bed..one way or the other. That is not to villify the wonderful people who persue a dream in jetstar or anywhere else. However given the fact that little infrastructure has been devleoped at full cost, be it operations support in the guise of flight planning/ engineering/catering etc a meaningful "like with like" comparison would help those of us "legacy" people understand how it can be done so much more efficiently........
RAD ALT ALIVE,
Very insightful and valid post, with one (important) point on which I must dis-agree-
In fact, the traditional Low Cost Carrier model ONLY WORKS whilst the operation is expanding.
Why?
1) New aircraft meaning low maintenance, good operating economics and high on-sale value.
2) Constant recruiting of staff meaning a high percentage of the workforce is relatively new, willing to work for lower wages (which keeps wage demands from longer serving staff in check) and is still in the "Honeymoon" phase when it comes to enthusiasm and dedication.
3) Ability to pioneer new routes not recognized by the competition.
It is in fact when a LoCo starts to mature that reality starts to set in in the form of older, out of warranty aircraft, staff wanting a better deal and increased competition on routes they used to have a monopoly on and things get tough.
This is certainly what has happened at Jetblue and Southwest, and is starting to eat into easyJet and Ryanairs long-term feasibility.
The moral is, if J* ISN'T making a decent ROI in this initial phase, there are probably storm clouds ahead as to its' potential for long term growth and survival.
Very insightful and valid post, with one (important) point on which I must dis-agree-
The growth phase of an airline is never a good time to compare it's ultimate perceived performance.
Why?
1) New aircraft meaning low maintenance, good operating economics and high on-sale value.
2) Constant recruiting of staff meaning a high percentage of the workforce is relatively new, willing to work for lower wages (which keeps wage demands from longer serving staff in check) and is still in the "Honeymoon" phase when it comes to enthusiasm and dedication.
3) Ability to pioneer new routes not recognized by the competition.
It is in fact when a LoCo starts to mature that reality starts to set in in the form of older, out of warranty aircraft, staff wanting a better deal and increased competition on routes they used to have a monopoly on and things get tough.
This is certainly what has happened at Jetblue and Southwest, and is starting to eat into easyJet and Ryanairs long-term feasibility.
The moral is, if J* ISN'T making a decent ROI in this initial phase, there are probably storm clouds ahead as to its' potential for long term growth and survival.
Ah the audited accounts for each part of the business - that old chestnut. At the end of the day, if QF pay for something on JQ (or vice versa), it will show on the accounts for the whole Qantas Group. Conversely, the group benefits from the strength of both flying businesses, as well as all the other businesses which don't seem to cop as much flack on these boards.
Yes, QF mainline get great yields, but with the operating cost reductions from the 787, it makes good sense for JQto get the aircraft first, as it will then give them a greater yield. Remember that yield is revenue-cost, so if the cost is lower, you get a bigger slice of revenue.
At the end of the day, both QF and JQ will get 787s and it'll all be apples.
Yes, QF mainline get great yields, but with the operating cost reductions from the 787, it makes good sense for JQto get the aircraft first, as it will then give them a greater yield. Remember that yield is revenue-cost, so if the cost is lower, you get a bigger slice of revenue.
At the end of the day, both QF and JQ will get 787s and it'll all be apples.
I think the truth is that no one will ever be abe to guage the profitablity of a LCC that is a sunsidiary of a main carrier because many of the LCC fixed costs come out of the mainline budget, admin, maint, crewing admin, IT etc etc.
How much prifit will jetstar make, its at the whim of an accountants pencil.
That said. i like the concept, different level of service/product according to my taste at the time. Just like should I buy a Ford or a Jaguar........they are the same company.
How much prifit will jetstar make, its at the whim of an accountants pencil.
That said. i like the concept, different level of service/product according to my taste at the time. Just like should I buy a Ford or a Jaguar........they are the same company.
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Ah the audited accounts for each part of the business - that old chestnut.
Just like should I buy a Ford or a Jaguar........they are the same company.
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Maybe QFInsider has hit on something,
If an independant outfit audited the whole QF Group and determined (by analysis or maybe even with an e-bay like auction) the appropriate level of intra-Group subsidies then we'd all be wiser.
