Slick Qantas outstrips Virgin
 

Wed "The Australian"

Slick Qantas outstrips Virgin
By Steve Creedy, Aviation writer
June 30, 2004

QANTAS shares rose 10c yesterday on the back of falling oil prices and statistics showing its domestic flights were fuller in May than those of rival Virgin Blue.

Qantas shares closed at $3.48 as oil prices fell as low as $US36 a barrel in the wake of the surprise handover of sovereignty in Iraq.

Virgin Blue shares also benefited, rising 4c to close at $1.96.

Qantas's May domestic traffic was up 10 per cent on last year while capacity increased 9.2 per cent to produce a load factor of 74.1 per cent.

This was about four points higher than the 70.2 per cent May load factor - the percentage of seats filled by paying passengers - recorded by Virgin Blue as the smaller airline significantly ramped up capacity.

The Qantas figures did not break out the first six days of low-cost start-up Jetstar but the airline said the carrier's load factor was in line with expectations of about 70 per cent.

International figures showed a big post-SARS jump, with traffic up 24.9 per cent but a 25.8 per cent rise in capacity pushed down load factors by 0.5 points to 67.8 per cent.

Qantaslink figures headed south as traffic fell 19.1 per cent and load factor dropped 3.4 points to 70.7 per cent.

The airline said the results reflected a 15 per cent reduction in capacity as the regional operation retired its BAe 146 aircraft.

Overall group figures for May showed a 15 per cent increase in passenger numbers on last year and a 19.6 per cent increase in traffic.

With the financial year drawing to a close, May year-to-date figures saw domestic load factors up 1.8 points to 79.5 per cent while total domestic yield fell 3.6 per cent compared with last year.

International yield was up 0.1 per cent on last year while international load factors increased 0.3 percentage points to 77.8 per cent.

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717's being retired. Another example are garbage journalism.

Commander Adama

I don't think any 717's have been retired.

The 146's would have been those operated by Southern which were retired.

Hotty
:cool:

The 717's went to Jetstar. And I have not heard of many if any 146's were retired. 14 A/C retired late MAy. 20% reduction in caapacity. Sort of fits the bill.

Captain A, around six 146's have been retired, the latest two, NJQ and NJU from National Jet (Qantaslink) were removed from the register on 30/4/04 when they were exported to Bulgaria. ;)

Adama, why dont you just write a post which states -

I ADAMA, AM FRICKING IGNORANT, OBNOXIOUS AND JUST PLAIN STUPID.

It would be far easier than arguing about topics for which you clearly have no idea.



Alas poor Yorik!

He won't be playing in this sand pit for a few days whilst he learns a lesson in civility!!! :mad:

Woomera

Perhaps he can call himself Imack?:rolleyes:

I know that there are lies, damn lies and statistics but can someone explain to my simple brain...

If the article can be expected to be accurate:uhoh: surely a reduction in capacity gives a commensurate rise in load factor?

If you have 10,000 seats available and sell 8,000 then you have 80% load factor, correct?

If you reduce capacity to 9,000 seats but still sell 8,000 of them then your load factor has magically risen to 88% or so.

Isn't this the reason that VB had a drop in load factors early this year, mainly because of a huge capacity increase?

I know I should ignore any articles by big Steve but this is just dumb.

On a grammatical issue...
English as it is writ.

Whats the long term plan for National Jet? Will they be replaced by Jetstar or could they become a Jetstar franchise

I think Seve got it right this time. But his wording and comment on fleet reduction made it a bit doubledutch.

You have a reduction in total pax of 19%
This in part is offset by a reduction in fleet capacity of 15%
The rest of the reduction can only come from a reduction in your yield.

Back to the main topic - I think it is poor overall management that has lead to Virgin Blue losing market share as well as load factors.
If Godfrey was as effective as they make him out to be these figures would be the opposite.

They are not in any real trouble but with Jetstar biting at its heals and with Jet* increasing their capacity rapidly I think Mr Godfrey will be having a few sleepless nights.

What was that Brett Darling? We have another headache do we............???

