As JetStar's launch nears, the reasons for Qantas launching the discount unit are becoming clearer. However, JetStar's arrival has not put off others from planning low-fare offerings.

Some 80% of JetStar's capacity will be on leisure routes and it will take over services now operated by QantasLink. Initially, JetStar will use the same Boeing 717s that QantasLink now flies.

The biggest change will be operating costs. Virgin Blue disputes JetStar's claim that its costs will be lower, but they will certainly be better than those at QantasLink, thus allowing JetStar to compete vigorously in these markets.

Leisure travel stimulated by low fares has been Australia's fastest-growing sector in recent years. Analysts predict JetStar will arrest the growth of Virgin Blue's market share, now at 30%.

JetStar will also give Qantas leverage with its own unions. JetStar pilots agreed to fly its new Airbus A320s when they arrive for the same rates as they now operate 717s. This gives JetStar a huge advantage, which Qantas can use to pressure its own pilots.

Analysts do not foresee JetStar trying to crush Virgin Blue. First, they note that only 20% of JetStar's capacity is slated for Australia's main triangle - Sydney-Melbourne-Brisbane - where Virgin Blue competes with Qantas. Second, JetStar is billing itself as a no-frills carrier, with less leg room and no online connections, compared to the low-frills model of Virgin Blue.

Qantas may have hoped that JetStar would discourage another startup from entering the market at the low end. But this strategy has apparently failed.

Within a week of Qantas unveiling its JetStar plans, Australian Paul Stoddart, founder of UK-based European Aviation Group, a charter, engineering, and airline support business, said he would launch an Australian discount airline named OzJet. Stoddart first expressed his interest last November, but waited until he knew more about JetStar's plans. OzJet's launch depends on when it is approved to use secondary airports.


Source: Airline Business