Jetstar EBA 2019
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They are now well on the way to a reputation as the Southern Hemisphere answer to Ryanair.
Ryanair is one of the most profitable airlines in Europe and will carry more than 150m passengers by 2021... JQ dreams of being a Ryanair...
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It can generate revenue, but not good revenue. What Rated D is saying is that for the size of the fleet and market ASK's - the revenue generated is poor i.e. poor unit revenue or rASK. JQ also yields poorly - which matters. It might make sense to redeploy capital to, for example, Qantas - where a better unit revenue/yield could be achieved, even on a higher cASK.
And this is the inherent problem for most LCC's - hence their diversification and investment in other revenue-generating areas. Air Asia is a good example of poor financials and a focus on creating the worlds largest OTA, and even selling other airlines via their site. Exceptional airlines like Spirit in the US - earn 45% of their total revenue from ancillary sales - not tickets. And this is the trend. I think JQ is around ~25% of revenue is ancillary sales...
And this is the inherent problem for most LCC's - hence their diversification and investment in other revenue-generating areas. Air Asia is a good example of poor financials and a focus on creating the worlds largest OTA, and even selling other airlines via their site. Exceptional airlines like Spirit in the US - earn 45% of their total revenue from ancillary sales - not tickets. And this is the trend. I think JQ is around ~25% of revenue is ancillary sales...
T-Vasis, that’s a very myopic view. Low yield per ASK is the normal for a low cost carrier. It’s not “better” revenue at a lagacy carrier, it does however generally require higher ASK’s for the same yield and a more diversified ancillary revenue stream. Yes it’s poor rASK, but that’s the business model and requires scale to do so.
Your assumption is that the market can absorb the higher airfares without affecting ASK yields of a legacy carrier with an increasing ASK, which actually doesn’t make sense.
The famous “line in the Sand” is a great example where increasing ASK to maintain a percentage market share was detrimental to the business.
Give JQ will be experiencing a 12% increase in ASK over the next 3 years creates an event more competitive associated unit cost, and competitive low fares. It creates the margin requested by the board, however is also a big call assuming a softening leisure market, because they still need to fill the seats.
Your assumption is that the market can absorb the higher airfares without affecting ASK yields of a legacy carrier with an increasing ASK, which actually doesn’t make sense.
The famous “line in the Sand” is a great example where increasing ASK to maintain a percentage market share was detrimental to the business.
Give JQ will be experiencing a 12% increase in ASK over the next 3 years creates an event more competitive associated unit cost, and competitive low fares. It creates the margin requested by the board, however is also a big call assuming a softening leisure market, because they still need to fill the seats.
Last edited by Bula; 2nd Jan 2020 at 03:17.
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I am arguing that the large capital deployed to JQ at the expense of the neglected QF (fleet renewal/product etc.), has meant that JQ contributes poor revenue for the effort invested, be it fleet size, capital invested and market ASK's relative to what may be achieved at Qantas.
I did not say to increase QF ASK's. It was about extracting better yield at QF and lowering cASK with a modern fleet and better product - winning market share from VA etc.
The 'line in the sand' was a chest-puffing contest. VA irrationally dumped capacity and QF simply followed suit. Even at the time, VA was in fiscal pain.
Well, it is easy to reduce cASK by spreading more of JQ's fixed-costs even further with ASK growth. But that is a poor strategy if the demand isn't met, as well as required route economics. They'll need an even aggressive ancil. strategy to offset potential further yield dilution. I think 4% YoY is not going to be supported by the market, at least at reasonable yielding fares.
I did not say to increase QF ASK's. It was about extracting better yield at QF and lowering cASK with a modern fleet and better product - winning market share from VA etc.
The 'line in the sand' was a chest-puffing contest. VA irrationally dumped capacity and QF simply followed suit. Even at the time, VA was in fiscal pain.
Well, it is easy to reduce cASK by spreading more of JQ's fixed-costs even further with ASK growth. But that is a poor strategy if the demand isn't met, as well as required route economics. They'll need an even aggressive ancil. strategy to offset potential further yield dilution. I think 4% YoY is not going to be supported by the market, at least at reasonable yielding fares.
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Pilot salaries are such a tiny fraction of the total costs of running a large airline that they will neither make nor break the ensuing profits.
No, this resistance to agreeing to a fair and respectable new pilot contract at JQ is all about ideology and ego...not economics.
PG
No, this resistance to agreeing to a fair and respectable new pilot contract at JQ is all about ideology and ego...not economics.
PG
Get a 5% wage increase, then everyone else will be demanding a 5% increase instead of 3%. On a $4.3bn wage bill that extra 2% equates to an extra $86m per year. Get that increase for a second year and the cost increase is $172m over the 3% figure (before compounding). Its a simplified calculation but it illustrates the problem.
It illustrates the inverse problem too. The wage freeze has put everyone behind the eight ball and now they want to correct the deficit. The over arching problem is companies thinking zero wage growth in an inflating economy is sustainable when it isn’t, especially when profits are soaring.
Its all about economics.
Get a 5% wage increase, then everyone else will be demanding a 5% increase instead of 3%. On a $4.3bn wage bill that extra 2% equates to an extra $86m per year. Get that increase for a second year and the cost increase is $172m over the 3% figure (before compounding). Its a simplified calculation but it illustrates the problem.
Get a 5% wage increase, then everyone else will be demanding a 5% increase instead of 3%. On a $4.3bn wage bill that extra 2% equates to an extra $86m per year. Get that increase for a second year and the cost increase is $172m over the 3% figure (before compounding). Its a simplified calculation but it illustrates the problem.
