There is so much more to this morning’s announcement that Jetstar will fly multi-daily between BOTH Melbourne airports and Brisbane from July 1.
This is Jetstar v Everyone. That is, Qantas (who owns it) and higher cost Qantas pilots, flight attendants and managers, Virgin Blue and especially the Singapore Airlines controlled Jetstar clone, Tiger.
Officially, the initial Jetstar flights between the main airport at Tullamarine and Brisbane are described as ‘complementing’ the full service Qantas Cityflyer services.
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But talking to Qantas pilots recently, who are acutely aware of what they see as a management agenda to transfer their pay and conditions to the much lower rewards offered by Jetstar, this about their removal from the profit and loss account.
They are very unhappy. However Qantas domestic is either in or near to the ‘loss’ side of the ledger on the most recent comments from management, and Jetstar is decidedly on the ‘profit’ as well as growth side.
This could be argued as being much more important to Qantas than meeting the Tiger challenge, since its last balance sheet makes it clear it is its own worst enemy.
For non Crikey subscribers, the story concluded that Tiger was covering its losses and running costs from sales of tickets for future flights, and that so long as it continues to expand forward sales all will be well.
Unfortunately for Tiger, this gives Jetstar the scent of blood, and the predator becomes the prey. Tiger had cash cover of just over 11 days for its declared operating costs at the end of last March, and with its enormous commitments for new jets in the future, clearly needs the $US 500 million IPO it has admitted ‘considering’ taking to market in the New Year.
Based on its posted revenue and costs figures, but with uncertainty as to whether it is actually paying for its aircraft leases or what its actual cost per available seat kilometres is, Tiger is earning double digit negative returns on the fares it collects.
This can only be tolerated by Tiger’s owners for so long. For Qantas, faced with a clear world wide trend to the low fare model over shorter haul flights, the real issue is to Jetstarise the costs of the parent company’s domestic operations, using the excuse the smart Singapore investors in Tiger have so generously provided.