Jetstar International weakening

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By admin July 1, 2014 16:14

Jetstar International weakening

As AirAsia make the Japan launch statement that we warned you of a week ago, it is only correct that we follow-up on the Qantas thoughts of yesterday and turn attention to JetStar.

Some 18 months ago we stated that Tiger could not survive, as it transpired that airline plodded on doing nothing about the loss-making arms of the business until 2014 by which time the entire airline group had been damaged by the losses incurred. In that instance, as with Kingfisher some years before and other airlines we looked at, detailed load factor data were the first pointers of trouble. Now, using that same information, we are able to state that JetStar International cannot continue without further reform.

The problem with JetStar International is the same as for most other airlines in the APAC region at this time – matching capacity with demand. In many instances recently across the globe we have seen airlines that have not been swift to match capacity and demand and those that have (LATAM is a good example). In the here and now of 2014 this is the single most important factor for all investors in airlines if they wish to see their investment grow, especially if the airline in question is a low-cost carrier that depends on high load factors.

JetStar International is giving off warning signs not because the management are sitting back taking it easy, but because the management team have indeed been swift to react to demand shortfalls abandoning some routes and sharply reducing frequency on others. However, they have sent their load factors down 4.6% to an unacceptable 68.8% because they are increasing capacity at a rate of 8.6% for May year on year while passenger numbers fell 4.4% year on year for May.

So is this a monthly blip as aircraft have been deployed? Not at all – the figures for the current fiscal year to date are alarming to say the least – passengers are down 6.1%, RPKs are down 5.2% but ASKs are only down by 2% which has pushed down load factors by 2.5%. Jetstar International is in the process of accepting 787-8s and sending A330s back to Qantas, but with four 787-8s delivered and a further 10 on order one wonders both how they will fill these aircraft and also on the up side how much margin gain can be made from the 787 over the A330? Either way the 787s could not come soon enough as Jetstar International is performing worse than Qantas domestic services, which as mentioned yesterday, is dragging the group into loss.

JetStar Asia on the other hand continues to grow, load factors are down slightly on the month and year so far but passenger demand is strong and high ASK growth is being absorbed for the most part.

There seems to be little cheer for Qantas right now save for rays of light from Jetstar Domestic and Jetstar Asia operations. As the Australian government moves closer to the prospect of its flag carrier having to cut jobs again and maybe even the need to re-finance soon, the Australians will be wishing that they said yes to the SIA merger deal all those years ago instead of getting all protective about their flag carrier and the future of the same.

There is a lesson for all governments across the globe in all this.

admin
By admin July 1, 2014 16:14
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