Camelsquadron shoots himself in the foot again.
Therefore management has 86 million reasons to screw you over.
Its all about economics.
Get a 5% wage increase, then everyone else will be demanding a 5% increase instead of 3%. On a $4.3bn wage bill that extra 2% equates to an extra $86m per year. Get that increase for a second year and the cost increase is $172m over the 3% figure (before compounding). Its a simplified calculation but it illustrates the problem.
Get a 5% wage increase, then everyone else will be demanding a 5% increase instead of 3%. On a $4.3bn wage bill that extra 2% equates to an extra $86m per year. Get that increase for a second year and the cost increase is $172m over the 3% figure (before compounding). Its a simplified calculation but it illustrates the problem.
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1% increase via a fare rise equates to $36 million.
Furthermore - increasing airfares creates its own problems. And that comes from the consumer and their sensitivity. The low-cost consumer (who is sensitive to the macroeconomic environment) in economic terms is 'unit elastic demand'. Putting up fares will see a decline in consumer uptake since leisure travel is discretionary. It won't work.
Last edited by PPRuNeUser0198; 3rd Jan 2020 at 08:06.
Its all about economics.
Get a 5% wage increase, then everyone else will be demanding a 5% increase instead of 3%. On a $4.3bn wage bill that extra 2% equates to an extra $86m per year. Get that increase for a second year and the cost increase is $172m over the 3% figure (before compounding). Its a simplified calculation but it illustrates the problem.
Get a 5% wage increase, then everyone else will be demanding a 5% increase instead of 3%. On a $4.3bn wage bill that extra 2% equates to an extra $86m per year. Get that increase for a second year and the cost increase is $172m over the 3% figure (before compounding). Its a simplified calculation but it illustrates the problem.
I see everyone's mate GT today reckons he can't rate Jetstar in his annual QF Chairmans Lounge Renewal/Safety Awards because "they are taking industrial action" and are too volatile to rate. (QF took top spot in the lockout year, as well as every other)..
Collusion much?
Collusion much?
Not an issue if they grow the business, which is what they’re paid to do.
They have a social responsibility, as well as a business one. It’s not worth creating great profits if the business itself is eroded away because they have not respected these responsibilities. Executives don’t see this as possible and that culture can be driven by new hires being reneducated and creating greater staff turnover. You know, the whole “if you don’t like it, leave”. A disgusting social view which has lead to the lowest team morale in history, and huge drop in net promoter scores will surely follow.
To say on one hand, reward the people for the good work they do, and on the other pay them the lowest rates is an absolute oxymoronic view.
Given the QF group stated value ROIC is 10%, and the JQ group is operating at closer to 15-17%, tells me they want blood out of a stone to maintain the 10% during rough times and protect the share price, while failing to reward staff during the good.
They have a social responsibility, as well as a business one. It’s not worth creating great profits if the business itself is eroded away because they have not respected these responsibilities. Executives don’t see this as possible and that culture can be driven by new hires being reneducated and creating greater staff turnover. You know, the whole “if you don’t like it, leave”. A disgusting social view which has lead to the lowest team morale in history, and huge drop in net promoter scores will surely follow.
To say on one hand, reward the people for the good work they do, and on the other pay them the lowest rates is an absolute oxymoronic view.
Given the QF group stated value ROIC is 10%, and the JQ group is operating at closer to 15-17%, tells me they want blood out of a stone to maintain the 10% during rough times and protect the share price, while failing to reward staff during the good.
Is it possible this is as simple as it looks?
1/Pilots want pay parity with other pilots.( fair enough).
2/Executives want to keep costs as low as possible. ( fair enough).
3/Both parties make grand statements and posture like thirteen year old school boys.
3a/There’s a scuffle, maybe a full on blue.
3b/ The headmaster arrives and breaks it up.
4/ A middle ground is reached.
Normally we go straight from step 3 to step 4.
This time however, the kid with the mirrored aviators has taken a wild swing and just clipped the fat kids chin without rocking him.( no one knew just how angry he was). A nine year old is running across the field to tell a teacher but the headmasters feet are still under his desk.
The question now is what will the fat kid do? He’s taken his jacket off and handed his iPhone 11 to a mate. Most of the onlookers think the kid with the sunnies can hang in there till the headmaster stomps across the field and breaks it up but nobody is 100% sure.
1/Pilots want pay parity with other pilots.( fair enough).
2/Executives want to keep costs as low as possible. ( fair enough).
3/Both parties make grand statements and posture like thirteen year old school boys.
3a/There’s a scuffle, maybe a full on blue.
3b/ The headmaster arrives and breaks it up.
4/ A middle ground is reached.
Normally we go straight from step 3 to step 4.
This time however, the kid with the mirrored aviators has taken a wild swing and just clipped the fat kids chin without rocking him.( no one knew just how angry he was). A nine year old is running across the field to tell a teacher but the headmasters feet are still under his desk.
The question now is what will the fat kid do? He’s taken his jacket off and handed his iPhone 11 to a mate. Most of the onlookers think the kid with the sunnies can hang in there till the headmaster stomps across the field and breaks it up but nobody is 100% sure.
Given the QF group stated value ROIC is 10%, and the JQ group is operating at closer to 15-17%, tells me they want blood out of a stone to maintain the 10% during rough times and protect the share price, while failing to reward staff during the good.