So you need a new fleet Leigh?
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Just a simple basic question.
What is more important for a business, revenue or profit ?
What is essential for it to survive, revenue or profit ?
For the shareholders, are dividends based on revenue or profit ?
For the staff, is the bonus based on revenue or profit ?
Just a simple basic question.
What is more important for a business, revenue or profit ?
What is essential for it to survive, revenue or profit ?
For the shareholders, are dividends based on revenue or profit ?
For the staff, is the bonus based on revenue or profit ?
Our point is that the way Qantas CHOOSES to present Jetstar removes any ability of an investor to assess the merits of any assertion.
From a strategic management perspective consider the following:
A decision is made to switch growth from one airline (Qantas) to the other (Jetstar). In an economic sense, it is practice to add capacity (or supply) until the addition of a unit of capacity means that it does not cover the cost of doing that.The transfer to Jetstar (including the accelerated growth under Little Napoleon) ought given their claims of lower unit cost have delivered improved margin (operating margin revenue minus cost).
Therefore, early on the Jetstar capacity increases probably showed reasonable margin. That it continues is surprising. That an airline with a fleet count similar to their parent flying 48% of the ASK generates only 30% of the parent revenue suggests that the capacity being granted to Jetstar is in excess (a scale problem)
Well intentioned senior management would recognise this. Perhaps this is why Mr Evans is actively touting the A321 as it lowers the fuel included CASK. This is why he states it is a mid cost carrier. What Mr Evans is flagging is that Jetstar margins are squeezed.
The Jetstar business cannot generate yield with a higher unit cost. The only way Jetstar (and any low fare airline) can generate an operating margin is to simultaneously have low unit cost and higher revenue. That is the objective of any business. The weakness of the low fare model is that full service airlines can replicate elements of the lower cost model. The full service carrier can grow operating profit margin as their ability to generate yield is far better. The only way the low fare airline can maintain margin is to continually lower cost, which in theory works well, but has practical limits.
As Little Napoleon states dual brand, it is a dereliction of strategic management that capacity is denied to the parent.
IFF he truly has 'transformed' anything, then additional capacity into Qantas International with a fuel efficient wide body twin fleet would instantaneously lower his unit cost and improve profit as his fuel expense would almost halve.
To answer the question, as the revenue of the group has gone backwards since Little Napoleon's coronation and Mr Evans has telegraphed that Jetstar has rising unit cost a better operating margin in the 'now transformed' Qantas International is easily achievable. To do what all other airlines have already done( re-equipping QFI) would mean tempering Little Napoleon's fetish for all things Jetstar.
Instead, as CurtainTwitcher remarks, they choose not to provide detail of the Jetstar segment, because it suits their agenda. AASB 8 allows them to choose not to disclose anything much, so they don't.
Rest assured there have been a lot of heated discussions on 'strategy' at Fort Fumble with incumbent CEO usually victorious.
Simply ask yourself why Qantas refuse to provide detail on Jetstar? As management themselves determine who pays for what, the Qantas International segment can for instance pay for fuel, or aircraft purchases, or engineering, or staff in corporate, it is impossible to determine without seeing the management accounts how much subsidy Jetstar actually receives from the parent. Ultimately, there is nothing illegal in that. What is entirely disingenuous and misleading to both staff and regulators is that the profitability of Jetstar is repeated without substantiation and idiots like Peter Harbison (CAPA) with his Chairman's lounge access regurgitate it.
Seeing as though you mention dividend, which itself is a function of profit. Would it not be a better use of capital to re-equip and lower fuel costs improve operating profit margin and profitability, than simply spend AUD$2.5 billion buying back shares?
Qantas need a new fleet
Thus, as a mid cost airline its margins are narrow, particularly with respect to how little revenue it generates from flying its ASK.
The trick to remember is what the late CEO Herb Kelleher of Southwest said;
(paraphrasing)
"You can have the lowest cost airline, or the highest revenue airline and still go broke. What matters is the gap between the two."
The trick to remember is what the late CEO Herb Kelleher of Southwest said;
(paraphrasing)
"You can have the lowest cost airline, or the highest revenue airline and still go broke. What matters is the gap between the two."
You choose to ignore the cost side of the equation when clearly that is the whole point of a low cost airline. (And no, it is not a ‘mid cost’ airline. The article was putting it midway between 2 different low cost operators).
Except all of RD's (and everyone else's) points are completely wrong! Qantas is run by a genuine Messiah and Gareth is just as good.
SMH today:
By Patrick Hatch
JUNE 15, 2019
When Gareth Evans was 19 he and a mate shared an urge to see the famed canals and picturesque cobbled streets of Amsterdam.
Two full days later, travelling from their homes in Birmingham in the UK, hitchhiking the long road to the coast and braving the ocean crossing by ferry, the pair arrived.
Today, a couple of young lads from the Midlands wanting to explore the Dutch capital can get there for little more than $100 and an hour of their time squeezed into a smaller-than-average aeroplane seat.
The cost of flying has fallen dramatically over the past 30 years, thanks to more efficient aircraft and greater competition.
Low-cost carriers have chipped away at the dominance of full-service airlines and made air travel accessible to millions of people for the first time.
