Jetstar benefiting from the best global economy for 10 years, says CEO.

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August 03, 2017

Qantas and Jetstar are seeing positive signs in a global economy in its best shape for a decade, according to Jetstar Group chief executive Jayne Hrdlicka.

The upbeat assessment comes as global airlines are reporting mixed results but overall statistics are generally positive with passenger traffic and freight both growing.

The International Air Transport Association on Wednesday said global air freight markets, often seen as a bellwether for global economic activity, rose by 10.4 per cent in the first-half of 2017.

This was the strongest first-half performance since the rebound from the global financial crisis in 2010.

Hrdlicka told this week’s CAPA Centre for Aviation conference in Sydney economic statistics indicated the global economy was moving at a faster pace than expected.

“When we think of our business at a Qantas group level, and if I look at the Jetstar business specifically, we’re seeing lots of positive signs,’’ she said.

Qantas is expected to announce an underlying pre-tax profit of up to $A1.4 billion — it’s second biggest on record — on August 25 and Hrdlicka was reluctant to go into specifics.

She said the domestic market was in good shape, noting that Qantas Group chief Alan Joyce was on record as saying the Qantas and Jetstar domestic businesses were enjoying good underlying growth along with its loyalty program.

“We don’t see a difficult market, we don’t see a troubled market, we see a good market,’’ she said. “And we see consumers really interested in experiencing all that Australia has to offer.”

There has been considerable discussion in Australia about consumer confidence in a time of flat wages growth and brutal cost increases for essentials such as housing and electricity.

But Hrdlicka said that people were not trading away travel and would forego a dinner and a good bottle of wine to take a domestic trip.

The airline now carries about 37 million passengers a year, with about 24 million travelling for $A100 or less. About 20 million of those trips in Australia, a market that has burgeoned since Jetstar was established in 2004.

 The carrier also operates in New Zealand and has joints ventures operating in Singapore, Vietnam and Japan.

Hrdlicka conceded competition was tough in the Asian region, likening it to street fighting in some markets.

“South-East Asia is very, very competitive and probably fully penetrated from the standpoint of stimulating trips in the marketplace,’’ she said. “So that’s a tough place to play.

“Our business in Vietnam struggles from way too much capacity — and all the players in Vietnam are suffering the consequence of that —but we’re doing a good job picking our spots.

“Japan is really exciting.’’

The low-cost airline industry in Japan, where Jetstar remains the market leaders with buses and the famous bullet trains, accounts for about 10 per cent of all trips.

The Jetstar boss believes the minimum market share should be 30 per cent.

“So we see quite a lot of growth to come to come in Japan despite the fact it’s not the fastest growing economy in the region,’’ she said. “But it's the biggest opportunity I think from an LCC standpoint and one of the biggest opportunities in the region.

Asked about the airline’s plans for China, Hrdlicka described the underlying pace of trip growth in, out of and connecting to China as “nothing short of staggering’’.

She noted the number of Chinese international travellers expected to grow from 120 million to 800 million in 2034 and if Australia simply kept its current market share of 1 per cent,   that would see visitor numbers grow by 8 times.

The fact that visitors tended to take a couple of domestic trips when they visited Australia would see 16 million new trips come into the market.

She said the airline was “a couple of weeks off announcing another direct service between Australia and China.’’

Other businesses in the Jetstar portfolio were also targeting China with a huge part of the Vietnamese operation focussed on the market, a Tokyo-Shanghai route exceeding demand expectations and Singapore doubling the number of Chinese destinations served in the last year.

 “We’re on edge of something that’s pretty exciting and there are opportunities everywhere as a consequence,’’ she said. “But picking your spots is going to be key because it is so big in its dimension that you can get overwhelmed by the magnitude.’’

Not on Jetstar’s radar is an AirAsia-style plan to set up a joint venture in China.

“I think there are lots of different ways to think about opportunities in China,’’ she said. “For us for right now,  the priority is “outside in” and working to ensure each one of our businesses is set up to best serve China from its current base of operations.

“Ultimately, that will lead to other opportunities but our primary focus is outside in.’’