Qantas Airways has no plans of abandoning its investment in Jetstar’s Asian arms despite disappointing returns to date because the growth potential is so big, says Qantas chief executive Alan Joyce.
All of the airline’s other divisions are expected to report returns exceeding their cost of capital this financial year, amid forecasts the carrier could report an underlying pre-tax profit approaching $1 billion. But Jetstar’s Asian division, including businesses in Singapore, Japan, Vietnam and Hong Kong, reported an underlying loss before interest and tax of $33 million in the first half of the financial year.
“What we are investing in Asia for the group, it is a very small amount of capital,” Mr Joyce said on Sunday on the sidelines of the International Air Transport Association annual meeting in Miami. “It is done in a very capital-light way. So for the group to get its cost of capital, this year as an example, [Jetstar in Asia] won’t return its cost of capital but the overall group will. For us these are low capital cost investments for huge growth potential.””For us these are low capital cost investments for huge growth potential.”: Qantas boss Alan Joyce.
Mr Joyce noted the Asian market is the fastest-growing aviation market in the world, and said he believed it would eventually become the most profitable aviation market in the world. Qantas has invested in Jetstar’s Asian arms through joint ventures with local shareholders.
Jetstar Group chief executive Jayne Hrdlicka said Singapore-based Jetstar Asia an Vietnam-based Jetstar Pacific are expected to be profitable in the second half of the financial year.
“Significant capacity has come out of the [Singapore] market post the FY14 results,” she said. “Everybody did it tough with too much capacity coming into the market. So that has rationalised. A little bit of it is starting to come back in because the Singapore dollar is so strong. But we are very confident that the outlook will improve.
In the meantime, Jetstar Japan remains loss-making and Jetstar Hong Kong has yet to receive long-delayed government approvals to begin flying and it has sold all but one of its original nine aircraft.
Ms Hrdlicka admitted Jetstar had misjudged the ease of gaining regulatory approvals in Hong Kong.
“Our expectations were not lined up with the reality of the way this government is making decisions in Hong Kong,” she said.
But she said fellow Jetstar Hong Kong shareholders China Eastern and Shun Tak Holdings were more “patient and longminded”, especially now that the Hong Kong government has committed to a third runway at the busy Hong Kong International Airport.
“The other aspect that is brewing confidence in our shareholders is the Hong Kong economy needs the tourism flows into Hong Kong,” she said. “Chinese tourism is significantly down. For some retail sectors in Hong Kong, they are off by 30 per cent. So that flow of customers who need low fares to make Hong Kong affordable, to have the Hong Kong experience is really important to the Hong Kong economy and supports the Hong Kong people.”