Now 50, Evans' hitchhiking days are well behind him. But as the boss of budget airline Jetstar he's still occupied with the task of getting from A to B as cheaply as possible.
Jetstar has had more than 300 million passengers since it started flying 15 years ago, and says two-thirds of them paid less than $100 for their ticket.
While it is not as glamorous as Evan's previous posting within the Qantas group, running its international business, Jetstar actually makes more money for the company.
And Evans says the role is as challenging as any he has had in the 20 years since a recruitment firm poached the ex-KMPG accountant from Caltex to join Qantas.
“That was a month before QF1 went off the runway [in Bangkok, en route to London from Sydney] and two months before Richard Branson launched Virgin Blue," he recalls.
"Then within a year or so of that Ansett had gone broke. Then 9/11 had happened. Anybody would say that the time they joined was an interesting time, but I think it was a fairly interesting time."
Evans has moved through roles in finance, ticket pricing and scheduling, and has had three of the most senior positions in the company - chief financial officer, CEO of Qantas International, and since November 2017 he has been the boss of Jetstar.
Evans - who tends towards the business casual attire of open collars and chinos, and has recently cultivated a neat grey stubble - says it took him seven or eight months to adapt to the Jetstar "mindset" after years in a business where lounges, lie-flat beds and champagne on arrival are crucial to attracting lucrative corporate travellers.
“I was definitely, in those earlier months, having to pull myself up... to make sure that I hadn't just impinged on Jetstar’s cost base, or done something that’s going to confuse customers in terms of the brand differentiation," he says.
"I had to pull myself up and say: whilst we want to do this and we would have done it at Qantas, the business isn’t set up to deal with this sort of change."
With successful stints across almost the entire Qantas business, Evans is considered a leading candidate to become the next CEO of Qantas, one of the country's highest-profile corporate jobs.
[QUOTE]Wasn’t Bill Shorten odds-on favourite to become the next prime minister.
That's something he won't be drawn on when he sits down with the Sydney Morning Herald and The Age on the sidelines of the International Air Transport Assocciation's annual general meeting earlier this month.
“Wasn’t Bill Shorten odds-on favourite to become the next prime minister?" he quips.
Even if running Jetstar is the final holding pattern before Evans lands at the head of Qantas, aviation watchers say it won't be an easy few years - especially if he is expected to deliver the kind of growth Jetstar has achieved in the past.
Qantas was being "monstered" by Richard Branson's Virgin Blue (pictured) and had to respond.
But questions about Jetstar's outlook are nothing new.
When its first flight took off from Newcastle bound for Melbourne on May 25, 2004, Qantas was said to be taking a huge risk on the budget offshoot, run by a young executive called Alan Joyce.
Successful budget carriers like Ryanair in Ireland and WestJet in Canada were popping up around the world, but every attempt by a full-service airline to launch one had been a disaster.
In Australia, the low-cost carriers Compass and Impulse had failed in a tough environment that also claimed Ansett in 2002.
Qantas' CEO at the time, Geoff Dixon, says starting Jetstar was crucial for Qantas to fight back against Richard Branson's Virgin Blue, which was rapidly growing since its launch in 2000.
"We were getting monstered by Virgin," Dixon remembers.
"Their cost base was so much lower and they were coming particularly at our leisure market. Honestly, we were finding it very hard to match them.
"We had to find a way to do this and do it successfully."
Dixon says there was a "lot of tension" in senior management, with a view that Jetstar would cut Qantas' lunch.Not in our wildest dreams could we imagine it ending up as it is.
Geoff Dixon, former Qantas CEOTony Webber, an aviation consultant at Airline Intelligence and Research and an economist at Qantas from 2004 to 2011, say Qantas "hated Jetstar, with a passion".
"They were taking Qantas’ passengers - there’s no doubt about it."
CAPA Centre for Aviation chairman Peter Harbison says that if the doubters had won and Jetstar had never have taken off, Qantas today would be "totally stuffed".Jetstar is now Australia's second biggest international airline, carrying 9 per cent of the passengers in and out of the country.
The plan worked, and Virgin flattened out almost from day one, Harbison says, forcing it to eventually change tactics and morph into a full-service airline going head-to-head with Qantas while eventually buying its own budget arm, Tigerair, to keep Jetstar in check.
From its start as 14-plane barricade against an uppity challenger, Jetstar has grown into a behemoth in its own right.
It has 135 jets flying to destinations in 16 countries, and has established "franchises" (with Qantas a minority shareholder) in Singapore, Vietnam and Japan, where it is the country's leading low-cost carrier.
“If you look at it today, it flies on almost every single city pair, it flies during the peaks," says Webber.
"It's started chasing yield rather than chasing passengers and share. That tells you the way the strategic importance of Jetstar to Qantas... has changed completely."
Jetstar is now Australia's second biggest international airline, carrying 9 per cent of the passengers in and out of the country - behind only Qantas (17 per cent), and ahead of Singapore Airlines (8 per cent).
It turned $3.7 billion in ticket sales into a $461 million underlying profit last year - or about a third of Qantas' total earnings. That's more than Qantas International contributed with its $399 million profit from $6.9 billion in revenue.
"It was as much a defensive strategy as anything... but it grew into a profit and growth opportunity pretty soon," says Dixon, who left Qantas in 2008.
