Jetting into Asian profits
An article in The Herald Sun says that Jetstar’s expansion into Asia will make it the most profitable budget airline in Australia, exceeding Virgin Blue which announced a shock profit downgrade late on Friday.
Qantas will today unveil a $1.2 billion plan for Jetstar to acquire extra planes as it enters into a partnership with the Vietnamese Government for more routes in the north-Asian market.
The strategy linked to Vietnam’s booming economy and growing middle-class incomes contrasts markedly with the problems confronting its troubled rival Virgin Blue. After the market closed on Friday, Virgin announced a profit downgrade that will see its full-year earnings slip below Jetstar’s profits for the first time.
Jetstar chief Alan Joyce yesterday confirmed that unlike Virgin Blue, the Qantas group’s second-half earnings were still positive and the second-half result should come in well above the $113 million first-half figure.
Qantas chief executive Geoff Dixon also confirmed the airline won’t be revising its outlook for 2008.
Both Virgin Blue and 62 per cent stakeholder Toll Holdings are expected to be punished today when trading on ASX resumes after Virgin’s profit downgrade to $140 million.
Deutsche Bank analysts Cameron McDonald and Raju Ahmed say the forecast, which is well below the $216 million Virgin reported last year, indicates a second-half profit of just $5 million.
They argue that growing competition from other carriers and Virgin’s decision to introduce a new aircraft type as well as plans to begin long-haul services to the US will hurt earnings.
Toll’s stock was revised down from $13.40 to $11.50 a share by the Deutsche team and Virgin Blue to just 90 from $2.30.
But while a sombre mood prevails within the Virgin organisation in Brisbane, Qantas boss Geoff Dixon is upbeat about their new venture with the Vietnamese Government.
In what is a precursor to selling 1500 state-owned enterprises to foreign investors the Vietnamese Government will hand Qantas up to 30 per cent of Pacific Airlines and allow the name change to Jetstar.
Qantas has paid $30 million for 18 per cent of Pacific and has promised to invest another $20 million in the business over the next two years.
The agreement involves expanding domestic services within Vietnam and to other parts of Asia, including Thailand, Singapore, Malaysia and Cambodia.
Mr Joyce argues the low-cost fare model the airline offers will work with growing demand for air travel between Hanoi and Ho Chi Minh City.
“There are eight million people here in Ho Chi Minh City and six million in Hanoi, bigger than the populations of Sydney and Melbourne, and neither Ho Chi Minh City nor Hanoi are linked by ground-service transport that is viable,” Mr Joyce said.
“There are growing numbers of people wanting air transport and a huge growth we see in the tourist market that we intend to tap.”
The launch of Jetstar Pacific means that the Qantas discount brand will now fly to 40 different cities across Asia, the Pacific region and within Australia and New Zealand.
By :The Mole
John Alwyn-Jones
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