For example, it is well known that the bulk of the Group subsidizes the lifestyles on Long Haul 744 S/Os who are paid exorbitantly and treated way above their worth. So there could be a case to open up their slots to thhose willing to work for the much lower market rate. Similarly, say that the current Jetstar EBA was a little under the market rate. That would mean that Jetstar pilots were subsidizing the rest of the Group's employees and should get a pay rise in return for QF/AIPA drivers being able to bid to fly the new shiny jets at the "market rate". If that de-subsidizing process were done...and done across the whole Group...then maybe you'd see real transparency to everyone's benefit.
Thanks for the suggestion...maybe someone will pick it up.
If an independant outfit audited the whole QF Group and determined (by analysis or maybe even with an e-bay like auction) the appropriate level of intra-Group subsidies then we'd all be wiser.
For example, it is well known that the bulk of the Group subsidizes the lifestyles on Long Haul 744 S/Os who are paid exorbitantly and treated way above their worth. So there could be a case to open up their slots to thhose willing to work for the much lower market rate. Similarly, say that the current Jetstar EBA was a little under the market rate. That would mean that Jetstar pilots were subsidizing the rest of the Group's employees and should get a pay rise in return for QF/AIPA drivers being able to bid to fly the new shiny jets at the "market rate". If that de-subsidizing process were done...and done across the whole Group...then maybe you'd see real transparency to everyone's benefit.
Thanks for the suggestion...maybe someone will pick it up.
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Wiz, you're quite right. The model could only continue in its purest form, if equipment and staff continue to be replaced at intervals not exceeding their efficiency 'use-by' date! Don't know how that's going to pan out in relation to either equipment OR staff!!
Nomorecatering,
A little research would show that Jaguar are actually owned by Tata cars of India. So your choice would, in fact, be a valid two-company based choice and not relevant to this topic. Nice try though.
Nomorecatering,
A little research would show that Jaguar are actually owned by Tata cars of India. So your choice would, in fact, be a valid two-company based choice and not relevant to this topic. Nice try though.
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Haven't there been new accounting standards mandated worldwide recently?
Will this put a damper on JetStar's parade reference the so called hidden cross subsidisation.
All this International expansion of JetStar's, how exactly does this ride with the Qantas Sale Act?
I'm sure we'll find out soon enough!
Will this put a damper on JetStar's parade reference the so called hidden cross subsidisation.
All this International expansion of JetStar's, how exactly does this ride with the Qantas Sale Act?
I'm sure we'll find out soon enough!
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The model could only continue in its purest form, if equipment and staff continue to be replaced at intervals not exceeding their efficiency 'use-by' date! Don't know how that's going to pan out in relation to either equipment OR staff!!
As I strolled thru the Sydney International Terminal the other day. I saw QF staff checking in the J*27 pax to Phuket.
Walked past the said A330 going to Phuket & saw QF mainline engineers working on dispatching the Jet whilst a QF ground power unit was hooked up to it.
Whilst J* has contracts with QF mainline to provide services to it, for other than "normal" commercial type agreements then they'll continue to do ok.
Ask a QF engineer what the financial penalties to the "contractor" is in the event they fail to provide a serviceable aircraft for a J* operation.
MC
Nunc est bibendum
The other related question is 'what do QF charge J* for an aircraft dispatch out of SYD and what do they charge other 'customer' airlines?'. The answer is that J* is charged significantly less than any other customer airline @ SYD. In fact, the 'cost' to J* is the same 'cost' to QF of dispatching one of our own.
RAD ALT ALIVE, interesting post. You sum up the issue as it currently exists with QF with this statement:
QF's mainline domestic operation is nowhere near as punctual as it used to be and it's looking and feeling quite 'tired' on the inside. This is the crux of most QF drivers comments. Why persist hacking off the high yield customers with sub-standard, late, tired aircraft whilst the those who can't afford to travel anything but the LCC get the new equipment. If the LCC model is so marginal that a 787 makes a difference to the route compared to an A330 then we really aren't making much money on the route at all. I wonder how much money we lose every time a 767 breaks down on the premium service and we massively disrupt hundreds of premium punters who have the dollars to choose to fly with someone else.