“Not in our wildest dreams could we imagine it ending up as it is. It just makes Qantas as group so formidable."
Leigh Clifford, Qantas' chairman from 2007 to 2018, says the airline had succeeded where others had failed in setting up a low-cost arm without compromising safety, financial control or cannibalising its premium arm.
“You shouldn’t underestimate the challenges," the former Rio Tinto CEO says on phone from London.
“It’s now very much part of the growth engine of the Qantas group as a whole. It’s been a great success."
“How does it get any better for Jetstar in Australia?" he asks.
“The problem is that it has done its job. I don’t know how you can run that business much better.”
Jetstar will also have to manage how an economic slowdown hits its customer base of price-sensitive holiday markers.
“Holidays are one of the most discretionary purchases you can make - it’s not like BHP flying a worker home," Slater says.
“If it grows capacity, it’s going to start eating into Qantas’ profitable routes and they’re not going to let that happen. And the other problem is you can’t put up prices. None of these things bode well for that business."
Slater's fund took a short position in Qantas from September 2018 at about $6.30, believing that after a successful turnaround and a stellar share price recovery the stock was overvalued and heading for a correction. It is now $5.74.
Webber predicts the plunging Australian dollar will cause major headaches, as it stops Australians from travelling overseas and will compound the pain caused by elevated fuel prices.
“A route like Melbourne-Honolulu and routes [like] Sydney and Melbourne into Singapore, into Bali, on those long sectors which are taking Aussies into leisure destination, they’ll have problems," he says.
Jetstar is not as glamorous as Qantas International, but Evans says the job is just as challenging.
Harbison, from CAPA, says Jetstar has no way to actually grow its business unless it buys more new aircraft than the 18 set to enter its domestic fleet over the next three years.
He argues Qantas was too conservative on its capital expenditure to allow that, and after more than a decade of constant growth, Jetstar's capacity has hit a plateau over the last three years.
“They’re not buying any more aircraft, which I think is chronic," Harbison says.
“They need to be growing, and because of Qantas’ capex issues, and wanting to have a high share price, they’re not.”
But he also thinks attitudes to travel are changing and people now consider an annual holiday more of a household staple than a luxury.
He says he has levers to pull to keep Jetstar cruising at altitude.
His planes are about 87 per cent full, and he reckons that can increase to the low 90s. Airfares have also gone up moderately.
Even better, per-seat earnings are growing faster from what airlines call "ancillary revenue" than from the higher fares.
Ancillary revenue is the extras customers buy on top of their basic ticket, from checked baggage through to snacks on board, in-flight entertainment or an eye-mask and a toothbrush.
That revenue grew 8 per cent in the third quarter, from new luggage options and its Club Jetstar program, where people pay $49 a year for access to lower fares and other perks.
Evans says Jetstar can better leverage data to tailor the information and add-on products offered to each individual customer, based on their past behaviour.
While some travellers decry the lack of amenities on budget airlines, Evans says the ancillary model is a win-win for the airline and for customers.
"A customer does not have to spend a dollar on ancillary if they don’t want to. They are then choosing because those products are attractive to them," he says.
“I hate the term low-cost carrier. It projects a certain picture in people’s minds and that’s not what we represent. Low cost does not mean low service – what it means is choice. I think a much better term is we’re 'choice' airlines."
Getting the right balance with just how basic to make the basic product and how much "choice" to give passengers, was one of the biggest challenges Evans had when he took over at Jetstar.
Should it be like the much-derided Irish carrier Ryanair, which charges passengers Ł20 ($36) if they haven't printed their own boarding pass and Ł55 ($100) if they haven't checked in online?
Or closer to a "hybrid" carrier, which impinge the on full-service market like JetBlue in the US or even Virgin Australia.
Evans says Jetstar has landed somewhere in the middle, because that's where its customers want it to be.
One "game-changing" development for Jetstar is the arrival of 18 new Airbus A321neos LR aircraft for its domestic fleet between 2020 and 2022, and three for Jetstar Japan.
The new jets use less fuel and are cheaper to run than its existing Airbus A320s fleet, which the airline is likely to retire once the new ones arrive.
The really exciting part for Evans is that the new single-aisle aircraft can travel 700 kilometres further. That means they can fly domestic routes during the day, and then overnight from Australia's east coast to Bali.
Not only is flying aircraft almost 24-hours-a-day the most efficient way to run an airline, the A321s will free up some of Jetstar's 11 Boeing 787 Dreamliners which currently fly to Bali for other potentially longer routes.
"We’re going to see over the next two or three years as we execute on that, 30, 40 per cent growth in the Jetstar Australian international business," says Evans.
“Korea is an example of the opportunities that we’ve got," Evans says.
"I think we will see a huge surge in Australians going to Korea once we bring low-cost fares to the market and a significant increase of Koreans coming to Australia.”
Jetstar's minority-owned offshore businesses have given the brand reach across Asia, but they've been financially patchy. Its last full-year accounts said all Jetstar airlines in Asia were profitable, but at its most recent half-year results only Japan was called out for staying in the black. Jetstar declined to comment when asked to clarify the point.
Evans says the group frequently looks at opportunities to buy or go into partnerships with other low-cost carriers.
