Every passenger on last week’s inaugural long-haul flight by Australia’s Jetstar Airways to Bangkok received a complimentary bottle of champagne, but chief executive Alan Joyce makes clear it was a one-off occurrence. The carrier is still very much a low-cost operator, he insists, despite its new venture into largely uncharted international territory.
Jetstar has been a huge commercial success since its foray into the Australian domestic market in 2004 and Joyce, an energetic Irishman, is highly regarded within parent company the Qantas Airways Group as a result. He will, of course, be hoping to replicate that success in the international market and firmly believes the “value-based” carrier has found the right recipe for success.
“We thought at the start that there was a higher level of risk compared to our domestic short-haul operation,” Joyce said in an interview in Bangkok last week following the arrival into Suvarnabhumi airport of Jetstar’s first long-haul flight, from Melbourne.
“With the short-haul operation we essentially spent a few months looking at how everybody else was doing it. There were a lot of case studies of failures and case studies of success stories that you could tap into and find out what is the magic formula that could work for you. It’s a lot easier when somebody has tried something and you know it’s not going to work than doing it yourself. With the long-haul it very much was all intentions. There were a number of different players planning to do it - Oasis in Hong Kong, Zoom in Canada and Viva Macau - and we didn’t have those benchmarks to really analyse ourselves against, so we had to create everything.”
Joyce says one of the airline’s first decisions was to opt for a two-class product, rather than the one class that it has for Australian domestic and New Zealand services. The premium class, known as StarClass, is similar to Qantas’ Australian domestic business class. There are also decent meals on offer – at a price for economy passengers – as well as in-flight entertainment options and a Qantas codeshare arrangement on all flights. The general message is that if you want it, you can pay for it, and despite having some of the frills and offerings not seen on traditional short-haul low-cost carriers, such as a complimentary bottle of water, pre-selection of seats and through check-in, Joyce says Jetstar’s costs are up to 40% below those of Qantas mainline.
Much has been debated about the until-recently largely hypothetical long-haul, low-cost model, and Joyce is one of the first to admit that not everyone will be able to pull it off. Jetstar has a huge advantage by being part of the Qantas group, as it can leverage off its parent in terms of buying power and name credibility. But it is still a massive learning experience for all involved.
“We did a lot of research and we fundamentally believe that there has been a commoditisation of the long-haul market, that people were becoming more price sensitive. But at the same time it couldn’t be just about price - people wanted the other attributes. But they also really wanted a lot more choices when we delved into it, and that’s why we came up with our choices model, giving people real alternatives about bringing their own food, about what food they can buy on board, pre-purchasing before they travel, giving them multiple entertainment options at different cost, and having things completely transparent about what they are paying for.”
Although these are still very much early days, forward bookings are “very solid, more than meeting our expectations”, giving Joyce reason to feel good about the long-haul venture.
“The commercial side of it is very strong so far,” he says.
Jetstar expects StarClass seats will mainly be filled by leisure travellers willing to pay a bit more for holiday luxury at “normal” economy-class rates. But Joyce also expects that Qantas frequent-flyer programme links will help attract a business market for routes on which it is the only carrier operating non-stop flights. After all, one of the reasons Jetstar’s international arm was established was to serve markets that parent Qantas could not afford to serve given its higher cost base.
Jetstar has begun its long-haul international operations using Airbus A330-200 widebodies on the Melbourne-Bangkok and Sydney-Phuket routes. Before the end of this year it will also be serving Ho Chi Minh City in Vietnam, Bali in Indonesia and Honolulu in the USA. The carrier currently has two A330-200s in its fleet and by September will be operating six of the type. From August 2008 it will start adding 313-seat Boeing 787-8s and by late 2009 will have 12 of the type, by which time it will have phased out the 303-seat A330-200s. It will later replace the 787-8s with larger, longer-range 787-9s, which will enable it to expand further, including to the west coast of North America and Europe via South-east Asia. Bangkok, where it has set up a cabin crew base, is seen as the likely transit point for future European services.
