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Dec 8, 2011

Asian airlines throw spanners into Qantas works

Events during the past 24 hours are not proving kind to Qantas' ambitions in Asia. Vietnam Airlines and Malaysia Airlines have thrown spanners in the works.

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Events during the past 24 hours are not proving kind to Qantas’ ambitions in Asia.

In Hanoi the state-controlled English language media is reporting Jetstar Pacific, a domestic Vietnamese venture 27% owned by Qantas, is being folded into the communist state’s much larger flag carrier, Vietnam Airlines, to save it from bankruptcy.

In Kuala Lumpur, Malaysia Airlines announced major changes in strategy, including full membership of the OneWorld alliance, and the creation of an unnamed new premium single-aisle brand, but with scant reference to Qantas, which has been portraying itself as facilitating the former while trying to set up its own version of the later.

A Qantas-controlled, narrow-body, ultra-premium, short-to-medium-range airline exercising the privileges of being either a Malaysia or Singapore flag carrier was announced by Qantas CEO Alan Joyce in June, and again in more detail, in August, as the investment that would save the Qantas long-haul brand from terminal decline, and linked to an immediate decision to cut London flights in half next year and shed 1000 jobs.

There are some obvious disconnections in the Qantas-Asia-saves-Qantas-International plan as advanced and explained by Joyce, which have long been discussed in Crikey and Plane Talking reports, including  the purchase of up to 110 Airbus A320s to renew and expand the existing Jetstar franchises and the new premium carrier. (Malaysia has chosen not to use A320s for its new venture but Boeing 737-800s).

The relegation of possible Qantas involvement in its future to vague references by Malaysia Airlines yesterday doesn’t improve the outlook for a Malaysia solution for Joyce, and the notion he has advanced that hand holding the Malaysians and leading them into Oneworld is patronising, as they are perfectly capable of achieving membership without Joyce as a door opener.

The Malaysia Airlines realities as of today are that it’s strongest commercial link to Australia is indirectly through a recently confirmed commercial loyalty agreement with Virgin Australia alliance partner, Etihad. Jetstar’s larger and more successful rival in Asia is AirAsia, whose founder Tony Fernandes is now a cornerstone investor in Malaysia Airlines, and who has Virgin Australia’s largest shareholder, Richard Branson, as a 20% partner in his long-haul Air Asia X brand, which is successfully developing low-cost links to Australia, and onwards from Kuala Lumpur to Europe.

To be cruel but correct, Air Asia flies rings around Jetstar and Singapore’s Tiger franchise when it comes to low-cost carrier growth and success.

In short, Qantas has to first sort out where its Asia premium carrier is going to be based, and then it has to make it succeed, as Joyce claims it will, in making so much money it can cross subsidise the losses of the Qantas long-haul brand, which has arguably been severely impacted by incompetent Qantas management of its brand, fleet and network.

In Vietnam the Jetstar Pacific saga has been four years of failure, including the prolonged country detention of two Australian executives accused of forex fraud who were for months prevented from returning to Australia, official complaints about safety abuses by the Vietnamese aviation regulator and staff,  and threats to cut off its fuel because of its chronic tardiness in paying its bills at Vietnamese airports.

Jetstar’s offshore franchises include Jetstar NZ, and Singapore-based Jetstar Asia, both of which are enjoying modest financial success. It is also a 30% equity holder in Jetstar Japan, which will begin operations next year,  and it has for some time been trying to persuade China airline group HNA to rebrand and presumably recapitalise its 45%-owned subsidiary Hong Kong Express as Jetstar Hong Kong.

Few would argue that Qantas needs to find ways to participate in the opportunities presented by the world’s richest emerging air travel market in the Asia-Pacific.  But so far it hasn’t found them,  indeed not even Singapore Airlines has found any major success in it efforts to escape its own borders,  and it may be a case of back to the drawing board.

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Ben Sandilands has reported and analysed the mechanical mobility of humanity since late 1960 - the end of the age of great scheduled ocean liners and coastal steamers and the start of the jet age. He’s worked in newspapers, radio and TV in a wide range of roles as a journalist at home and abroad for 56 years, the last 18 freelance.

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8 comments

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8 thoughts on “Asian airlines throw spanners into Qantas works

  1. Bill Williams

    When Jetstar Pacific Vietnam entered into a fuel price hedging contract which saw it lose $31 million, Alan Joyce was the head of Jetstar and on the board of Jetstar Pacific, and Qantas was the “trading agent” for the fuel hedging contract. The contract was put together by former Qantas executive Tristan Freeman with key documents related to the contract signed by another former Qantas executive Daniela Marsilli.

    The Australian view about all of this is that Marsilli and Freeman were treated badly after being separated from their families, barred from leaving Vietnam for 6 months and interrogated for their part in the fuel hedging losses incurred by Jetstar Pacific…..and that the fuel hedging contracts were normal, but “bad luck” for Jetstar Pacific.

    The Vietnamese probably see it differently. Since Qantas only owns 27% of Jetstar Pacific, and the Vietnam government owns the rest (through the State Corporation for Investment and Capital)….it was the the Vietnam Government who effectively were hurt most by the deal. Rightly or wrongly the way they most likely see it is their new partner , a Qantas subsidiary, put them into a bad fuel hedging deal…..and one with a fishy smell since Qantas was also the trading agent for the contract. There also remains some question as to whether the (former Qantas) Jetstar executives who signed key documents related to the contract had the right to do so under the Jetstar / Pacific Airlines partnership agreement.

    Just because the Australian Jetstar Pacific executives were never charged with any crime doesn’t mean the Vietnamese were admitting fault or didn’t feel they were on the wrong end of fancy Qantas accounting…… the poor Vietnamese senior executive, Luong Hai Nam, was jailed for “neglect”! Vietnam would have been well aware of the bigger picture of Vietnam’s overall “brand” as an investment destination. [Actually nobody knows what brought about the freedom of the two Australian executives….they aren’t talking about it.]

    The fact that Vietnam discontinued its action against Jetstar Pacific’s Australian executives doesn’t mean Alan Joyce is well regarded by the Vietnamese…..or that Vietnam will co-operate with his Qantas Asia plans where Vietnam is involved.

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