Introduction to Qantas’ Decision
Australia’s Qantas has announced that its budget airline, Jetstar Asia, will cease operations due to increasing supplier costs, higher airport fees, and intensifying competition from low-cost airlines. This decision will release approximately $500 million in capital, which the company plans to invest in its fleet expansion plans.
Reasoning Behind the Closure
The airline industry, particularly in Southeast Asia, has become increasingly competitive, with Jetstar Asia facing challenges from other budget airlines such as Scoot, a subsidiary of Singapore Airlines, and AirAsia. Despite being launched over two decades ago to capitalize on the growing demand for low-cost air travel in the region, Jetstar Asia has struggled to maintain profitability.
Impact on Operations
As a result of the closure, 13 Jetstar Asia Airbus A320 aircraft will be redeployed to Australia and New Zealand. The airline will continue to operate flights for the next seven weeks, with the last flight scheduled for July 31. This move is expected to generate significant capital for Qantas, which will be utilized to enhance its fleet and overall operations.
Financial Implications
Jetstar Asia is anticipated to report an underlying EBIT loss of $35 million in the current financial year. The company’s CEO, Vanessa Hudson, noted that some supplier costs have increased by up to 200%, significantly altering the airline’s cost base. This change, combined with rising airport fees and competition, has made it challenging for Jetstar Asia to achieve returns comparable to Qantas’ stronger core markets.
Future Plans for Qantas
Qantas is currently undertaking the most ambitious fleet renewal program in its history, with nearly 200 aircraft orders and hundreds of millions of dollars being invested in its existing fleet. The company’s focus on expanding and modernizing its fleet is expected to drive growth and improve profitability in the long term.