Icarus2001,

The challenge of lies, damn lies and statistics could not resisted. I couldn't explain it, so I stuck it into figures instead. BTW I didn't have the actual starting pax/seats, so I used 10000 as a simple start, but the percentages and LF will hold true whatever the starting figure. First the input data:
Now the figures:
Seems to work out. Less bums, less seats, and less bums on seats. Hope no-one farts.

It's a catchy headline Slick Qantas outstrips Virgin but IMHO it's too short because it sells both airlines short. It should have read Super-slick Qantas outstrips slick Virgin. Mr Godfrey might indeed be having a few sleepless nights as the masterful QF strategies come into play.

What most analysts have missed is that DJ have now moved well into uncharted airline territory. This theme was started to be discussed before http://www.pprune.org/forums/showthr...5&pagenumber=2 so let's take that and update it.

Step one for DJ was the classic low-cost model of Southwest, and DJ slavishly followed that. When DJ started off in Oz, they stayed rather clear of Sydney and avoided going head-to-head with QF. They looked for the 'undeveloped' routes. Their Southwest trained people did their strategic planning based more on bus and train timetables than airline timetables. They built their core business on these principles.

After AN fell over, QF got handed a massive market share in the domestic market. So DJ had to develop a new model for the sake of survival. QF was amassing money rapidly, and could use that to fund a long drawn out fare war that would eventually crush DJ. The Step Two model adopted was the spoiler - knock off the QF cashcows that gave QF the profits they needed to attack DJ with. Doesn't have to be a big spoiler or involve many flights – just enough to spoil the cashcow. By now DJ core business was well established, so a small percentage of flights could be safely thrown into the SYD-MEL ring to fight QF. Typically this was limited to about 5% of their capacity.

Step 3 came when the unexpected crawled out of the woodwork. Clutching their pillows in one hand and bubble gum in the other, the SYD-MEL flights filled up. Not with airline passengers – but with ex-bus and train passengers. This was predicted in the Southwest book, but not many people thought that it could really happen on an Oz mainline route full of business travellers, with no low-cost airline tricks like secondary airports to fly into. DJ could and did put on more aircraft, and they kept filling up too. The analysts couldn't believe it. Eventually it dawned on everyone that DJ had expanded into a genuinely new SYD-MEL market.

Step 4 was the DJ entry into the business market. The SYD-MEL new market is booming. DJ keep the SYD-MEL flights down to less than 10% of their capacity, so SYD-MEL is not the core of the business. If the buses or trains or QF ever get too tough, DJ can leave 4-5 flights a day on the route to spoil the cash cow, and go and play with the rest somewhere else or hand the oldest planes back to the lessors (Compass didn't have those options). Now, and I suspect this came from Chris C, if there are all these DJ flights going back and forth SYD-MEL, what about spending a few dollars on advertising and see if we can catch some of these suits. Since Sept 11, a shift in buying behaviour has been taking place among business travellers, and the trend towards low-cost airline travel by suits is accelerating. It’s the big thing in the US airline world, and Oz is no different. I reckon CC saw that the start-up cost for DJ in Step 4 was almost nothing. They already have the planes and crews and terminals and are already flying the routes. Start-up cost is the price of a few adverts. Worth a go.

Step 5 is now. It worked. A noticeable part of the business market has responded to the DJ initiatives. The Blue Room and the Blue Zone give that something extra to the business traveller. The pax and money pours in. New planes stream onto the line. Frequencies are way up and I venture to suggest that SYD-MEL is now a core route. The business traveller initiative is now firmly part of the DJ model. So we have a world first - a low cost carrier (LCC) growing to be a mainstream airline.

Step 6, tomorrow. Will it work? Can DJ avoid middle age spread (unlike I) and get top-heavy? Has DJ moved too far into the mainstream and lost sight of being an LCC? And just like all the mainstream airlines that tried to start LLC subsidaries and failed, will the DJ/LCC move to a mainstream carrier also fail?

