2 days ago
Qantas sheds Jetstar Asia to protect lead in core domestic Australian market
Qantas said its domestic profit margin was 17 per cent at its half-yearly results in February. PHOTO: ST FILE
SYDNEY – National carrier Qantas promotes itself with the proudly patriotic slogan 'Spirit of Australia' – and its decision to close its Singapore-based subsidiary Jetstar Asia was widely seen as a shrewd move to return to the comfort of its highly profitable domestic market.
Analysts saw the move as a bid to shift aircraft and capital from the competitive low-cost market in South-east Asia to the Australian market, where Qantas' only serious competitor is Virgin Australia.
The Australian domestic market is particularly lucrative now that other rivals such as Rex and Bonza have struggled or collapsed, noted Professor Rico Merkert, an international transport expert from the University of Sydney.
'The Australian market is very profitable. Qantas was probably thinking about how it can benefit more from the high demand and quite nice yields at the moment.'
Meanwhile, Qantas has reaped growing domestic profits as the airline and Virgin were both more 'disciplined' and abandoned their all-out war over capacity and prices, he told The Straits Times.
'Closing Jetstar Asia is a sensible decision that will help Jetstar to become more profitable,' he said. Jetstar is Qantas's low-cost domestic subsidiary.
Qantas said its domestic profit margin was 17 per cent at its half-yearly results in February, compared with 8 per cent for international and freight.
Its move is seen as an attempt to refocus on Australia, as Virgin Australia relists as a public company on June 24, five years after it was taken over by Bain Capital.
Mr Ian Thomas, an aviation expert from Sydney-based CAPA Consulting, told ST that Qantas was 'tying off loose ends' as it faced potential increased competition from Virgin.
'Within Australia, Virgin's refloating has put some pressure on Qantas internally,' he said.
Virgin Australia had a domestic market share of 35 per cent as at December 2024, compared with Qantas' 63.6 per cent (including Jetstar), according to a Feb 18 report by the Australian Competition and Consumer Commission.
'Qantas has never really invested the amount of money it needed to establish (Jetstar Asia) on a viable basis. It really didn't have the fleet size,' Mr Thomas added.
He said Qantas had been reluctant to properly invest in the competitive low-cost Asian market, which left (Jetstar Asia) struggling against bigger players such as Scoot, the low-cost arm of Singapore Airlines, which maintains a fleet of about 50 jets including high-capacity long-haul Boeing Dreamliners.
In contrast, Jetstar Asia operates 13 medium-capacity single-aisle Airbus jets.
Nine of these A320 jets are slated for Jetstar's for use in Australia and New Zealand, while four will be used on routes servicing mining workers in Western Australia.
'Qantas has fantastic demand domestically but not enough aircraft,' Professor Merkert noted. 'It is not easy to get new aircraft at the moment. The easiest way to do it is for Qantas to redeploy assets that it already has in the fleet.'
Qantas said on June 11 the decision to shut down Jetstar Asia after July 31 stems from escalating supplier costs, airport fees and aviation charges in recent years amid intensifying competition and growing capacity, particularly after the Covid-19 pandemic.
Jetstar chief executive Stephanie Tully told reporters on June 11 that Jetstar Asia has only been profitable for six years in its two decades operating out of Singapore since 2004.
The intra-Asia carrier was expecting to post an underlying loss of A$35 million (S$29.3 million) before interest and tax in the financial year ending June 30.
'Qantas has much bigger (profit) margins in Australia. It would have been more appropriate to use that capital in the Australian domestic market, which it is now proposing to do,' Professor Greg Bamber, an aviation specialist from Monash University, told ST.
'It was probably a mistake for Qantas to have invested in Jetstar Asia in the first place.'
He said abandoning the carrier would enable Qantas to focus on reaping profits from routes serving the 'golden triangle' – the east-coast cities of Sydney, Melbourne and Brisbane where Australia's vast population is centred. These three cities offer massive demand for travel, but with no high-speed rail to connect them.
The move by Qantas also signals a change of direction under group chief executive Vanessa Hudson, who was formerly chief financial officer. She took over in 2023, ending the 15-year reign of Alan Joyce.
Mr Joyce was the head of Jetstar when it announced plans to launch Jetstar Asia in 2004.
Jetstar Asia marked the first of Qantas's ventures aimed at low-cost travellers in Asia. The airline later launched Jetstar Pacific, operating in Vietnam, but later ended its involvement in the venture. It also launched Jetstar Japan, which some analysts viewed as a more successful model than Jetstar Asia because it involves a partnership with a local carrier, Japan Airlines.
Despite the closure of Jetstar Asia, Jetstar will continue to fly from Australia into Asia, including to Singapore, Thailand, Indonesia, Vietnam, Japan and South Korea. It is also looking to return flying to the Philippines after ending its connection there about a decade ago.
Ms Hudson, unlike Mr Joyce, never headed Jetstar – and is clearly willing to shed non-performing legacy aspects of her predecessor's era.
'Alan Joyce cut his teeth in Jetstar and had an affinity with its operations,' Mr Thomas said.
'Vanessa Hudson, being the new broom, is going through their strengths and weaknesses. She is reviewing everything and has decided to draw a red pen through Jetstar Asia.'
Jonathan Pearlman writes about Australia and the Pacific for The Straits Times. Based in Sydney, he explains matters on Australia and the Pacific to readers outside the Oceania region.
Join ST's WhatsApp Channel and get the latest news and must-reads.
