Qantas Shows Effects Of Increased Competition

For some time Qantas has been suffering on its premium branded services. The flagship brand is still viable - especially when compared to other airlines who are in a lot worse shape than QF. However Alan Joyce is not waiting for markets to improve. He is moving decisively to address the carrier's ills.

QF suffers from high costs. Across the board it has one of the highest cost structures. Its home market where most of the costs are situated is now at record highs of the Aussie Dollar. Its fuel is more expensive in its home market. Its labour costs are very high. Of course it has a high percentage of GDS distribution costs.

Add to this situation increased competition. Specifically from the GCC based carriers who have been steadily gaining market share on the Kangaroo route. Domestic competition from a resurgent but still struggling Virgin also doesn't help. While Jetstar goes from strength to strength - the uber brand still languishes. And yes Tiger (partially owned by Singapore interests) will be competition.

So today Qantas announced something that would have been unthinkable even just a few years ago. It is cutting routes to London. While the choice still remains - BA will pick up some of the traffic - Qantas is going to cut back even further and refocus the business.

Gone will be a lot of the freebies. Gone will be some of the gas guzzling 747s that will get parked. The last few A380s will be deferred at the back end of the order. In the mean time a whole new round of Airbus narrow body aircraft will be purchased. A320NEOs. But wait - they are not in the QF fleet which has Boeing 737NGs.

Along with 1000 redundancies - this does not auger well for the QF Brand.

The group is fine. Jetstar announcements today are also looking good with the JV in Japan and the increased presence in Singapore. Interestingly, speaking about Singapore, you can almost see SQ getting a little nervous and then perhaps they too will be interested in competing more heavily with QF Group. But wait doesn't Singapore Inc have an interest in some of Jetstar?

Yes competition does get interesting

Cheers

Battle Lines Drawn - Jetstar Partners with Priceline

The unexpected announcement in the first quarter of a blockbuster deal between Air Asia and Expedia was not going to go unanswered for long.

Now its out - Jetstar for the whole franchise has partnered with Priceline's Agoda subsidiary to provide accommodation services across the airline's network in Asia.

This will significantly enhance the product and let Jetstar compete as many other airlines do as a Travel Portal rather than just an airline product service.

Expect that Jetstar will now start linking to more partners to provide additional value added services on the site.

Strangely enough this will cause a bit of a realignment. As with many JVs or partnerships - there is always a degree of reaction. Expedia may find itself pitted against a number of other entities that do not wish to do business with the Beelevue WA based Travel Mega player. This will help Priceline's position. As to who will ultimately win? At the moment, (in my view) - the Asia Pacific coverage by Agoda is better than Expedia.

Still this will be an interesting cat fight. May mean that the famous Jetstar/Air Asia partnership that was announced at the beginning of 2010 may not produce anything other than some nice plane designs.

Cheers


With thanks to the Cranky Flyer for the cute image!

Jetstar Follows Ryanair Model - Attacks Airports

Jetstar which is the low cost airline of the Qantas Group (heck it even says so now on some of its planes like the A330s) has taken a leaf out of the Ryanair playbook in picking on airports.

After its very public spat with Darwin last year - it has now picked on a smaller airport - Rockhampton. Pulling out its big PR guns - the airline is now pulling flights and denouncing the airport pretty much as the devil incarnate.

What is rather funny in all this - as soon as it announced the decision to pull back on the Brisbane to Rockhampton route - its flights were immediately replaced by Tiger Oz. Oh yes and by QantasLink...

Go figure

Cheers

Altea Outage in OZ - Long Term Impact?

Qantas, the first user of the full Altea airline reservation system suite from Amadeus, suffered a major outage (as it turned out "outages" is more accurate as it kept going up and down) on 3 Jan 2010. This follows a separate outage in September and a "meltdown" in November as reported by the main Sydney newspaper. This outage apparently continued on Jan 6th. Of course no official word on the outage on the QF website. A spokesman for QF claimed that there was intermittent outages for about an hour.

There is a good synopsis from Tim Hughes. The approach taken by Tim indicates how the attitude of the regime change (from old school Dixon) to the current team (ex-Jetstar Irishman Joyce) will affect the future of the mainline airline. With QF now open to foreign investment (under the terms of the recent Australian Government White Paper on Aviation) the winds of change are now likely to sweep in.

So if I may I will pick up on the point Tim was making. QF is heading down a very different path than the one outlined by Geoff Dixon and we can be assured that the old cronyism of the dominant market player is not likely to be tolerated by Joyce and his team. However whether the rank and file get that is another matter. Clearly the customer service functions were clearly unprepared for it and the event went from bad to worse. The twitterhea that ensued was ample to say the least.

I will draw the analogy between Ryanair (that moves a heck of a lot more passengers) who handled multiple outages in August of 2010 including peak times and how they dealt with the problems and QF. I fully accept that FR is a different animal. But they coped with the issues and moved their passengers efficiently.

For Amadeus - not everyone is smiling - this must be a big black eye. QF has been their shining example how well they do. Altea has many issues not least of which is the time taken to implement and the cost of the system - both in operating costs and implementation costs. I have spoken to several airlines who went through the pain of the cutover process and almost all have been less than enthusiastic about how it went. Again we know that it is a very unpleasant experience going through that cutover process. I have personally lived and worked on two major res system cutovers. They are a nightmare. For potential users of Amadeus Altea Suite - even some who have already signed up - there is a lot of disquiet about the whole process. Given the hiccups that occurred in November and December with TAM, they are right to go back and make sure that all the contingency plans are in place. Some airlines are seriously thinking of running for the hills though!

