Aussie Cannibals Part One – Jetstar eats Qantas

My recent post regarding Starbucks’ potentially damaging shift into the packaged coffee market (see it here), has got me thinking about such issues more generally. In particular, I have been contemplating a couple of prominent Aussie examples.

The question is whether product or brand extensions, especially within the same (or very similar) market space might be more harmful than initially assumed.

Qantas Jetstar cannibalI’ll start with Qantas (our national airline), it created the separate Jetstar brand and business back in 2003 in response to low-cost domestic competitors. The split was a logical means to circumvent a whole range of legacy restrictions in terms of labour practices, existing assets etc., and the split brand was good insurance against any immediate damage to corporate contracts, price premiums etc.

What has got a bit more complex is the move to shift the brand into the international arena, namely Asia. Numerous traditional Qantas routes have been shaved back in terms of frequency, with the gaps filled by decidely low-frills Jetstar flights. It remains unclear how financially viable this move is, and how it places Qantas versus full-service rivals in the region.

While the wording stinks of snobbery, there is certainly some substance in this quote from an Age article:

”Qantas is destroying its brand name,” a former Qantas executive says. ”It is cross-subsidising Jetstar like you won’t believe.”… “The low-fare market is the blue-singlet boys – the fellas going up [to Asia] for the bucks party – and the silver hairs…It’s the newlyweds and the newly deads. It’s just a flying bus service making its money from ancillary services”

The issue with air travel is that the market segments are not quite as simple as they first appear. A given Qantas plane has a mix of passengers cross-subsidising each others’ seats. Removing first and business class passengers hurts the viability of economy class. Flying solely economy class routes (as with Jetstar) must be hurting Qantas economy business.

Just as importantly, contributing to the downgrading of the air travel experience may create an unbreachable chasm in buying behaviour. Qantas will pushed up against higher service, but price-competitive mainstream Asian and Middle Eastern airlines, with considerably lower scope to tap into any jingoistic local market preferences.

Put simply, cheapskate Aussies will fly Jetstar internationally (especially when given little choice first time round on some routes), while more service-seeking Australians may dawdle off to Emirates, Singapore etc.

Might this have been a short-term move than hurts Qantas in the medium-to-longer term?

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4 Responses to “Aussie Cannibals Part One – Jetstar eats Qantas”

  1. Francis Xavier Holden Says:

    The cheaper brands do grow the market though with previous non flyers and extra flyers and some of that growth will gravitate to fuller service once they have had a trip or two cancelled.

    Cheaper flights allow you to do things you wouldn’t normally do and fly more often.

    A couple of months ago I went to Scotland – via Amsterdam ‘cos it was cheaper and I avoided Heathrow – (I estimate avoiding the crowds, bad organisation, security searches, and english surliness is worth approx $300 – even for a cheapskate like me)

    I could fly from Amsterdam to Aberdeen for eu$100 – aberdeen to Dublin for euro$5 on Ryanair – 1.5 hours, Cork to Amsterdam euro $25 – 1.5 hours aerlingus.

    I’ve flown Tiger and Jetstar in Oz. But I wouldn’t fly the cheapies in oz if it was a date I HAD to make. I’d fly no frill / cheap one hop overseas say to KL, Singapore of HK but not to anywhere where there was a connection.

    Not all cheap flights are no frills airlines – the good ones – Cathay ,Singapore, Emirates are often just as cheap as no frills if you have a good agent who knows how to work the system. Plus they have the advantage of stopping at big airports, and only stopping the 2 hours required to swap luggage, and booking luggage through.

    A cheap Malaysian flight to Taiwan next year was $1200 but stopped at two Malaysian airports on the way there and back as well as Jakarta. This added about 23 hours to the flight elapsed time – of which about 17 hours was hanging around in dinky little airports. ( Or KL which must be the most unfriendly and least interesting airport – even compared with
    Heathrow)

    The Cathay flight goes almost straight there, takes flight time plus about 3 hours max and costs only $1500 – and likely to come down and be on special before we pay. So we (agent) buy new cheaper ticks and cancel old booked ones.

    I think more people will become aware of how pricing works – ask the person next to you how much they paid for their ticket – and work the system for itself.

    People who don’t fly much will fly more if its $900 to Thailand and they will be happy to do it again for the 10 hours.

    In Oz – people will fly to Perth a few times if its cheap enough or NZ

  2. Brook Papworth Says:

    I think the biggest concern when travelling low cost airlines is both the maintenance (the country that the maintenance is carried out in is important as it relates to training and quality of the work) as is the training of the pilots, as well as the Crew Resource Management program employed by the airlines.

    Another big safety factor is the amount of flight time the pilot has in that specific aircraft, as well as pilot physical condition which includes rest, hydration, overall fitness and health, as well as workload.

    One only has to look at the relatively high accident rate of the low cost Indonesian carriers to understand that ultimately, if not cross subsidised, cheap flying can come at a very high cost involving the loss of human life.

    Another issue that we contend with as the sky’s get crowded in Australia is the status Quo at the Civil Aviation Safety Authority, which have in themselves a very error prone bureacracy that is not even run though an independent quality assurance program.

    One of the biggest issue facing Australian State and Federal bodies today is a major lack of standardisation leading to relatively high inefficiences and error rates, but unfortunately is the status quo and it seems climate change ranks higher.

    Dick Smith does have some valid points in relation to the number of near misses (the evident retrospactive and actual danger of mid air collision) at non radar controlled airports in Australia, such as Ballina, Avalon (Melbourne), Proserpine (Whitsundays) etc.

    If you value your own and your families life, fly out of a radar controlled airport, try not to fly in serious storm / cyclonic conditions and get a feel for the level of professionalism of an airline and its staff, after all its often only the pilots who have any real level of skill, with air hostesses being reduced to waitresses (having done a safety course).

    And if you really are concerned about safety and risk management, its also safer to fly first thing in the morning (winds are less as is turbulence generally making for better takeoff, flight and landing conditions) and not at night (the risk of survival is consideraby less in an emergency landing at night.

    It turns out that a price can be put on life…

  3. Bradford Hurtz Says:

    Hello could I reference some of the material here in this blog if I link back to you?

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