Airline Economics and Captain Kremin
TG & Inda...
Do you think it possible that JQ Oz will, at some point, reach a "critical mass" with the result that:
- little or no further expansion will occur in Oz,
- promotions and further recruitment will be offered in Singapore/Ho Chi Minh/Timbuktu, and
- the non-captains in JQ Oz might have their starry-eyed dream of rapid promotion evaporate due to...
- all the young captains (with years until retirement) ahead of them,
- the DECs entering above them,
- the prospective and coveted Europe flying being done from Asian bases by...
- ... yet more pilots who'll do it for less?
As many are finding, there's not much solace in being in a secure airline "group" if most of the future opportunities are mirages and spin by managers who actually have no interest in Oz content for an Oz brand.
- little or no further expansion will occur in Oz,
- promotions and further recruitment will be offered in Singapore/Ho Chi Minh/Timbuktu, and
- the non-captains in JQ Oz might have their starry-eyed dream of rapid promotion evaporate due to...
- all the young captains (with years until retirement) ahead of them,
- the DECs entering above them,
- the prospective and coveted Europe flying being done from Asian bases by...
- ... yet more pilots who'll do it for less?
As many are finding, there's not much solace in being in a secure airline "group" if most of the future opportunities are mirages and spin by managers who actually have no interest in Oz content for an Oz brand.
You hit it on the head JB.
If you can't motivate them with pay and conditions then you tempt them by other means.
The last few years JQ expansion has meant jobs, promotion and travelling to exciting new ports. When that ceases watch the discontent grow.
Already there are indications of that evolving.
Critical mass will occur and there will be few chairs remaining when the music stops.
If you can't motivate them with pay and conditions then you tempt them by other means.
The last few years JQ expansion has meant jobs, promotion and travelling to exciting new ports. When that ceases watch the discontent grow.
Already there are indications of that evolving.
Critical mass will occur and there will be few chairs remaining when the music stops.
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I think if you wish to look at the cost allocation of many of the fixed overheads you need to move away from the "Which company in the group was first".
That cuts both ways. You can't allocate the fixed overheads to QF simply because they are first. However you also cannot assume that JQ is getting a free ride because QF were first.
This thread is probably the best I've seen to highlight the difficulty (and sensitivity) involved in the allocation of fixed costs. The best anyone can do is to try their best to allocate costs based on activity based costing.
JQ's marginal costs are clearly lower, as are their gross revenue per seat.
I think the part you all have missed is where the customer demand sits. (ok, I think one of you touched on this a bit). If customers don't particularly want the full service approach they'll move to a LCC in lieu of the old QF full price, full service model.
When it all comes down to it what is the opportunity cost of the QF group investing capital in the JQ operation? I don't believe they'd necessarily be getting a higher Return on Equity by enlarging the full service / mainline fleet as a solid argument can be made that customers would just move elsewhere.
The real question should be would the QF group be able to use that money in a 3rd option and achieve a higher return on equity?
Could the QF group have simply copped the low cost competition and reduction in sales and taken that money they've invested in the capital to run JQ and invested the money elsewhere (other than QF Mainline)?
I believe QF contributes more to the shareholder value than JQ. That does not however mean you can simply transfer the money invested in JQ capital to QF mainline and receive a higher net revenue or to be more precise higher return on equity.
QF group does a reasonably good job of selling a seat to someone who would pay $500 for $500 and using Jetstar to sell a seat to someone who would only pay $220 for $220.
That cuts both ways. You can't allocate the fixed overheads to QF simply because they are first. However you also cannot assume that JQ is getting a free ride because QF were first.
This thread is probably the best I've seen to highlight the difficulty (and sensitivity) involved in the allocation of fixed costs. The best anyone can do is to try their best to allocate costs based on activity based costing.
JQ's marginal costs are clearly lower, as are their gross revenue per seat.
I think the part you all have missed is where the customer demand sits. (ok, I think one of you touched on this a bit). If customers don't particularly want the full service approach they'll move to a LCC in lieu of the old QF full price, full service model.
When it all comes down to it what is the opportunity cost of the QF group investing capital in the JQ operation? I don't believe they'd necessarily be getting a higher Return on Equity by enlarging the full service / mainline fleet as a solid argument can be made that customers would just move elsewhere.
The real question should be would the QF group be able to use that money in a 3rd option and achieve a higher return on equity?
Could the QF group have simply copped the low cost competition and reduction in sales and taken that money they've invested in the capital to run JQ and invested the money elsewhere (other than QF Mainline)?
I believe QF contributes more to the shareholder value than JQ. That does not however mean you can simply transfer the money invested in JQ capital to QF mainline and receive a higher net revenue or to be more precise higher return on equity.
QF group does a reasonably good job of selling a seat to someone who would pay $500 for $500 and using Jetstar to sell a seat to someone who would only pay $220 for $220.
That's valid PAF, but...
What many believe is happening is that;
- the $220 seats actually cost more than that (not to mention the $29 seats!),
- the $500 seats could be cheaper than that,
all because
- one entity must appear to have a lower cost base, and
- the other must be made to look inefficient and expensive for the sake of underlying commercial sensitivities and industrial agendas.
The ACCC would have a field day if 'predatory pricing' were occurring but, in a purely accounting sense, a LCC covering its 'costs' is untouchable.
Is JQ necessary? Sure.
Are it's costs truly as low as some would have us believe? I doubt it.
Do QF employees enjoy being blamed for the all the woes given some of the management decisions and creative accounting? I'll give you two guesses.
- the $220 seats actually cost more than that (not to mention the $29 seats!),
- the $500 seats could be cheaper than that,
all because
- one entity must appear to have a lower cost base, and
- the other must be made to look inefficient and expensive for the sake of underlying commercial sensitivities and industrial agendas.
The ACCC would have a field day if 'predatory pricing' were occurring but, in a purely accounting sense, a LCC covering its 'costs' is untouchable.
Is JQ necessary? Sure.
Are it's costs truly as low as some would have us believe? I doubt it.
Do QF employees enjoy being blamed for the all the woes given some of the management decisions and creative accounting? I'll give you two guesses.
