JETSTAR chief Bruce Buchanan has revealed the budget carrier is making more from in-flight service than ticket sales such as such as cups of coffee, muffins, baggage and special seat charges which works out to being around $24 a passenger.

Mr Buchanan said ancillary revenues had increased from $2-$3 per ticket to the mid-$20s in the space of a few years and were growing “very fast”. This is the second-best result in the world when benchmarked against other carriers. This money goes straight to the bottom line.

“One way to look at it is that if we didn’t have the ancillary revenue we wouldn’t be making any money. We would be losing money,” Mr Buchanan said, in a likely reference to the hurt caused by the rocketing price of jet fuel.

So what does it cost?

Jetstar passengers are charged $4 for a muffin or a small container of Pringles, and $3 for a small bag of M&M chocolates.

A can of Coke costs $3 in-flight, but costs an average of $1.20 in supermarkets in Sydney and Melbourne. Coffee will set you back around $3 - below the national average of $3.20 - and a hot chocolate $4.

Meanwhile the cost of a window seat in the exit row can cost up to $60, while in-flight entertainment can cost $15 and extras such as blankets and pillow $7.

In other developments yesterday Jetstar parent Qantas rolled out its biggest gun - the 7.5 million member Platinum Frequent Flyer program - opening a new front in its war with arch rival Virgin Australia.

The Qantas loyalty program has been revamped to give Jetstar passengers the ability to earn and burn points, a move designed to appeal to the budget-conscious suits market.  A new alliance, like the one Qantas has with Woolworths, has been struck with Optus where its subscribers will be able to generate frequent flyer points.

Qantas chief Alan Joyce said the changes will give the airline a competitive edge on other carriers.

Under the changes Jetstar’s fare structure will change.

StarClass - the carrier’s equivalent of business - will be replaced with a full business product, a move that industry observers say is clearly aimed at Virgin Australia’s attempt to lure small and medium businesses.

And so the Airlines Wars continue.

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In Partnership with American Airlines

A PROPOSED alliance with American Airlines will cut fares to almost two-thirds of US destinations and $700 off the cost of flying to four major ports, Qantas has told the Australian Competition & Consumer Commission.  

The airline says its proposed joint business arrangement would also allow a “Walkabout Pass” for those travelling to the US from Australasia on joint Qantas/AA flights.

A table included in the airline’s submission to the ACCC shows Philadelphia, Minneapolis, Indianapolis and Detroit as the cities that would benefit from a $700 reduction on current fares but shows Seattle, Washington DC, New Orleans and Boston as destinations that would see lesser price cuts.

“The refined structure will be simpler to manage and communicate to consumers and trade,” the submission says. “It will result in fare reductions for 64 per cent of US destinations and will allow a broader offering of discounted tactical fares to an increased number of destinations as well as expanded stopover options between gateway cities in the US and end destinations.”

The joint business agreement, flagged in January, would be similar to the long-standing joint services agreement Qantas has enjoyed with British Airways and comes a day after Virgin Australia’s alliance with Delta Air Lines received a provisional tick from the US regulator.

As well as more competitive fares and new products, the airline says the joint business arrangement would allow joint strategic planning and management of services across the Pacific as well as in North America and Australia-New Zealand.  Other benefits would include improved marketing, flight schedules, frequent flyer offering, frequencies and connection times.  Qantas is making its application from a position of competitive strength, with 46 per cent of passenger market between Australia and the US when Jetstar flights to Hawaii are included.

Although Qantas’s market share has fallen from 58 per cent in recent years, it is more than double the 17 per cent expected within two years for the Virgin-Delta alliance and an estimated 22 per cent for United Airlines.  According to AA, it has no intention of entering the route and the airlines argue this means it is not a true competitor and there is no detriment to competition from the deal. They argue that an enhanced relationship is needed to reinvigorate competition and say they would continue the existing codeshare if the alliance is rejected, but it would have “inherent limitations”.

They note also that they would be the only direct carriers on trans-Pacific routes that are not part of an immunised alliance.

“Without immunity, the applicants would continue to act independently and duplicate each other’s marketing and sales effort while offering an inferior network, schedule, capacity and frequent flyer offering and a less efficient procurement process,” it said.  The airline wants the agreement to apply to services between the US and Australia/New Zealand, within the regions and beyond to third countries such as Canada and Mexico.

It said the deal would result in significant benefits to consumers and allow the airlines to maximise the benefits of Qantas services to AA’s major hub at Dallas Fort Worth. Four services a week start from Monday.  Qantas has filed an application for authorisation of the joint business arrangement with the ACCC and will file an application with the New Zealand Minister of Transport. The US Department of Transportation will review the agreement.

At present, Qantas offers 41 scheduled round trip flights a week between Australia-New Zealand and the US.

These include 33 weekly flights to Los Angeles, four weekly flights to Honolulu and the four weekly flights starting next week to Dallas Fort Worth. Qantas also offers six weekly flights to New York via Los Angeles.

