Many full service airlines have tried, but few have successfully managed to run their own low-cost subsidiary. In Europe, in particular, there is a long list of LCC subsidiaries that have come – and then quickly – gone (SAS’s Snowflake, KLM’s buzz, British Airways’ go) and ultimately in this continent, the stand-alone LCCs have emerged as king. But in Australia, the story of Jetstar is a very different one, proving that it is possible to have two different airline models within one airline group, given the right market conditions and management structures.
Launched in May 2004 by the Qantas Group, Jetstar began flying within Australia but soon grew its network to include Asian destinations just over six months later.
Despite Jetstar's Australian operation being wholly owned by Qantas, the LCC stresses that it is “managed separately and operates independently”.
Meanwhile, Jetstar's intra-Asian operation is a Singapore-based partnership between Qantas (49%), local businessmen Tony Chew (22%) and FF Wong (10%) and Temasek Holdings (19%) with a hub in Singapore.
Jetstar CEO, Bruce Buchanan (appointed last year when Alan Joyce moved across to Qantas as CEO), told Routes News that he believes there is great strength in the Qantas Group’s dual approach, which has proved so successful in the Australasian and Asia-Pacific markets.
“The strength of the two-brand strategy is the adaptability of Qantas and Jetstar to work alongside each other to match market demand. We serve very different markets from Qantas, in that Jetstar focuses on low fares leadership positioning and a value based offering,” explains Buchanan.
Having been appointed to the CEO position in October 2008, just as the severity of the global financial meltdown was becoming apparent, Buchanan was presented with the biggest challenge to ever face the airline right from the get-go. He was, however, armed with a thorough understanding of both the airline and its markets, having been involved in the establishment of Jetstar from its conception in 2003. Before being appointed CEO, Buchanan was group general manager commercial, responsible for network planning, marketing, pricing, sales and distribution, government relations strategy and commercial systems.
Today, Buchanan remains upbeat about Jetstar’s performance despite the global slowdown and believes that the airline will continue to grow and prosper within Asia.
“Jetstar is still recording strong passenger growth and remains profitable. Domestically, we are doing well, no doubt assisted by some trading down of air travel.
Internationally, the weakening of the Australian dollar against the yen has seen our Japanese service perform strongly,” he points out.
Route planning is, of course, a vital cog in Jetstar’s current and future performance and it is something that Buchanan stresses within the organisation. Route development is currently focused on ensuring that as part of the Qantas Group, Jetstar has the correct capacity going into the right markets. “This means looking at new opportunities as well as constantly assessing existing routes,” he says.
And far from freezing in the face of the recession, Jetstar has embarked on a major realignment of routes, in particular taking over domestic flying in New Zealand from Qantas, which is due to happen in June.
In a major step for the LCC, it will operate five domestic routes with 84 weekly return services, which it says represents an AU$250 million financial commitment to the New Zealand economy.
There have also been major changes in Jetstar’s Japan services – particularly at Tokyo Narita – and Buchanan believes the Japan market is proving to be a very interesting and increasingly important one for the carrier.
“While we recognise that there are some challenges in Japan, we remain optimistic about this market encouraged by strong performances on our Japan routes. We’re receiving a positive response to our new services from Tokyo to the Gold Coast and Cairns with strong loads since launch in December. We have also recorded solid growth in passengers on services from Osaka in South East Queensland. Since redirecting the Osaka–Brisbane flight to the Gold Coast in October, we are noticing positive steady increases in passenger bookings,” he says.
Buchanan adds that Jetstar reintroduced the Qantas Group’s capacity between western Japan and Tropical North Queensland in February with Gold Coast–Cairns services.
“This, importantly, allows for greater flexibility for Japanese travellers wanting to travel between two of Queensland’s iconic tourist destinations.”
And while Tokyo is acknowledged as one of the world’s most modern and futuristic cities, Buchanan says that Jetstar’s experience in Japan has revealed some interesting – and unexpected – facts. “We have found that around 20% of our passengers from Japan are either first time flyers or infrequent travellers and we have worked extremely hard on our distribution channels in Japan, with as many as 40% of passengers choosing to purchase directly on some routes. This is significantly higher compared with other airlines operating to and from Japan,” he notes.
With Jetstar’s international growth plans currently focussed on the new trans-Tasman services between Auckland and Sydney and the Gold Coast (which commenced in April) and the rollout of Jetstar’s domestic New Zealand schedule in June, the next major phase should follow its Dreamliner delivery in the first half of 2010.
The Qantas Group was among the first airlines to say it would seek compensation from Boeing following a series of delays that pushed delivery dates to over a year late.
Jetstar is now expecting its first Boeing 787 Dreamliner to be delivered in May 2010, with long-haul international services expected to expand after that. Currently, the fleet consists of 32 A320s, two A321s and six A330s, which Buchanan says: “offers us great benefits with both the A320 and A330 boasting lower fuel burn and lower costs of other aircraft in their class.”
And Buchanan remains upbeat about Jetstar’s future. “Jetstar has grown to three times its size since launch in 2004, and in three years time it is expected that Jetstar will be 10 times its size,” he concludes.
This article is featured in Routes News 2009 Issue 3