Dreamliners chart a starry path for Jetstar

The arrival of the first new Boeing 787 Dreamliner in Australia has focused attention on Qantas’ strategy in Asia, now that it has relinquished long-haul European routes with former business partner British Airways.

The new aircraft are part of Qantas’ overall plan to rejuvenate its fleet; Alan Joyce has presided over the replacement of half of Qantas’ fleet of 300 planes over the past four years. The 787s will also boost profitability at Jetstar’s Asian operations, which have already seen a 19 per cent improvement in revenues on the back of a 32 per cent increase in passenger numbers.

As David Thodey clearly identified at Telstra’s annual general meeting today (Thodey flags Asian push, October 15), the rise of Asia’s middle class is creating a vast appetite for quality services in the region. Both Telstra and Jetstar want to capitalise on that. It will be interesting to see how Alan Joyce describes the opportunities when he speaks at Friday’s AGM in Brisbane.

Qantas’ new 787s will primarily go to Jetstar, with analysts expecting them to be put on existing routes to Bali, Singapore, Phuket and Japan replacing the current A330-200s, and possibly extending to new routes in the future due to their long range.

Three Dreamliners are due to be delivered by the end of this year, out of a total order of 14 aircraft to be running by 2015, and options for a further 20. Initial flights will run to the Gold Coast next month.

While the high-tech aircraft might promise a more comfortable customer experience, their key attraction for Qantas is greater fuel efficiency and reduced maintenance requirements.  Management has said the fuel consumption savings could be as great as 20 per cent compared with the 767, helping to reduce one of the airline’s greatest costs.

On top of that, the maintenance requirements of the 787s are more modest, with the first heavy maintenance check required after 12 years instead of six, according to CIMB analysts. Replacing older aircraft is also expected to save up to $100 million in engineering costs over time.

Boeing estimates that the 787 has 13 per cent lower operating costs per trip than its competitors, which translates to around $500,000 per month in operating cash flow advantage.

Lower operating costs suggest that Jetstar’s fare structure into Asia could also become more competitive, helping it to win share in a competitive market. Jetstar Japan has 15 planes at present and is the largest low-cost carrier in the country, with a plan to break even over three years.

Asia is the world’s largest aviation market and is growing at the fastest pace of any region, according to the Boeing briefings to analysts in Seattle last week. They forecast Asia-Pacific passenger growth around 6.3 per cent a year.

The latest official figures from the International Air Transport Association confirm the improved demand in the region, with a 9 per cent increase in international passenger traffic for Asia-Pacific airlines in August from a year earlier, close to double their year-to-date growth pace of five per cent. European and US carriers’ passenger traffic has grown at a three per cent to five per cent pace this year.

Even though Joyce declined to offer profit guidance at the group’s annual results in August, investors seem to have faith in his overhaul of the airline, pushing the shares up 17.5 per cent since the results were released.  The arrival of the Dreamliners suggests that Jetstar Asia will be a big part of the picture.