"You’ve got to be very careful in Asia to get it right - you can lose a lot of money," he says.
"The strategy was never to be in every country - it’s about being in the right countries, in the right way with the right partner."
Qantas' board, led by its new chairman, ex-Wesfarmers boss Richard Goyder, recently asked Joyce to stay on as the company's CEO until at least 2022.
That will be a 14-year stint - a long time running an ASX-listed company by any measure. If Evans is counting down the days, he doesn't show it.
"Alan’s done and is doing a wonderful job and he’s going to be here for many years to come. My focus is doing the job that I’ve got. Jetstar is a great organisation and I’m thoroughly enjoying being the CEO of that business. That’s what gets me up in the morning and that’s what I enjoy and that’s what my focus is going to be on."
That bit IS correct! Mind you, they were told that before they lost it...
SMH today:
Jetstar's already saved Qantas. Where can its boss fly to next?
Started as a defence against Virgin, the budget airline is now a money making machine in its own right. So where to next for Jetstar and its man in charge?By Patrick Hatch
JUNE 15, 2019
When Gareth Evans was 19 he and a mate shared an urge to see the famed canals and picturesque cobbled streets of Amsterdam.
Two full days later, travelling from their homes in Birmingham in the UK, hitchhiking the long road to the coast and braving the ocean crossing by ferry, the pair arrived.
Today, a couple of young lads from the Midlands wanting to explore the Dutch capital can get there for little more than $100 and an hour of their time squeezed into a smaller-than-average aeroplane seat.
The cost of flying has fallen dramatically over the past 30 years, thanks to more efficient aircraft and greater competition.
Low-cost carriers have chipped away at the dominance of full-service airlines and made air travel accessible to millions of people for the first time.
Now 50, Evans' hitchhiking days are well behind him. But as the boss of budget airline Jetstar he's still occupied with the task of getting from A to B as cheaply as possible.
Jetstar has had more than 300 million passengers since it started flying 15 years ago, and says two-thirds of them paid less than $100 for their ticket.
While it is not as glamorous as Evan's previous posting within the Qantas group, running its international business, Jetstar actually makes more money for the company.
And Evans says the role is as challenging as any he has had in the 20 years since a recruitment firm poached the ex-KMPG accountant from Caltex to join Qantas.
“That was a month before QF1 went off the runway [in Bangkok, en route to London from Sydney] and two months before Richard Branson launched Virgin Blue," he recalls.
"Then within a year or so of that Ansett had gone broke. Then 9/11 had happened. Anybody would say that the time they joined was an interesting time, but I think it was a fairly interesting time."
Evans has moved through roles in finance, ticket pricing and scheduling, and has had three of the most senior positions in the company - chief financial officer, CEO of Qantas International, and since November 2017 he has been the boss of Jetstar.
Evans - who tends towards the business casual attire of open collars and chinos, and has recently cultivated a neat grey stubble - says it took him seven or eight months to adapt to the Jetstar "mindset" after years in a business where lounges, lie-flat beds and champagne on arrival are crucial to attracting lucrative corporate travellers.
“I was definitely, in those earlier months, having to pull myself up... to make sure that I hadn't just impinged on Jetstar’s cost base, or done something that’s going to confuse customers in terms of the brand differentiation," he says.
"I had to pull myself up and say: whilst we want to do this and we would have done it at Qantas, the business isn’t set up to deal with this sort of change."
With successful stints across almost the entire Qantas business, Evans is considered a leading candidate to become the next CEO of Qantas, one of the country's highest-profile corporate jobs.
[QUOTE]Wasn’t Bill Shorten odds-on favourite to become the next prime minister.
That's something he won't be drawn on when he sits down with the Sydney Morning Herald and The Age on the sidelines of the International Air Transport Assocciation's annual general meeting earlier this month.
“Wasn’t Bill Shorten odds-on favourite to become the next prime minister?" he quips.
Even if running Jetstar is the final holding pattern before Evans lands at the head of Qantas, aviation watchers say it won't be an easy few years - especially if he is expected to deliver the kind of growth Jetstar has achieved in the past.
Qantas was being "monstered" by Richard Branson's Virgin Blue (pictured) and had to respond.
But questions about Jetstar's outlook are nothing new.
When its first flight took off from Newcastle bound for Melbourne on May 25, 2004, Qantas was said to be taking a huge risk on the budget offshoot, run by a young executive called Alan Joyce.
Successful budget carriers like Ryanair in Ireland and WestJet in Canada were popping up around the world, but every attempt by a full-service airline to launch one had been a disaster.
In Australia, the low-cost carriers Compass and Impulse had failed in a tough environment that also claimed Ansett in 2002.
Qantas' CEO at the time, Geoff Dixon, says starting Jetstar was crucial for Qantas to fight back against Richard Branson's Virgin Blue, which was rapidly growing since its launch in 2000.
"We were getting monstered by Virgin," Dixon remembers.
"Their cost base was so much lower and they were coming particularly at our leisure market. Honestly, we were finding it very hard to match them.
"We had to find a way to do this and do it successfully."
Dixon says there was a "lot of tension" in senior management, with a view that Jetstar would cut Qantas' lunch.Not in our wildest dreams could we imagine it ending up as it is.
