Jetstar Asia a failure for QF
 

Jetstar Asia experiment fails
By Scott Rochfort
June 30, 2005


Qantas chief executive Geoff Dixon's dream of grabbing a chunk of the burgeoning South-East Asian airline market appears to have evaporated, after the 49 per cent Qantas-owned Jetstar Asia conceded it was in talks on an "alliance" with Singapore budget carrier Valuair.

Responding to a report in Singapore's Business Times newspaper, Jetstar Asia chief executive Ken Ryan yesterday issued a one-sentence statement which "confirmed that Jetstar Asia and Valuair are exploring a variety of ways that they can work together or co-operate with each other".

The statement is seen as a major defeat for Qantas, which spruiked ambitions for being a "very substantial" player in low-cost Asian aviation but now faces becoming the first high-profile casualty of a low-cost Asian airline war.

Jetstar Asia started flying out of Singapore last December. Within a few weeks the airline admitted it was facing serious troubles.

After failing to get access to key routes to Indonesia and China, Jetstar Asia had to cut its projected fleet of eight A320s to four this year. The airline also pulled out of its first route, Singapore to Pattaya, after two months of service.

Jetstar Asia declined to elaborate on its troubles yesterday.

"All avenues are being explored, that's all I can say," Jetstar Asia's head of marketing, Dorit Grueber, said in an email to the Herald. One major benefit of Jetstar Asia and Valuair merging their operations is that both have fleets of A320s.

Qantas is expected to highlight Jetstar Asia's woes as it lobbies the Federal Government to keep Singapore Airlines off its lucrative Sydney-Los Angeles route.

Qantas could counter arguments for Australia to stop protecting Qantas on the LA route by highlighting restrictions Jetstar Asia faces flying out of Singapore. But Jetstar Asia's main access problems lie with Indonesia and China. So far it can fly to only four cities in both countries, routes it says are "developmental" and loss-making.

Qantas spokeswoman Belinda de Rome said: "We've been advised of the discussions and remain committed to Jetstar Asia."

Meanwhile, the Singapore Government said national carrier Singapore Airlines should consider merging with Qantas, echoing calls by Australian political leaders last week. Transport Minister Yeo Cheow Tong said as commercial operators in a very competitive sector the companies should keep open all options, include a consolidation process.

Mr Yeo's comments are the first by a Singapore official since Prime Minister John Howard raised the prospect of a merger last week.

Valuair declined to comment on the talks with Jetstar Asia. It remains unclear where the planned "alliance" would leave Valuair's plans to launch services from Singapore to the Australian east coast. It is understood the airline is having trouble finding long-haul A330 aircraft to service Sydney, Brisbane and Melbourne.

Valuair, founded by former Singapore Air executive Lim Chin Beng, was the first budget airline to begin services out of Singapore.

One major disadvantage for Singaporean carriers is they have no domestic markets to lean on if they are blocked from particular countries. Malaysia's AirAsia, seen as Asia's most successful low-cost airline to date, had the benefit of a booming domestic market.

Singapore Airlines and Ryanair's part-owned Tiger Airways appear to be the only Singapore low-cost carriers left with major growth plans. Tiger's chief executive Tony Davis confirmed yesterday the carrier was looking for partners to give it access to domestic markets.

Meanwhile, Qantas announced plans to resume services from Sydney to Beijing from January 9 next year, initially three times a week. It said it planned daily flights to Beijing and Shanghai in time for the 2008 Olympic Games.

Qantas shares rose 1c to $3.34.

The writtings being on the wall for a long time, now its a matter of when will it stop flying......

Flying is the second greatest thrill known to man.......Landing is the FIRST !

The writing was on the wall before it even started. There appears to be little strategic thinking going on at QF, just knee jerk reactionary stuff.

Sunfish,

Yes, this little failing has indicated just how inept the current management team is, operating in their own backyard. Given they will faced increased competition from the likes of CX/EK/SQ as the industry goes forward it must concern current employee's !

Cheers Oz2

A tie up-with SIA's off-shoot?!
 

C'mon, why doesn't QF do a tie up whole-heartedly?

They came up with Jetstar domestic didn't they? Virgin are getting walloped now aren't they?

You are very easy to pick on, Sunfish. Thats because your posts are consistently QF "con-centric".

Get over your little QF problem. Go see your therapist, have a bex, maybe even a valium. But shut up about a topic of which you know nothing.

Sandy Freckle,

I think that anyone who thinks that Jetstar is walloping Virgin is a bit short sighted.

Jetstar as a new entrant has enjoyed a honeymoon period in the marketplace.In this period it has promoted it's self aggressively by offering by offering unreasonably cheap product coupled with a large advertising blitz. (in saying cheap I am refering to both the value and the cost of the product)

The product budget, along with the advertising budget, will not last for ever. The walloping that you refer to by Qantas (AKA Jetstar) of Virgin, is actually the beginning of a war of attrition in the market place. QF attacking Virgins's low margin market by offering product below cost, is a relatively easy mark, as QF's capital will last a whole lot longer than Virgin's in such a fight.

