NZ target for Jetstar

With its options limited, airline expected to expand on this side of the Tasman

Jetstar hopes to rebuild its capacity to nearly pre-Covid levels, in a move that one analyst says could signal expansion in this country. The Qantas-owned low-cost carrier is operating at 63 per cent capacity this month and is expecting to fly 94 per cent of its pre-Covid schedule for the second half of the month.

While the opening of state borders in Australia means its domestic operation in that country can expand after months of limited services, an analyst says it will also be eyeing opportunities on this side of the Tasman.

New Zealand is one of the world’s busiest and most lucrative domestic markets at the moment because of high levels of confidence in travelling. Air New Zealand chief executive Greg Foran has acknowledged that this country is a target for other airlines, but says it will defend its “citadel”, where it has about 80 per cent of the market.

Air New Zealand is now flying at about 75 per cent of its pre-Covid capacity.

IBISWorld senior industry analyst Tom Youl said Jetstar was pulling back from Asia, and New Zealand could be more of a focus. It operates main trunk routes here using Airbus A320 aircraft.

With little prospect of much more international travel before widespread vaccinations and/or a universally acceptable testing programme, there were incentives to look at any opportunity to fly.

“There’s certainly going to be some incentives there to expand domestic and grab some market share while the going is good,” he said.

Melbourne-based Youl said there had not been much word from Qantas about what it intends to do across its network. However, it has quit its 30 per cent stake in Vietnam-based Jetstar Pacific. In Singapore it has a 49 per cent stake in Jetstar Asia and made deep cuts to aircraft and staff numbers in the middle of the year.

“With Jetstar Asia uncoupled from the business there will be more focus on New Zealand, especially as travel in Jetstar’s major Asian markets isn’t really going to be happening. Through a process of elimination, the Australian domestic market, then the New Zealand domestic market will become a bigger focus.” Youl said there could be some strategy shifting by Jetstar, which began domestic flights in New Zealand in 2009.

“They could put one across the bow — there could be a bit of jostling there,” said Youl.

In Australia, the domestic recovery is just beginning. International Air Transport Association figures show that from March until September, domestic capacity was down 89.3 per cent on the same period last year.

Domestic flights between Melbourne and Sydney, once the second most popular flight route in the world, resumed last week after Victoria finally conquered its second wave of Covid-19. The 15 Qantas flights a day between Sydney and Melbourne were just a third of the typical 45 flights per day offered before the pandemic. The recovery has since been further boosted by Queensland lifting restrictions on Melburnians travelling to the Sunshine State.

Youl said interstate border closures had caused immense damage to domestic airlines, causing revenue to contract by an estimated 37.3 per cent in 2020-21, to A$6.5 billion ($6.83b).

More than 7200 jobs have been lost among Australian domestic airlines during the past two years, a decline of 26.3 per cent.

“Australia’s airlines have taken a hammering over the past six months, but we expect things to improve during the upcoming Christmas season. Assuming no further widespread outbreaks of Covid-19 occur in Australia, we may see a revival in the domestic tourism industry,” he said.

Domestic travel is forecast to recover next year, and international travel will potentially rebound strongly during the second half of 2021-22.

In the domestic market, Qantas may end up in a better position overall, due to the weakened threat from Virgin Australia, said Youl.

Deloitte this month completed the sale of Australia’s second-largest airline to Bain Capital, with all of Virgin’s shares transferred to the US private equity group and the company delisting from the ASX.

In 2020-21, Virgin is expected to retain a 21.6 per cent domestic market share while Qantas is expected to control 65.1 per cent of the market.

Regional carrier Rex is expanding in Australia and is moving into jets, leasing six Boeing 737s.

Youl said the Tasman will evolve differently when travel restrictions between Australia and New Zealand are eased. “I’m not expecting Virgin to come back straight away.”

Qantas and Air New Zealand would want to fortify their positions on the Tasman. Between them they

With Jetstar Asia uncoupled from the business there will be more focus on New Zealand. Industry analyst Tom Youl

had about 78 per cent market share before the pandemic.

“They will really want to plant their flag in the ground to shore up that market. It has been profitable because of the sheer number of people who travel it.”