Start-up costs, competition sap Jetstar earnings
Qantas' budget offshoot reported a 32 per cent fall in underlying pre-tax earnings to $138 million for the year to June 30 due to "the competitive domestic market and additional start-up losses".
The result for Jetstar included a $29 million hit from the federal carbon tax and $50 million in start-up losses in Japan and Hong Kong. The start-up losses rose by $31 million from a year earlier.
The airline declined to split out the losses for its Japanese and Hong Kong joint ventures.
Jetstar Japan began flying just over a year ago and now has 12 A320 planes, while Jetstar Hong Kong is still awaiting regulatory approval.
Qantas chief executive Alan Joyce said the airline maintained that the businesses in Asia were long-term investments and would take several years to turn a profit.
He emphasised growth potential in Japan, whose aviation market was six times the size of Australia's, yet low-cost carriers accounted for only 5 per cent of airline capacity.
"We also expect strong demand growth for low-cost travel in Vietnam and Hong Kong," he said.
Despite opposition from Hong Kong's flag carrier, Cathay Pacific, Qantas expects its budget offshoot to launch services from the Asian city by the end of this year.
Jetstar also faces stiffer competition in Australia from Tigerair Australia, which plans to double in size by 2018 following Virgin taking a controlling stake.
But Mr Joyce said Jetstar had the benefit of scale and had a "significant cost advantage" over both Virgin Australia and Tigerair.
Jetstar chief executive Jayne Hrdlicka said the airline was facing the pressures of weak consumer confidence, which was most noticeable in the fourth quarter.
She said consumers were less willing to spend, but Jetstar was hopeful confidence would improve after the federal election.
Macquarie Equities analyst Russell Shaw said Jetstar was facing more pressure but holding up well.
"Jetstar's domestic profitability has halved since [the 2012 financial year]," he said. "However, encouragingly, there appears to have been an improvement in the performances of the international and Jetstar Asia business units."
Frequently Asked Questions about this Article…
Jetstar’s underlying pre-tax earnings fell 32% to $138 million largely because of a more competitive domestic market and additional start-up losses as it expanded in Asia. The result also included a $29 million hit from the federal carbon tax and higher start-up costs in Japan and Hong Kong.
The article says Jetstar recorded $50 million in start-up losses in Japan and Hong Kong, an increase of $31 million from a year earlier. The airline did not split the losses between the two joint ventures.
Jetstar Japan began flying just over a year ago and now operates 12 A320 aircraft. Jetstar Hong Kong, however, was still awaiting regulatory approval at the time of the report.
Jetstar’s result included a $29 million hit from the federal carbon tax, which reduced reported underlying pre-tax earnings for the year to June 30.
Yes. Qantas CEO Alan Joyce described the Asian businesses as long-term investments that will take several years to be profitable, highlighting Japan’s large aviation market (about six times the size of Australia’s) and low penetration by low-cost carriers as a key growth opportunity. He also cited expected demand growth in Vietnam and Hong Kong.
Jetstar faces stiffer domestic competition from Tigerair Australia, which planned to double in size by 2018 after Virgin took a controlling stake. Despite the increased competition, Qantas said Jetstar benefits from scale and has a significant cost advantage over both Virgin Australia and Tigerair.
Jetstar’s chief executive Jayne Hrdlicka said weak consumer confidence pressured the business, particularly in the fourth quarter, with consumers less willing to spend. The airline hoped confidence would improve after the federal election.
Macquarie Equities analyst Russell Shaw noted Jetstar’s domestic profitability had halved since the 2012 financial year but said the airline was holding up well. He also observed encouraging improvements in the performance of Jetstar’s international and Jetstar Asia business units.
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