RAD ALT ALIVE, interesting post. You sum up the issue as it currently exists with QF with this statement:
Until an operator's equipment does lose it's high reliability, passengers couldn't care less how old it is (contrary to what so many say here) so long as it's clean on the inside, punctual, and provides the 'value-added' service that they crave.
JQ exists because QF want it to exist!
It is not a stand alone company. It is a segment of the Qantas business.
It is the growth vehicle for QF because it is not restricted by legacy issues the parent has. In time it will have to deal with similar issues but for the moment it is getting all the goodies.
I still believe it is utter stupidity to expand any airline in the current climate. Even the sale of the FF business is looking shaky. Not a good time for JQ to expand services to EU and US.
It is not a stand alone company. It is a segment of the Qantas business.
It is the growth vehicle for QF because it is not restricted by legacy issues the parent has. In time it will have to deal with similar issues but for the moment it is getting all the goodies.
I still believe it is utter stupidity to expand any airline in the current climate. Even the sale of the FF business is looking shaky. Not a good time for JQ to expand services to EU and US.
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The other related question is 'what do QF charge J* for an aircraft dispatch out of SYD and what do they charge other 'customer' airlines?'.
MC
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Lets go rated
Q versus Jetstar. Well you are um.... rather stupid if that's your conclusion....... if you know what i mean. Read my posts I back both Q and Jetstar equally. Both are essential.
Q versus Jetstar. Well you are um.... rather stupid if that's your conclusion....... if you know what i mean. Read my posts I back both Q and Jetstar equally. Both are essential.
Last edited by captaintunedog777; 16th Sep 2008 at 18:25.
Wingsapr,
Just to clarify, QF is effectively Qantas Flight operations as distinct from the umbrella company Qantas which set up and owns Jetstar. QF and JQ are two supposedly independent companies owned by the company Qantas.
Pedantic perhaps, but central to understanding why JQ as a business unit must account for its costs.
I believe the new Chairman has been having a very close look at the real figures and as with any other company we will never know or have any right to know what is in confidential accounting books. Speculate all you like but that sought of stuff is truly commercial in confidence.
We may get an indication of JQ's true worth to the company over the next year with the Chairman and CEO seemingly reversing the balance of power which existed with the previous duo. This combined with events in the world economy I think all in Oz aviation are set for interesting times.
Just to clarify, QF is effectively Qantas Flight operations as distinct from the umbrella company Qantas which set up and owns Jetstar. QF and JQ are two supposedly independent companies owned by the company Qantas.
Pedantic perhaps, but central to understanding why JQ as a business unit must account for its costs.
I believe the new Chairman has been having a very close look at the real figures and as with any other company we will never know or have any right to know what is in confidential accounting books. Speculate all you like but that sought of stuff is truly commercial in confidence.
We may get an indication of JQ's true worth to the company over the next year with the Chairman and CEO seemingly reversing the balance of power which existed with the previous duo. This combined with events in the world economy I think all in Oz aviation are set for interesting times.
Mudman
I totally agree.
JQ may be separate and there is a strong argument that it could not exist on its own (which I'm positive it couldn't). In no way could it get the 330's or 78's at the costs it does without QF but that is not important to QF. It is doing business that QF couldn't. That is the reason for it's existence. Other factors take a back seat. It is doing what they mean't it to do.
As a side comment, AO was a half hearted attempt at the same objective.
I totally agree.
JQ may be separate and there is a strong argument that it could not exist on its own (which I'm positive it couldn't). In no way could it get the 330's or 78's at the costs it does without QF but that is not important to QF. It is doing business that QF couldn't. That is the reason for it's existence. Other factors take a back seat. It is doing what they mean't it to do.
As a side comment, AO was a half hearted attempt at the same objective.
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which I'm positive it couldn't says Wingspar. Blah blah blah. Maybe theres more to it. But at the end of the day. Cost cost cost.
Maybe one day you people will understand.
Maybe one day you people will understand.
Make no mistake, the average passenger couldn't care less if they flew the first B787 to where they're going, or good-old 20 year old OJA!
Qantas Domestic @ 16/09/08
Departure 54% vs 86% previous week
Arrivals 58% vs 86% previous week
Qantas International @ 16/09/08
54% vs 72% previous week
Yeah right! Tell me why QF doesn't require new aircraft again?