For QF and Amadeus - I see some of this wind of change occurring sooner rather than later. Amadeus can kiss goodbye any chance it had of capturing Jetstar. Amadeus will not be quite so central to their future and QF will likely start to cast its net a little wider to other systems to help it transform from the legacy and stodgy old line business of the former regime into a much more nimble player. CEO Alan Joyce has made no bones about the fact that QF mainline must shape up or the routes will go to Jetstar. Amadeus should be under no illusions that it affects them too.

Now they have a lot of repair work to do.

Cheers

With special thanks to the SMH and DT.com.au for the images

Jetstar Snags Air Asia Dashing Virgin Hopes

The oft rumoured deal between Air Asia and Virgin Australia Group for the creation of an ultra LCC in the Oz market seems to be as dead as the Dodo.

On Wednesday ATW is predicting that Air Asia and Jetstar will form a partnership initially marketing based but over time it will morph into a bigger arrangement.

Comprising shared resources - virtual code sharing is expected to be the first fruits of the agreement giving the two carrier groups the opportunity to expand reach within the Asia/Oz market one of the fastest growing segments in the region.

With Air Asia X is now serving 3 destinations in OZ - Gold Coast, Perth and Melbourne. Jetstar is already well entrenched in Singapore through its Jetstar Asia and Jetstar Vietnam affiliates. Surprisingly there is little overlap between the two companies.

Now will this be a marriage of convenience or simply a series of marketing based dates? There are some basic issues that will need to be addressed. Qantas (Jetstar's parent) has been in league with Singapore interests who are not necessarily aligned with Air Asia. Air Asia X is making inroads into QF's long beloved Kangaroo route. A daily (now conventionally timed) flight on A330-300 aircraft is a fair number of daily seats to KUL. Does this also indicate a pulling back by QF from its relationship with BA?

For Virgin this reduces the options open to them. They are now looking westwards for their relationship with Delta to matter. If JAL and Delta come to an agreement then we could speculate that Virgin could become a fully fledged member of Skyteam - marking its transition from LCC to Full Service Carrier. Its already hynrid enough!

Cheers

Jetstar Asia's Ownership Sorted!

Finally after years of somewhat complicated ownership in Jetstar Asia and Valuair, the situation has been resolved.

The former partners of Orangestar have effectively been bought out. And now the ownership comprises just 2 ownership players: Qantas Group (with 49%) and Westbrook with 51%. Westbrook is wholly owned by Mr Choo Teck Wong (Mr Dennis Choo). Newstar is the name of the new ownership vehicle.

With this change Tamasek (Singapore Inc) will exit the ownership ending its involvement in the enterprise. This also resolves the conflict between Tiger and Jetstar. The alignment of the Tiger shareholders with SQ is clear and Jetstar with QF. We can now look to more fierce competition between the two LCCs.

The operations of the airline remain the same and the 280 employees are unaffected by the change. Ms Chong Phit-Lian will continue to lead the organisation as Chief Executive Officer. Qantas will continue to provide branding support and integration into the rest of the Jetstar group. The Valuair brand will likely now disappear with a single operating certificate a likely outcome.

Phew!

Cheers

OZ experiencing pain - The Duopoly are cutting

Both Qantas and Virgin Blue are experiencing a degree of pain in the economic downturn.

Qantas has announced plans to cut a further 1500 staff and ax both routes and ground aircraft. 767-200s are already gone, 18 737-400 Classics, and while that nicely painted Nalanji Dreaming 747-300 has long since gone the remaining 747-300s in the fleet are being grounded. Likely the JetConnect subsidiary in NZ will also get some cuts. Jetstar will see a slowing of growth. It has trimmed its growth to zero from 8% and will shut the US and London Call Centers. A savage cut will occur with 20% cuts in Admin and HQ staff.

For Virgin Blue soon to be Toll free (sic!) routes are being cut, staff laid off and I suspect some deliveries being deferred and aircraft being temporarily grounded. No word on their JV ultra low cost venture.

This is not just a problem for the USA folks

Virgin Blue gets punished for straying from the fold

Virgin Blue was one of the original Low Cost Carriers. However it has strayed from the model and today - it is probably beginning to regret that.

In the last 3 years it has bloated up with the usual accouterments of the Full Service model to wit:

1. Lounges
2. Assigned Seating
3. GDS Participation
4. Multiple aircraft types
5. Interlining

There are more

And to cap it all - it has an MOU with Air Asia to develop a new LCC (conveniently called an ULTRA Low Cost Carrier.)

Well today it seems that this is now coming home to bite badly. JP Morgan has issued a pretty nasty coverage analysis that has been widely picked up down under. There is talk of the airline not surviving.

With Qantas cutting back significantly on both major brands (Jetstar and QF Mainline) Virgin Blue will have no choice but to follow suit.

It may just be me - but it seems that if you have the word Blue in your name, you start as a LCC and then order Embraer E-Jets you end up in trouble. But then this could just be coincidence.

Cheers

Timothy