Geoff Dixon, former Qantas CEOTony Webber, an aviation consultant at Airline Intelligence and Research and an economist at Qantas from 2004 to 2011, say Qantas "hated Jetstar, with a passion".
"They were taking Qantas’ passengers - there’s no doubt about it."
CAPA Centre for Aviation chairman Peter Harbison says that if the doubters had won and Jetstar had never have taken off, Qantas today would be "totally stuffed".Jetstar is now Australia's second biggest international airline, carrying 9 per cent of the passengers in and out of the country.
The plan worked, and Virgin flattened out almost from day one, Harbison says, forcing it to eventually change tactics and morph into a full-service airline going head-to-head with Qantas while eventually buying its own budget arm, Tigerair, to keep Jetstar in check.
From its start as 14-plane barricade against an uppity challenger, Jetstar has grown into a behemoth in its own right.
It has 135 jets flying to destinations in 16 countries, and has established "franchises" (with Qantas a minority shareholder) in Singapore, Vietnam and Japan, where it is the country's leading low-cost carrier.
“If you look at it today, it flies on almost every single city pair, it flies during the peaks," says Webber.
"It's started chasing yield rather than chasing passengers and share. That tells you the way the strategic importance of Jetstar to Qantas... has changed completely."
Jetstar is now Australia's second biggest international airline, carrying 9 per cent of the passengers in and out of the country - behind only Qantas (17 per cent), and ahead of Singapore Airlines (8 per cent).
It turned $3.7 billion in ticket sales into a $461 million underlying profit last year - or about a third of Qantas' total earnings. That's more than Qantas International contributed with its $399 million profit from $6.9 billion in revenue.
"It was as much a defensive strategy as anything... but it grew into a profit and growth opportunity pretty soon," says Dixon, who left Qantas in 2008.
“Not in our wildest dreams could we imagine it ending up as it is. It just makes Qantas as group so formidable."
Leigh Clifford, Qantas' chairman from 2007 to 2018, says the airline had succeeded where others had failed in setting up a low-cost arm without compromising safety, financial control or cannibalising its premium arm.
“You shouldn’t underestimate the challenges," the former Rio Tinto CEO says on phone from London.
“It’s now very much part of the growth engine of the Qantas group as a whole. It’s been a great success."
Easy yards over
So Evans has inherited a large and healthy business. But it is also starting to mature. The "easy yards" to deliver growth have already been run, according to Chad Slater, chief investment officer at Morphic Asset Management and a long-time aviation watcher.“How does it get any better for Jetstar in Australia?" he asks.
“The problem is that it has done its job. I don’t know how you can run that business much better.”
Jetstar will also have to manage how an economic slowdown hits its customer base of price-sensitive holiday markers.
“Holidays are one of the most discretionary purchases you can make - it’s not like BHP flying a worker home," Slater says.
“If it grows capacity, it’s going to start eating into Qantas’ profitable routes and they’re not going to let that happen. And the other problem is you can’t put up prices. None of these things bode well for that business."
Slater's fund took a short position in Qantas from September 2018 at about $6.30, believing that after a successful turnaround and a stellar share price recovery the stock was overvalued and heading for a correction. It is now $5.74.
Webber predicts the plunging Australian dollar will cause major headaches, as it stops Australians from travelling overseas and will compound the pain caused by elevated fuel prices.
“A route like Melbourne-Honolulu and routes [like] Sydney and Melbourne into Singapore, into Bali, on those long sectors which are taking Aussies into leisure destination, they’ll have problems," he says.
Jetstar is not as glamorous as Qantas International, but Evans says the job is just as challenging.
Harbison, from CAPA, says Jetstar has no way to actually grow its business unless it buys more new aircraft than the 18 set to enter its domestic fleet over the next three years.
He argues Qantas was too conservative on its capital expenditure to allow that, and after more than a decade of constant growth, Jetstar's capacity has hit a plateau over the last three years.
“They’re not buying any more aircraft, which I think is chronic," Harbison says.
“They need to be growing, and because of Qantas’ capex issues, and wanting to have a high share price, they’re not.”
Levers to pull
For his part, Evans acknowledges that the economic outlook and consumer confidence - how customers feel about their ability to afford a holiday - has a major influence on his business.But he also thinks attitudes to travel are changing and people now consider an annual holiday more of a household staple than a luxury.
He says he has levers to pull to keep Jetstar cruising at altitude.
His planes are about 87 per cent full, and he reckons that can increase to the low 90s. Airfares have also gone up moderately.
Even better, per-seat earnings are growing faster from what airlines call "ancillary revenue" than from the higher fares.
Ancillary revenue is the extras customers buy on top of their basic ticket, from checked baggage through to snacks on board, in-flight entertainment or an eye-mask and a toothbrush.
That revenue grew 8 per cent in the third quarter, from new luggage options and its Club Jetstar program, where people pay $49 a year for access to lower fares and other perks.
Evans says Jetstar can better leverage data to tailor the information and add-on products offered to each individual customer, based on their past behaviour.
While some travellers decry the lack of amenities on budget airlines, Evans says the ancillary model is a win-win for the airline and for customers.
"A customer does not have to spend a dollar on ancillary if they don’t want to. They are then choosing because those products are attractive to them," he says.