It is too early to tell, but some idea can be had by looking at the fundamentals of what makes LCC work. Thomas C. Lawton in a 1999 article in Long Range Planning defines the LCC well. Using his definitions, let's test DJ before (step 1-4) and now (step 5) and tomorrow (step 6):

1. Secondary airports (lower charges and less congestion means airline can increase punctuality rates and gate turnaround times). DJ before = no. DJ now = no. DJ tomorrow = no. Avalon = amusing anachronism.
2. Standardised fleet (lower training costs and cheaper parts and equipment supplies). DJ before = yes. DJ now = yes. DJ tomorrow = probably.
3. Point-to-point services (direct, non-stop routes; through-service with no waiting on baggage transfers). DJ before = yes sort of. DJ now = yes sort of. DJ tomorrow = yes sort of.
4. Maximise aircraft utilisation (fewer aircraft used to generate higher revenue; leads to higher passenger capacity and greater staff productivity). DJ before = yes. DJ now = yes. DJ tomorrow = yes
5. Cheaper product design (no assigned or multi-class seating; no free food or drink). DJ before = yes. DJ now = yes sort of. DJ tomorrow = yes sort of
6. No frequent flyer programme (costs money to manage and to implement). DJ before = yes. DJ now = yes. DJ tomorrow = yes
7. Non-participation in alliances (code sharing and baggage transfer services lowers punctuality and aircraft utilisation rates and raises handling costs). DJ before = yes. DJ now = yes sort of (their alliance is a joke). DJ tomorrow = yes sort of
8. Minimise aircraft capital outlay (purchase used aircraft of a single type) DJ before = yes sort of. DJ now = yes in a funny post 9/11 way, they got 'em so cheap they meet the definition. DJ tomorrow = yes sort of
9. Minimise personnel costs (increase staff-passenger ratio; employee compensation linked to productivity-based pay incentives). DJ before = yes. DJ now = yes. DJ tomorrow = yes
10. Customer service costs (outsource capital intensive activities, e.g. passenger and aircraft handling; increase direct sales through telephone reservation system). DJ before = yes. DJ now = yes. DJ tomorrow = yes
11. Lower travel agent fees (reduce associated travel agent commission - 9 to 7.5% [sic]) DJ before = yes, and many commission free internet sales, and extra $10 for phone bookings. DJ now = yes, ditto, plus credit card surcharge. DJ tomorrow = yes, ditto

My summary of this is that DJ hasn't lost sight of what made it a successful LCC. It isn't going to implode from within, provided their cashflow management holds up. Godfrey's confidence in his airline seems well placed (see that great interview with him in the recent issue of Australian Aviation). So the battle for the future of DJ will be a head to head one: QF/Jetstar vs DJ.

Dixon has stolen a march temporarily, and his latest numbers look good, which is why Godfrey might be having a few sleepless nights. But it doesn't mean that the war has been won by either side.

Overun, good summary.

What do you say though to the notion that VB, with its single type, will run into the law of diminishing returns on the SYD-MEL route at some stage? Unlike QF, they can only manage higher bookings on this route by putting more departures on, whereas QF can throw anything from a jumbo to a 737 at it if needed.

To my mind, if VB is to grow much larger, they probably need one more type in the 767 size range to overcome that problem. That will require additional capital outlay and a break from the business model, but I wonder if it is being looked at.

But I agree tht VB is not in any sort of trouble, merely the growth of the last few years has been arrested by J* and other factors such as I mention.

Good point The_Cutest_of_Borg

I simply don't know the answer, and look forward to seeing how DJ are going to handle it (definitely more uncharted airline territory – this will write a new chapter in the book).

The competing A320 series offers a stretch to 220 seats, and this has been one of the reasons behind its adoption by some airlines. But if DJ take it on, or move to another 220-270 seater, there goes a couple of the key LCC attributes. It's a tough decision. Maybe they'll do nothing for a while (apart from adding yet more flights).

Godfrey himself gave only limited insight in his AA interview with Jim Thorn – the extended interview is on the 'net:
http://www.ausaviation.com.au/Aboutu...grounder1.html That doesn't really answer your question of what happens as they grow beyond the 737-800. Boeing reckon that the 737-900 is the ultimate stretch for the 737 "The 189 passengers permitted today is the maximum number able to pass quickly enough through the doors and evacuate the relatively narrow emergency exits over the wings." Those not in the know reckon that the –700/-800/-900 was already a stretch too far for the original 737 certification. After the questionable USAF 767 tanker exercise, IMHO Boeing won't get the nod to stretch the 737 any further. So there is no relief in sight from Boeing.

There are some 767's going cheap in Melbourne they may be interested in.