Aussie dollar hits Qantas Group

A report by Steve Creedy in The Australian says that Qantas Group is losing money on its once lucrative Japanese services as the high dollar forces tourists to abandon Australia as a destination.

The drop in Japanese tourists has also prompted Jetstar to drop prices on outbound fares in an attempt to stimulate travel on its routes, with the Qantas offshoot has also consolidating some of its routes as Japanese tourists turn to destinations such as China and Vietnam, where their yen buys more.

Jetstar CEO Alan Joyce said his airline was making money on the route but said profitability had been below expectations, adding that the yen was at a 16-year high and was hitting the airline through a combination of reduced demand and the fact that most of its sales were in yen. “This year we’ll still make money on Japan – it’s just that we thought Japan would be extremely profitable,” he said, adding, “I think the group as a whole is not making money on Japan.”

In a recent forecast of the yen by 18 analysts, 50% predicted it would drop to between 85 and 95 yen to the dollar, while the remainder said it would stay at about 110 yen to the dollar, Mr Joyce said.

“At 85, we make a lot of money and at 110 we’re not going to make any money”, he said.

Despite the downturn, Mr Joyce said there were no plans to pull out of Japan, adding, that it would be the first international destination for the airline’s new Boeing 787 Dreamliner.

Jetstar will get the first 15 of 65 Dreamliners on order by Qantas and it plans to use the planes for flights to Korea, Taiwan and southern European destinations such as Rome and Athens.

It could also use the plane to fly a one-stop service to the US west coast ahead of the arrival of bigger 787-9s capable of the doing the trip non-stop.

Mr Joyce said Jetstar would get the first aircraft in August next year and was likely to fly it domestically for the first few weeks, with the aircraft then going to Japan to replace the A330s.

“And the reason for that is that we have both ANA and JAL getting their aircraft before us, so there will be a lot of support in Japan,” he said.

Mr Joyce said any move to transfer 787s to Qantas investment vehicles such as Jetstar Asia and Vietnam’s Pacific Airlines, which would ultimately carry a Jetstar brand, were “a number of years away”.

He said work to install a new reservation system would see the rebranding wait until at least April next year.

“What we would like to do with Pacific is get the operation up and established, go for high growth in short-haul markets and eventually getting them into (Airbus) 320s,” he said.

Mr Joyce said the 787 would provide a 20 per cent reduction in fuel burn as well as lower maintenance costs.

“What we figure is the 787 in a Jetstar configuration gives a cost base to compete against somebody like an Emirates with an A380 and it gives us a smaller vehicle that allows us to fly direct markets compared to full-service carriers with one of the big aircraft,” he said.

“That gives you a lower-risk vehicle and gives you the ability to go on to the less dense markets and be very competitive.”

He was unfazed by the fact the 787 remained overweight, saying it was within the scope of guarantees contained in the airline’s contract with Boeing.

Report by The Mole