“I hate the term low-cost carrier. It projects a certain picture in people’s minds and that’s not what we represent. Low cost does not mean low service – what it means is choice. I think a much better term is we’re 'choice' airlines."
Getting the right balance with just how basic to make the basic product and how much "choice" to give passengers, was one of the biggest challenges Evans had when he took over at Jetstar.
Should it be like the much-derided Irish carrier Ryanair, which charges passengers Ł20 ($36) if they haven't printed their own boarding pass and Ł55 ($100) if they haven't checked in online?
Or closer to a "hybrid" carrier, which impinge the on full-service market like JetBlue in the US or even Virgin Australia.
Evans says Jetstar has landed somewhere in the middle, because that's where its customers want it to be.
One "game-changing" development for Jetstar is the arrival of 18 new Airbus A321neos LR aircraft for its domestic fleet between 2020 and 2022, and three for Jetstar Japan.
The new jets use less fuel and are cheaper to run than its existing Airbus A320s fleet, which the airline is likely to retire once the new ones arrive.
The really exciting part for Evans is that the new single-aisle aircraft can travel 700 kilometres further. That means they can fly domestic routes during the day, and then overnight from Australia's east coast to Bali.
Not only is flying aircraft almost 24-hours-a-day the most efficient way to run an airline, the A321s will free up some of Jetstar's 11 Boeing 787 Dreamliners which currently fly to Bali for other potentially longer routes.
"We’re going to see over the next two or three years as we execute on that, 30, 40 per cent growth in the Jetstar Australian international business," says Evans.
New routes
The airline is looking hard at potential new routes, and last month announced it would start flights from the Gold Coast to Seoul in December. It has set up a code-share partnership with South Korean budget airline Jeju Air, which it says will give it a better balance of in-bound and outbound passengers.“Korea is an example of the opportunities that we’ve got," Evans says.
"I think we will see a huge surge in Australians going to Korea once we bring low-cost fares to the market and a significant increase of Koreans coming to Australia.”
Jetstar's minority-owned offshore businesses have given the brand reach across Asia, but they've been financially patchy. Its last full-year accounts said all Jetstar airlines in Asia were profitable, but at its most recent half-year results only Japan was called out for staying in the black. Jetstar declined to comment when asked to clarify the point.
Evans says the group frequently looks at opportunities to buy or go into partnerships with other low-cost carriers.
"You’ve got to be very careful in Asia to get it right - you can lose a lot of money," he says.
"The strategy was never to be in every country - it’s about being in the right countries, in the right way with the right partner."
Qantas' board, led by its new chairman, ex-Wesfarmers boss Richard Goyder, recently asked Joyce to stay on as the company's CEO until at least 2022.
That will be a 14-year stint - a long time running an ASX-listed company by any measure. If Evans is counting down the days, he doesn't show it.
"Alan’s done and is doing a wonderful job and he’s going to be here for many years to come. My focus is doing the job that I’ve got. Jetstar is a great organisation and I’m thoroughly enjoying being the CEO of that business. That’s what gets me up in the morning and that’s what I enjoy and that’s what my focus is going to be on."
"You’ve got to be very careful in Asia to get it right - you can lose a lot of money," he says.
I'm too ill now, but can someone write to Mr Hatch and explain a few things - like most of what he's been told is complete rubbish?
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Do you see the utter contradiction in your post? You obsess over ‘revenue’ and then use a quote which explicitly points to the fact that you could be “the highest revenue airline and still go broke”.
You choose to ignore the cost side of the equation when clearly that is the whole point of a low cost airline. (And no, it is not a ‘mid cost’ airline. The article was putting it midway between 2 different low cost operators).
Rated - Apart from your original assertion, which I agree with, I am now lost as to what your point is? At one stage I thought you were actually trying to say that Qantas had lower costs than Jetstar........ hopefully I am mistaken on that one.
Rask - Cask = Profit... its as simple as that.
Despite this scale and flying some 48% of the ASK of the parent they cannot generate more than 30% of the revenue
I ask again, what are you to trying to achieve by saying this ? Are you trying to point out that Jetstar (the Jetstar in the FY18 report) is a complete and utter dismal failure ? You use revenue to exaggerate what a failure Jetstar is, and you deliberately overlook the important fact which is actual profit.
As you say
Let not actual facts get in the way of a good story
Even though Jetstar flew some 48% of the ASK of the parent company, it actually made 40% of the profit using only 30% of the revenue. Not bad hey ? It is actually not as bad as you make it out to be. Let's look at profit and not revenue when comparing how successful something it as even you mention the importance of profitability to an airline.
Now most people here are arguing that Qantas need a new fleet, and discussion usually revolves around a widebody fleet for Qantas International.
So now let's look at some more facts and compare Qantas International vs Jetstar (the Jetstar which flew 48% ASK for 30% revenue, Jetstar Australia, JQ, which someone always denigrates, the Jetstar in the FY18 report).
Qantas INTL flew 69,280 ASKs vs Jetstar 48,763 ASKs.
Qantas INTL made $6,892 M revenue compared to Jetstar $3,767 M.
Qantas INTL made $399 M EBIT vs Jetstar $461 M EBIT.
What good is revenue if there is no profit ? Yet someone keeps denigrating Jetstar based on revenue alone.