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A week on from the fan fare and hype in Australia for the re-branding launch of Virgin Australia. Urban Globetrotter takes an in depth look at the Virgin Australia outlook.

SIR Richard Branson landed last week with a pocket full of notes which he believes are the secret to becoming Australia’s best airline.  His personal assistant has the unenviable task of making sense of the scribbles Sir Richard takes when talking to his staff on flights around the world.

This pocket full of scraps has led him to installing new premium economy seats across the fleet which he believes to be “the most comfortable in the world”, food designed by celebrity chef Luke Mangan and in-flight gadgets galore.  All of which can be found on the airlines new A330-200 and Boeing 737-800.

“I flew in from America this morning and I have a pocket full of notes on little things like the new uniform and how we made it more comfortable,” Mr Branson said at the launch of Virgin Australia. “We make sure all these little things are right for the staff and to make sure they are 100 per cent happy.”

Virgin Australia CEO, John Borghetti, said it is the airline’s crew who decide ultimately what passengers will experience.  “We have consumer feedback, emails, random surveys but one of the most important elements of information is the crew because they see things every day and they know what works and doesn’t and what should be changed,” he said.

“The majority of the changes we have made have come from the crew. “We talk about the cabin interior and making seats bigger and more comfortable, but above all I think what the people want apart from a smooth operation is service – a friendly, genuine, engaging service and that’s something we have got and will continue to provide as we have but step up one more level, which we will,” he said.

Virgin’s much touted new service and “luxury” additions have raised questions about another increase in the cost of airline tickets, but Sir Richard counters with the belief that a better business class offering is the secret to keeping economy travellers happy.

“By capturing the business traveller on Virgin Australia, that will enable us to afford better seats in economy and it we can then also address the fare problem and be more competitive,” he said. So it seems that a premium economy will offset a normal economy when it comes to flight tickets in this very crowded airline market.

John Borghetti has had something of a bumpy journey since he took the helm of Virgin Blue last year, with Queensland’s floods and cyclone, stratospheric jet fuel prices, flight delays and regulatory rejections making for a challenging start to his tenure. It does seem that finally the pieces of his strategy are falling into place.

A key plank of the Borghetti strategy of shifting his airline – rebranded Virgin Australia last week – slightly up-market to compete with Qantas for business travellers has been to create a virtual international network through alliances with other, bigger carriers. There are a number of rationales for the strategy, which is broadly aimed at boosting the volumes and importantly the yields of passengers carried on its domestic network, which today is too heavily oriented to the leisure end of the market in massive competition with Tiger Airways and badly over-exposed to the Queensland market. Virgin needs premium airlines in Asia so that it can provide corporate travellers with a network that links Australia to Hong Kong, Shanghai and Tokyo.

 ASIAN FOCUS

Its plans for Asia could include tie-ups with several airlines. The Virgin Australia chief executive John Borghetti said the deal’s approval allowed Virgin to focus on the last plank of its international strategy aimed at cementing alliance partners in Asia by the end of this year.

VIRGIN Australia will step up efforts to find airline partners in Asia after finally securing the rights to form an alliance with Delta Air Lines on the Australia-US route.  In a timely boost for the Australian airline, the US air regulator has reversed its decision to block the joint venture with Delta because the airlines had made ”substantial changes” to their initial application. Virgin made a ”very small profit” on the Australia-US route in the first half of this financial year, but Mr Borghetti hinted that it had fallen back into the red since fuel prices soared early this year.

The deal is part of Virgin’s strategy to snare a bigger share of the corporate travel market from Qantas.

There is a gap in Virgin Australia’s coverage, which Borghetti freely acknowledges. He needs at least one more alliance of some kind in Asia. He says there will be something in place before the end of this calendar year.   ”Right now what we are focused on is bilateral alliances. The only part missing is Asia,” he said.

Industry insiders consider Malaysia Airlines or Japan’s All Nippon Airways as likely alliance partners. Singapore Airlines would be the best bedfellow but is less likely, especially with the new announcement of Qantas’ intentions to set up a rival premium Asian Airline.

Qantas, of course, through its Jetstar brands, has a big head-start on Virgin Blue in Asia, with one of the bigger and faster-growing networks in the region. At the very least Borghetti would want to be able to shadow some of Jetstar and Qantas’s more important routes into and within Asia.

ALLIANCES

From its original launch Virgin Blue’s strategy has been to try to have a presence on as many of Qantas’ profitable or strategically valuable routes as it can across the pacific.

The alliance with Air New Zealand, however, (an alliance initially opposed by the Australian Competition and Consumer Commission, which subsequently changed its stance) also allows the allies to co-operate to manage capacity better and improve the economics of an over-serviced route.

