Qantas’s dual brand and corporate travel in Asia. All change!

At the recent Australia corporate Travel Summit in Sydney, organised by Greener Airlines, Qantas CEO International and Freight, Cam Wallace, offered some insights on how Qantas is using its dual brand on international routes into Asia, defining “Jetstar“ routes and the “Qantas” routes and how the group was differentiating their product in the market.

For corporate travellers, there are inevitable consequences.

In October, the Group announced it will replace Qantas with Jetstar in the Korean market next year. It’s currently competing with two full service airlines, Korean Air and Asiana, as well as low cost T’Way.

It’s not the first time this strategy has been applied, nor will it be the last. It’s one of the advantages of having a dual brand strategy, that the revenue profile of particular markets – and that includes the level of competition - can be more accurately targeted by either the full service or the low-cost airline.The need to be more focused on the low cost component in Asia has intensified in the last decade. It’s a continuing process and will only become more marked. 

The profile of Australia-Asia travel has undergone very important changes over this period – and they affect how the Qantas Group serves this rapidly growing region. Boeing’s forecasts to 2040 project SEAsian aviation growing at over 7% compounding, almost twice the global levels and more than three times the rate of global GDP growth.

Long-haul LCCs have transformed the Asian market

The region is being stimulated by growing intra-regional trade and tourism shifts, and relative stability. But most importantly for aviation and tourism, it’s the expansion of long-haul low-cost carriers, LHLCCs, that has transformed the market and is increasingly challenging traditional flag carriers and other full service airlines. This phenomenon is interesting enough in itself, because the conventional thinking always was that the low-cost model would not translate to long-haul travel.

But it certainly has in Asia.  Today no less than seven widebody (that is twin aisle, mostly A330s and 787s) LHLCCs fly into Sydney, occupying about 13% of all international seating capacity in that market. For Melbourne, where the long-haul Jetstar operation is based, it’s even greater, with 9 LHLCCs operating there, accounting for almost 20% of all seats.

Within in SEAsia, long- and short-haul LCCs account for nearly two-thirds of all seats. 20 years ago there were none.

Those levels have revolutionised the dynamics of the market. They place enormous downward pressure on yields, and that in turn upends the traditional full service operations that had previously dominated. That’s particularly true for the Australian flag carrier with its much higher costs. Moreover, in many cases the foreign LCCs are targeting Australian travellers, the same sector where Qantas derives the majority of its revenue.

So the tourist-driven low prices that dominate most Australia-Asia routes make it difficult for Qantas red-tails to maintain frequency levels that business travellers in particular need. 

Jetstar offers the Group an alternative way of staying competitive on frequency – or, in the Korean case, of staying in the market profitably. But the lower standard of inflight product offered by the low cost Jetstar obviously means Qantas Group needs to juggle the dual brand equation judiciously. Alternatively, where "appropriate", the move can be for Qantas to replace Jetstar in a market, or even work side-by-side, as in Bali.

Two of the LHLCCs are part of full service Groups, Qantas-Jetstar and Singapore Airlines-Scoot. Most are independently operated; of those, the biggest impact comes from AirAsia X, associated with the narrow-body AirAsia Group, as well as Vietjet and Cebu Pacific. 

With their higher seating density they typically offer point-to-point fares anywhere from 30-50% cheaper than the full service airlines operating in parallel. They also have the classic competitive advantage of being able to connect over their Asian hubs onwards to a host of destinations in China, India and elsewhere.

Adapting to the environment

In this fast moving Darwinian process, Cam Wallace told the ACTS audience, using the group methodology  is a powerful tool: “what we've been trying to do in terms of the way we shape our network for the future, is taking that really successful 20 year history of a dual brand strategy in point of sale, Australia, and saying, well, how do we make that more productive in an international context? 

“So you've seen between Jetstar and Qantas, us moving in and out of markets in a more productive way….Honolulu is a good example of that, where Jetstar pulled out and we put Qantas flights in. Same with Korea (in reverse).”

The dual brand strategy has been very effective for example in responding to cost of living pressures in today’s market.

“For our mid haul flights to Asia, where there are some narrow bodies as well as wide bodies competitors, you'll see us doing more of that and just looking at customer segmentation and saying, is this a market which is right for Qantas brand cost base and value, or is this more appropriate to be Jetstar? And there'll be some markets like Bali where both brands serve it as well.”

Catering for corporate travel (and using the Loyalty Programme)

With these challenges in mind, Cam Wallace says the Group is moving to address corporate and business traveller needs. So, to cater for these segments, ”We do have a differentiated product on Jetstar as well. 

“There's bundles you can buy, they have a premium product which isn't a life flat product, but it is kind of a business-like product - it's not a lie flat bed, but it's a lounger seat. But it's been pretty successful. When you're designing…the layout of passenger amenities, the key thing is the seat density. And for a low cost carrier, even one owned by a group, the density and how many seats you can get in the cabin is a really critical part of making money.” 

So there are no plans for Jetstar to offer a near-lie flat seat like AirAsia X. But as Mr Wallace says there’s the thing “we talk about a lot, called integrated value. So all parts of the business support each other. So frequent flyer clearly supports long haul and vice versa. Same with Jetstar, same with Qantas. So Qantas works well, where all those four primary segments are working well together.”

Next there will be the long range narrowbodies

New single aisle aircraft, like the A321XLR, capable of flying 8,000km and the A321neos which Qantas has on order, will be the next disrupters. 

They’re now flying the North Atlantic, offering cheaper full-business class products and, with smaller capacity are highly flexible, able to connect smaller city pairs. Qantas has ordered 29 Airbus A220s,# which will “open up new direct domestic and selected short haul international routes” (without specifying whether their tails will be red or orange). 

These smaller, narrowbody aircraft will become much more valuable too as the pressure to decarbonise grows; their fuel consumption is around 30% lower than current equipment.

The past decade has reshaped the future – but there’s a heap more change to come.