Qantas INTL flew 42% more ASKs for 14% less profit. It is very obvious which is more profitable.
Qantas INTL have an operating margin of 5.8% vs Jetstar 12.2%.
Qantas (INTL + DOM) made 3.4 times more revenue but only 2.5 times more profit. It is obvious which generates better profit compared to revenue.
From these facts above, it is very obvious that Jetstar (Jetstar Australia, JQ) is a much better return on investment compared to Qantas International.
Continue to denigrate Jetstar (Jetstar Australia, JQ) as much as you like, but that facts speak for themselves.
As someone else also pointed out, you do contradict yourself.
You wrote
Would it not be a better use of capital to re-equip and lower fuel costs improve operating profit margin and profitability
Isn't investing in Jetstar (Jetstar Australia, JQ) compared to QF INTL something that improves profitability for the airline group ?
I rest my case.
Yes sure Qantas might need a new fleet, but don't denigrate Jetstar (JQ) as it's not such a failure as some like to make it out to be.
Last edited by a_pilot; 16th Jun 2019 at 07:39.
Don’t rest it just yet. Why don’t you do an accurate comparison of QF INT vs JQ INT? Compare the equivalent part of each segment because comparing the whole of JQ vs just QF INT isn’t fair.
Why don’t you do an accurate comparison of QF INT vs JQ INT? Compare the equivalent part of each segment because comparing the whole of JQ vs just QF INT isn’t fair.
It is not fair that someone only mentions revenue to denigrate Jetstar without looking at how much profit it actually makes.
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Without access to the internal accounting notes, all anyone can say is the Qantas Group makes $X profit or loss in total. The profitability of each internal segment is basically a totally opaque & malleable quantity, to suit the desired narrative.
If they were really to invest where the money is made, they would have shut down the operational side and turned the whole thing into Qantas Loyalty! That is where the big $$$ are, Oh wait...
If they were really to invest where the money is made, they would have shut down the operational side and turned the whole thing into Qantas Loyalty! That is where the big $$$ are, Oh wait...
Qantas INTL made $399 M EBIT vs Jetstar $461 M EBIT.
What good is revenue if there is no profit ? Yet someone keeps denigrating Jetstar based on revenue alone.
Qantas INTL flew 42% more ASKs for 14% less profit. It is very obvious which is more profitable.
Qantas INTL have an operating margin of 5.8% vs Jetstar 12.2%.
Qantas (INTL + DOM) made 3.4 times more revenue but only 2.5 times more profit. It is obvious which generates better profit compared to revenue.
From these facts above, it is very obvious that Jetstar (Jetstar Australia, JQ) is a much better return on investment compared to Qantas International.
What good is revenue if there is no profit ? Yet someone keeps denigrating Jetstar based on revenue alone.
Qantas INTL flew 42% more ASKs for 14% less profit. It is very obvious which is more profitable.
Qantas INTL have an operating margin of 5.8% vs Jetstar 12.2%.
Qantas (INTL + DOM) made 3.4 times more revenue but only 2.5 times more profit. It is obvious which generates better profit compared to revenue.
From these facts above, it is very obvious that Jetstar (Jetstar Australia, JQ) is a much better return on investment compared to Qantas International.
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My two cents: You can only lower the operating cost to a certain point, and excluding the external factors of which you have no control over. But the magic happens when you make more money, as it's not sustainable to just focus on cost cutting. I think that Jetstar domestically has a scale problem given our tiny population and vast distances. Internationally, there is way too much competition with a lower cost base.
Compare Jetstar to say that of RyanAir, with the massive European market it has at its disposal. I wouldn't be surprised if Qantas is covering some of the bills for Jetstar, just to ensure that it appears more profitable than it really is.
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Jetstar has a pretty low cASK and it is likely as low as it can go without any fundamental change in the model. As mentioned previously - LCC's can't yield up unless they're the only operator on a particular market and there is demand on that market that isn't driven by leisure. Jerstar does a good of capturing yield via ancillary revenue. I think they're pushing the $30 per person mark from the different materials I have seen on the internet. That's pretty good globally with the best airline in the world (Spirit in the US) pushing USD$45 per passenger.
Leisure demand is inelastic so it is a precarious seesaw of pricing flex for JQ. What matters most is that JQ drives an enviable EBITDAR margin. This is what matters. This is the cash. The rest (minus lease costs) is just for accounting purposes, and the current operating margin is good. Contribution earnings to the QF Group as a whole isn't so much as important as the ability for JQ to generate strong cash flow. Now, is JQ being supported by Qantas in different areas where it is appropriate to? Yes. As it should. It is a group company and the group should take advantage of opportunities to spread cost, leverage scale, and muscle capability to support each other (but not at the risk of another). If JQ was a stand-alone company the results would be different. We know this. But it would still be making money. It has strong market share and provides for the other portion of the market. It would be profitable on its own if it was. The only issues is that the is a capacity limit in Australia due to our low population and consistency in competition. When growth stops, and fixed costs cannot be spread further, and you get cASK creep - margins are eroded, with the only option to increase fares, which doesn't work.