A similar relationship, for similar reasons, with Delta Air Lines on the trans-Pacific route was also rejected by the US Department of Transportation on anti-trust grounds, before it, too, changed its mind. Today Virgin Blue announced the department planned to grant the allies anti-trust immunity.

Yet another alliance with Etihad Airways, has had a smoother passage, perhaps because Virgin had no capacity on the Australia-Middle East-Europe routes that Etihad flies.

With its three alliances now approved (the US approval needs a final confirmation) Borghetti ought to get some synergies from the trans-Tasman and trans-Pacific co-operation but he now has alliances that connect his business to both Europe and North America – the deal with Delta will give him access to more than 200 destinations in the Americas.

Virgin Australia will be able to connect its passengers with Delta and Etihad’s and Air NZ’s networks and enable them to earn frequent flyer point, and vice verse. Now that it has the right to use the Virgin brand for its international services, Virgin Australia has significantly increased the potential of its trans-Pacific operations and can really step up the fight against its bigger and financially more powerful competitor Qantas as Virgin is a highly recognised brand in North America. Borghetti it should be remembered is a Qantas veteran and knows his competitor inside out. By seeking to add another dimension to the basic strategy and use an up-market international product he is hitting Qantas right where it hurts.

The Qantas international frequent flyer program is highly profitable and if Virgin can offer a similar program across its new alliances and a re-worked domestic product to boost his volumes of business class travellers it will undermine the yield premium Qantas enjoys because of its dominance of the business segment.

It may take some time, but even relatively modest shifts in business travel market share could have quite material effects on Virgin Blue, and Qantas. Which as promised, will ultimately lead to better Airline ticket prices for all Virgin Australia customers.

The New Virgin Australia at a glance:

• New look Aircraft Inside and out.

• Upgraded Premium Seating, Gourmet Menu, Uniforms and In-flight Entertainment.

• Remodelled Premium Lounges and Limousine services.

• New Expanded International Routes through Alliances.

• Improved customer services and ammenities.

So how does this fit with you? Some have called this latest move the last throw of the dice for Virgin in Australia, who have been in financial trouble for some time.  Will you be tempted back to Virgin Australia for extra amenities even if you have to pay a little more?

What are your thoughts? Just drop us an email at: urbanglobetrotter@gmail.com

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Qantas Asian expansion plans on a crash course with unions

In what has come as a surprise recent development and cost cutting measure Qantas Airways is planning to launch a premium airline based in Singapore. The move is aimed at boosting Asian growth and circumventing staff costs putting the airline on a crash course with its Australian employment unions, according to a news report released by the Australian Financial Review on Friday.

According to the secretive plans, Qantas would base as many as 20 aircraft in Singapore to secure a lucrative Singaporean airline licence. The nature of the aircraft are said to be narrow body A320’s which suggests that the plan is to focus on servicing the short haul Asian market pitting the airline directly against Singapore Airlines and Cathay Pacific who currently dominate the premium sector. It is understood that the new venture is not allowed to be called Qantas but will have the same look and premium feel as the current International services operated by the Airline.  

Qantas has denied reports it had applied for an air operator’s certificate in Malaysia but said a range of options were on the table to try and recover its dwindling international market share.

However it has been confirmed that an internal team of employees has been set up to focus on how to reverse the airliner’s recent struggles, and have sought ways to duplicate the successes experienced by the low-cost carrier, Jetstar, that Qantas launched in 2003.

The new Asian airline would take direct aim at Singapore Airlines and Cathay for premium Asian market share, and risks inflaming strained relations between Qantas and its unions over the company’s plans to develop a lower-cost offshore base in Singapore with a local partner to increase flights to underserviced Australian hubs, such as Adelaide and Perth according to the AFR. The base could also be used to lunch an expanded European network.

“A project team has been established to look at Qantas’ international product and service, possible new routes and ways to reinvigorate our offering,” an airline spokesman said. “The team is considering a range of options but no decisions have been made about the direction Qantas will be taking at this stage. Recent media stories are purely speculation and based on rumour.”

The rationale behind the new offshoot is clear: Qantas needs to cut costs and expand into Asia without losing its high quality profile by damaging its brand. By moving its major International operations to Singapore it will be able to dramatically cuts costs, most notably in the area of staff where it is suggested that it will employ rotational regional crews. Flights for instance from Singapore to Bangkok would be staffed by Thai crew, where as a flight to Australia would be serviced by a Singaporean crew. This sets up an enormous battle with Australian unions and has even drawn the Prime Minister into the discussion.

The move has angered unions which were already threatening industrial action at the carrier. Aircraft engineers on Thursday called off plans to strike on Friday but there are plans for further industrial action next week.

Qantas says its international business has not been meeting expectations and market share had fallen in recent years but says it is too early to offer any details on what a taskforce has recommended to fix the airline’s ailing international operations “severe structural challenges”.

Qantas has a low-cost subsidiary Jetstar Asia which operates out of Singapore.

Look out for a more detailed report in the coming days.

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