Joyce says the airline has adopted a similar distribution model to that of the traditional low-cost carriers, with much of the selling done via the internet. Jetstar recognises that Japan will be a very different story, however, and in part as a result of this the carrier is negotiating a codeshare deal with Japan Airlines (JAL) for its future services to Nagoya and Osaka.
The “free-sale” agreement under discussion would cover Jetstar��s daily Sydney-Osaka-Brisbane services, which are to be launched on 25 March; its six-times-weekly Cairns-Nagoya services, which are to be launched on 2 August; and its four-times-weekly Cairns-Osaka services, which start on 8 September.
Joyce says the Japanese market requires a “more traditional” distribution model, and a proposed codeshare tie-up with JAL is a way of helping Jetstar expand its selling reach. Jetstar parent Qantas is a founding member of the oneworld alliance, which JAL will be joining next year.
“The one thing which we are untested on is the Japanese distribution market. That is very different for distribution and we are really just coming to the selling season for the northern summer next year so we will see how that goes over the next month or so,” says Joyce.
“We are leveraging the wholesalers. We are going back into Japan into the more traditional distribution mechanisms, so we have got partnerships with four of the major wholesalers there. We are also using a Qantas codeshare to help us in terms of access to their distribution, and we are in the process of talking to JAL about a codeshare agreement with them as well.”
He adds: “Codeshares only become complex in my mind when you go into something different from free sale, like a fixed block codeshare or block space deal, because then you are managing separate inventories and you don’t have full access to your inventory of the aircraft. With free sale, once you set up the rates that people are buying seats at you are still managing the inventory and it is just another distribution channel.
“Essentially the JAL codeshare, the Qantas codeshare, is booking your inventory just the way customers on your website are. And you don’t really care as long as you are getting the revenue.”
In addition to Qantas codeshare ties covering all Jetstar-operated international flights, Jetstar adds its code to a limited number of Qantas-operated services to expand its reach within Australia to cover routes on which it does not fly.
Joyce says more such codeshares are possible in future under which Jetstar will put its passengers on other airlines’ flights. He also says the carrier is benefiting from further developments with Navataire’s OpenSkies web-based booking engine, which allows “things that you traditionally would have seen only on the full-service distribution systems like Galileo and Amadeus”.
But Joyce also maintains that Jetstar’s future is not just about international expansion. It is still focusing heavily on the domestic Australian market and is now looking at a narrowbody fleet expansion.
He says the carrier will deliberately not be adding more Airbus narrowbodies to its short-haul network next year so it can focus on ramping up its new long-haul widebody operations. But he says Jetstar, which to date has carried more than 12 million passengers and turned its first profit just six months after its launch, expects to start adding A320-family narrowbodies again from early 2008.
Jetstar’s A320 fleet currently comprises 24 aircraft, 21 of which are for its Australian domestic network that covers more than 20 destinations. Two are for services to New Zealand and one, which is wet-leased from Jetstar Asia, is for services to Singapore from Cairns and Darwin. Singapore-based Jetstar Asia is more than 40%-owned by Qantas.
Joyce says Jetstar will be adding more A320s and possibly also larger A321s as part of its short-haul expansion. He adds that the airline is “flexible with leased or owned aircraft”.
The airline is still seeing strong growth in demand within Australia and in the three months to 30 September recorded a 70% year-on-year jump in traffic, outpacing 60% growth in capacity.
Its domestic market share currently stands at 14% while Qantas’ share is around 52%, Joyce adds. Rival Virgin Blue has most of the remaining 34% of the Australian market.
“We have paused domestic for a short time while we get international working. We are not taking any new [narrowbody] aircraft until the end of 2007 because we are taking delivery of the six A330s for international,” says Joyce.
“But we are looking at our plans for early 2008 onwards and we are trying to source aircraft because we believe that there are growth opportunities in the short-haul market - domestically, trans-Tasman [to New Zealand] and short-haul international.”
He adds: “It’s not all about long-haul.”
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