Leisure demand is inelastic so it is a precarious seesaw of pricing flex for JQ. What matters most is that JQ drives an enviable EBITDAR margin. This is what matters. This is the cash. The rest (minus lease costs) is just for accounting purposes, and the current operating margin is good. Contribution earnings to the QF Group as a whole isn't so much as important as the ability for JQ to generate strong cash flow. Now, is JQ being supported by Qantas in different areas where it is appropriate to? Yes. As it should. It is a group company and the group should take advantage of opportunities to spread cost, leverage scale, and muscle capability to support each other (but not at the risk of another). If JQ was a stand-alone company the results would be different. We know this. But it would still be making money. It has strong market share and provides for the other portion of the market. It would be profitable on its own if it was. The only issues is that the is a capacity limit in Australia due to our low population and consistency in competition. When growth stops, and fixed costs cannot be spread further, and you get cASK creep - margins are eroded, with the only option to increase fares, which doesn't work.
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Now, is JQ being supported by Qantas in different areas where it is appropriate to? Yes
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Because the discussion here is specifically about a new widebody fleet for QF INTL, and someone here specifically denigrated the Jetstar group as a whole (48% ASK vs 30% revenue, this is the Jetstar Group as a whole that they specifically mentioned).
It is not fair that someone only mentions revenue to denigrate Jetstar without looking at how much profit it actually makes.
It is not fair that someone only mentions revenue to denigrate Jetstar without looking at how much profit it actually makes.
Reading published accounts that are compliant with AASB 10 is one thing, to actually know how costs are allocated between and to segments is beyond the scope of the 'General Purpose Audit'.
To actually derive the genesis and magnitude of the purported profit of Jetstar requires three important steps:
- Segment Jetstar into two operating segments, Domestic and International
- Not simultaneously report Jestar Asia as both a controlled entity under AASB 127, yet for the purposes of some select transaction neglect the control element and determine that certain inter-segment revenue is actually external.
- Allow an audit to ascertain the materiality threshold applied by executive management. Management can simply set a high threshold, say $200,000 whereby any invoice under that amount does not go the the segment incurring it, but is picked up by, say hypothetically Qantas International. Auditors do not investigate 'materiality threshold' they simply at their annual audit see that management applied their threshold consistently, whatever it is. They make no judgement whether it is appropriate, nor are they required to.
There are reasons management choose not to disclose more detail.
A business with such a huge footprint generating so little revenue for all the ASK, would, ordinarily be viewed closely.
Further, the degree to which management discretion is applied to costs incurred by Jetstar could conceivably massage Jetstar CASK.
This can easily provide a distortion to actual profit.
Qantas could have re-equipped with a wide body international fleet, of two engine variety, lowering the CASK (fuel included), improving their operating margin and probably building yield.
That they don't is peculiar.
Last edited by Rated De; 16th Jun 2019 at 22:22.
I was told by (I would think) a reliable source that on one international route, if the passenger spends no other money than the actual ticket, ie no ancilliaries at all, then JQ make a low single digit cent profit on the seat. If all the passengers on board do this, JQ make $3.25 for the leg.
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I was told by (I would think) a reliable source that on one international route, if the passenger spends no other money than the actual ticket, ie no ancilliaries at all, then JQ make a low single digit cent profit on the seat. If all the passengers on board do this, JQ make $3.25 for the leg.
Most airline cost is fixed (or sunk) thus low fare airlines need that ancillary revenue as the ticket price "the bait" does not cover the entire cost.
In ancillary revenue terms, Jetstar in 2016 (latest data on hand) made USD $26 per passenger. Annually that was USD $600,000,000.00
Qantas too make ancillary revenue from mostly Frequent Flyer, which naturally is almost dependent upon the International business.
Small movements in a Low Fare Airline CASK kill margin, with fuel being able to wipe them out entirely.
Thus if Qantas persist with a dual brand 'strategy' to focus on the demand elastic low fare airline at the expense of the parent is foolish.
Re-equipping the QF International operation with fuel efficient aircraft is low hanging fruit that even Little Napoleon ought be able to reach.
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Rated D - what about the impact of capital cost or lease cost incurred to 'reequip' the Qantas fleet. This is a financial consideration that has not been discussed. It is easy to say cASK is lowered by more fuel-efficient aircraft, but to reequip also incurs considerable expense. Would Qantas not consider these factors in its decision to invest now or hold?
A good question. Best answered by AJ.
And while he’s answering, ask if the return of capital employed on the Jetstar 787’s has justified their allocation? Was it an allocation decision based on strategy rather than ROCE?
Will a new aircraft order improve the ROCE of Jetstar International by a greater amount than the commensurate amount of capital spent in Mainline?
Sh*t. I should be a journalist.
And while he’s answering, ask if the return of capital employed on the Jetstar 787’s has justified their allocation? Was it an allocation decision based on strategy rather than ROCE?
Will a new aircraft order improve the ROCE of Jetstar International by a greater amount than the commensurate amount of capital spent in Mainline?
Sh*t. I should be a journalist.
Rated D - what about the impact of capital cost or lease cost incurred to 'reequip' the Qantas fleet. This is a financial consideration that has not been discussed. It is easy to say cASK is lowered by more fuel-efficient aircraft, but to reequip also incurs considerable expense. Would Qantas not consider these factors in its decision to invest now or hold?