Qantas has decided to launch an international division for JetStar, its low-cost domestic unit. The new overseas arm, slated to take off within a year, will be an Australian-based carrier serving international leisure routes. It will be separate from JetStar Asia, the Singapore-based venture that Qantas manages, and will use larger jets than the Airbus A320s JetStar now flies within Australia and to New Zealand.
Yet, according to Geoff Dixon, Qantas chief executive, JetStar International, as it will be called, will have “similar objectives to its domestic counterpart”. The impetus for JetStar International is the Qantas goal to cut costs by A$3 billion ($2 billion) a year over the next five years.
JetStar represents a bold attempt by a legacy carrier to launch a low-cost international division. With a two-class service – economy and enhanced economy – it will bracket the market between single-class low-cost and traditional two- or three-class international service. With initial stage lengths of six to 10 hours to Asian and Pacific leisure destinations, JetStar will also extend the range of low-cost models that now offer maximum flight lengths of five to six hours.
In a second phase of expansion JetStar hopes to extend its network to Europe and perhaps North America, but it is too soon to know whether it will enhance its service offering for those longer flights. Using either Boeing 787s or A350s, the issue will be passenger acceptance, not aircraft range. Both Canada’s Zoom and Spain’s Air Madrid, low-cost transatlantic carriers, offer more inflight services than the traditional low-cost model because of their longer stage lengths.
Qantas is coy about why it needs JetStar International when it already has Australian Airlines. It launched Australian three years ago to serve low-yield leisure routes in Asia. The potential markets of both units overlap. Dixon will only say that JetStar will serve “different” markets with “a different cost base”. Australian operates single-class 767-300ERs.
The main difference between the two airlines is costs. Australian’s unit costs are 25% below those at Qantas; JetStar’s domestic unit costs are 40% lower that at Qantas. JetStar’s overseas flights will not match its domestic costs, but they will still give it a cost advantage over Australian. For that reason, local analysts predict that JetStar eventually will absorb Australian. Reinforcing that view, the chief executive of Australian, Alan Joyce, will head both Australian and JetStar’s new international division.
Dixon says: “Our aim for the group is to expand in our traditional markets with Qantas and to expand in new markets with the most suitable product, be it Qantas or JetStar. The Qantas mainline operations are and will remain our primary focus.” Dixon stresses that JetStar will never be more that 20% the size of Qantas. ■
Source: Airline Business
