Qantas set to inject millions in Jetstar Japan
Qantas is said to be on the cusp of pouring tens of millions of dollars into Jetstar Japan as it seeks to secure its position in the domestic Japanese market against other newcomers.
Japanese financial newspaper Nikkei has reported Jetstar Japan will raise 11 billion yen ($117 million) next month from Qantas and Japan Airlines, which each have stakes of 33.3 per cent.
Qantas has previously committed about 5 billion yen to Jetstar Japan.
Jetstar Japan's two other shareholders, Mitsubishi and Century Tokyo Leasing Corporation, are not expected to participate in the private share placement. They both have stakes of 16.7 per cent.
Since it began flying in July last year, Jetstar Japan has become the country's largest budget airline with a fleet of 17 A320 aircraft. But the cost of entering the market has weighed on the financial performance of Jetstar, which booked $50 million in losses from Jetstar Japan and Jetstar Hong Kong in the year to June.
Qantas declined to comment on the latest speculation, but said it was "committed to the long-term success" of Jetstar Japan.
Macquarie Equities analyst Russell Shaw said a capital injection would be needed because either Jetstar Japan's losses were greater than expected or because it planned to accelerate its market growth. Either way, Jetstar Japan faced substantial start-up costs given it was entering a market where low-cost airlines were a new phenomenon. But Mr Shaw emphasised there were substantial rewards for Jetstar Japan's shareholders in the longer term if they could crack the market.
"[Qantas and Japan Airlines] are both long-term investors. It is going to weigh on the [Qantas] group's performance for the next two years," he said. "It will take some time to bed down the model."
Jetstar Japan has aimed to break even within three years of launching services.
Japan Airlines has conceded that Jetstar Japan has experienced growing pains since launching domestic flights, pointing out in June that turning it into a profitable business would depend largely on the timing of a start to short-haul flying to destinations in China, Korea and Taiwan. The budget airline has targeted international flying within the next two years.
Jetstar was one of three budget airlines, including Peach and AirAsia Japan, which started domestic flying in Japan within six months of each other last year.
Malaysian budget airline AirAsia decided several months ago to pull out of its airline joint venture in Japan, which will result in the rebranding of AirAsia Japan as Vanilla Air.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free