I doubt that Virgin will try to compete with Jetstars prices - if they do they are mad. Externally, to attract their market, they need to offer a product that competes in service to main line rather than competing in price to Jetstar, as a quality alternative to the low cost operator. If Virgin react to their market quickly - which is not an ability that it's competitor has, then they will capture upper middle high yield market that has no particular affiliation with a brand but rather with tolerable product.

Funny, this is where it's all now coming full circle. The low cost carrier idea has it's place. Started by the war between Impulse and Virgin, and now that Jetstar has taken prices and product delivery to a new low, Virgin - the winnner of the original air fare war, has only one direction to go - higher quality.

Under it's current tunnel vision business plan, Jetstar has only one way to move and that's lower fares made available by providing a bare bones product and reducing expenses. It would be hard for Jetstar to reverse out of this model - this is where Virgin have an obvious advantage.

It's all a cycle within the marketplace, and the airline who is most flexable to the consumers needs and stays one step ahead will survive or just get a neck ahead.

There is one thing for sure - if Jetstar or Virgin are to survive in the marketplace, they will each have to change their stratergies to meet marketplace demands. You don't have to be a rocket scientist to predict that over the next few years if it is to survive that Jetstar in Australia is not going to look very much like it does today!!!!!!!

Sandy F, There have been allegations of cross subsidies from QF to Jetstar on Pprune before now.

My guess is that if VB can find even a shred of proof, the ACCC will act.

As for good strategic thinking, undercutting your competitors with a low price, inferior product is not generally regarded as a very bright idea. The marketing term for it is "pissing in the soup".

I've got a mate in NZ who used to work at a certain hotel. The chef there (on a bad day I guess) used to piss in the Soup of the Day!

So now you are publicly stating that Jetstar (Oz) was "not a very bright idea"? Thats what you are suggesting Sunfish?

Sorry my friend (very loose term that), you are trying to make any argument fit your vendetta against QF, and if Jetstar fits the bill then so be it.

You are making a fool of yourself with your continuous tirade against Qantas. Zero respect.

"Silver Spoon" Start
 

Pullock,

Not only did jetstar have an initial honeymoon with the public, it also enjoyed a start up not experienced by any LCC in the world. They inherited more than the bones of an airline and thus did not have the expense of establishing support and the cost of acquiring an AOC.

They also inherited a fleet of near new B717's with fully trained crews as well as many established routes with SLF to carry. Again at little or no cost. Admittedly they have inaugurated a couple of new routes but by and large there has been a transfer of business from Qantas and QantasLink. How could anyone hope to fairly compete in these circumstances??

Anyone who thinks Jetstart is an unfettered success has to be a prize wally!

:( :(

So what happens to all the QF pilots who went to J*Asia? It once again hilights IMHO that aviation careers are dictated at board level.

Sandy, Virgin have lost no market share. Still holding about 30% or a little better. So if they have lost no market share, where have Jetstar's pax come from? QF may be? Stealing from mother's purse? Yep really walloping DJ!

There is some intense competition in parts of South East Asia especially in Singapore which QF and their partners may have under estimated.

Tiger Airways are advertising Bangkok to Singapore from BHT264 which is approx AUD8.

Look for some consolidation of carriers in Singapore and Thailand and the likely collapse of Phuket Air. Higher fuel prices and slowing economies are also going to reduce air travel demand.

It's probably stopped Virgin from attaing the 50% that they originally wanted.

Sandy with the greatest of respect, you are leading with your chin. I suggest you look a little deeper into the Pprune Archives. Some of us have consistently said that Jetstar Asia was a bad idea from the very start - and its not QF bashing to say so.

The main reason is that QF had absolutely no defendable competitive advantage in going into the Asian LCC market. There was nothing it could do better than Asians themselves could do, and that remains the case today.

Enema Bandits dad has hit the nail on the head, Jetstar has stopped the much broadcasted attempt by DJ to get the 50% market share Godfrey et al were skiting about. As far as GD is concerned, whether he gets pax from mainline or elsewhere is academic.

permFO, you and I know of ex AN guys that have gone to Jetstar Asia, good guys, hope they don't suffer it all over again!!

If a gaggle of J*Asia pilots lose their jobs I hope QF takes them on board.

Won't expect any complaints from the QF pilots. They have been asking for compassion themselves on this forum recently. Protection of the Pacific route and all that.

Gnade, I hope we do too- the same as I'd hope we'd do for Eastern, Sunnies, J* and AO. Alas, but I don't think the choice will be up to rank and file pilots though- just the ones at the top of the tree! :(

I really don't think jet*asia are in that bad a situation, valuair are the ones that approached jet* for help, it means only 2 things, JSA take on valuair, or they dnt and valuair go broke. either way they are eliminating one of their main competitors. As for the AN pilots from QF working in singas, they still have their jobs in QF. It;ll just mean more experienced training captains being wasted in the back seat of a 400. cheers BUSDRIVER200