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In a move that could significantly alter the airspace in the booming Asian aviation market, Qantas Airways Ltd. unveiled plans Tuesday to launch two separate airlines outside its domestic Australian market and ordered 110 new Airbus planes worth over $9 billion.
Qantas’s shift away from its mature home market could make Asia’s skies more competitive, even as it pressures industry profitability. Within the region’s nascent budget-airline niche, Qantas would add 24 new planes, pitting it against the 93 planes of AirAsia Bhd., one of the leading players in the region. Qantas gave scant detail on the nature of the premium carrier it plans to set up in partnership with an undisclosed investor, other than to say it could be based in either Singapore or Kuala Lumpur.
But Qantas’s low-cost carrier, which it is launching with Japan Airlines, will be based in Japan—raising questions about its potential margins in a country known for the highest landing fees in the world.
A move away from its home market is unusual for a nation’s flagship carrier, and underscores the promise Asia presents. In the five years to 2014, the number of people flying in Asia will rise by 360 million to one billion, according to estimates from the International Air Transport Association.
Qantas’s move has already stirred up opposition from flight workers and unions. Steve Purvinas, federal secretary of the engineer’s union, said setting up the new Asian carriers may violate provisions of the law under which Qantas was privatized in the early 1990s and could threaten the deal.
“Qantas’s problem in the past is that they’ve ignored Asia to their detriment,” said Robert Bruce, a Hong Kong-based analyst at investment bank CLSA. “They’ve concentrated on flying to Europe over the top of Asia and now those routes are under increasing pressure from existing carriers plus the Middle Eastern carriers coming in.”
Qantas is set to launch Jetstar Japan Co., a low-cost airline joint venture between itself, Japan Airlines and Japanese trading house Mitsubishi Corp. The move comes amid a surge of low-cost carriers across Asia, following rivals including Singapore Airlines Ltd., Thai Airways International PCL and Japan’s All Nippon Airways Co., which have all unveiled plans for new low-cost carriers.
According to Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, a think tank, the potential for budget airlines in Asia is “absolutely vast” as the region continues to enjoy economic growth rates above the global average. Aircraft manufacturer Boeing Co. expects that half of the world’s new traffic added during the next 20 years will be to, from, or within the Asia-Pacific region.
But whether this wave of planned low-cost spinoffs proves a success remains to be seen. Asia’s competitive and fragmented air travel market makes it difficult for budget airlines, which count on scale to meet cost efficiencies, to thrive, save for a few notable exceptions, such as Malaysia-based AirAsia.
Heavy discounting from legacy carriers also raises the barriers of entry. Oasis Hong Kong Airlines Ltd., which specialized in long-haul budget travel, closed down less than 18 months after starting operations in 2006, in part due to surging fuel costs and discounting by the city’s dominant carrier, Cathay Pacific Airways Ltd., coupled with a lack of available capital. Last year, Macau-based budget carrier Viva Macau shut operations as the carrier faced difficulties in securing key air traffic rights.
In Australia, Qantas already operates its own low-cost unit known as Jetstar Airways, which it will use to set up the new venture in Japan and has already formed two other ventures in Singapore and Vietnam. Jetstar Japan aims for sales of ¥100 billion in a few years time, Jetstar Group Chief Executive Officer Bruce Buchanan said in a press conference Tuesday.
Jetstar Japan plans to set its fares about 40% below the average airfares in Japan in order to attract customers, and will fly to short-haul destinations in Asia, including China, Korea and Southeast Asian countries such as the Philippines.
It will have to compete with AirAsia, one of the most successful players in Asia’s burgeoning low-cost airline market that has unleashed a torrent of demand from Southeast Asia’s quickly expanding middle classes by combining sharp marketing with a relentless focus on cutting costs.
“It’s made a big difference in costs,” said Linda dela Cruz, a call center worker from the Philippines who said she flew to Kuala Lumpur earlier this year on AirAsia. “But you have to book a long time in advance to get the savings.”
Write to Ross Kelly at [email protected], Rebecca Thurlow at [email protected] and Mitsuru Obe at [email protected]
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By: Ross Kelly and Rebecca Thurlow in Sydney and Mitsuru Obe in Tokyo. James Hookway in Bangkok and Jeffrey Ng in Hong Kong contributed to this article.
Source: The Wall Street Journal
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