Jetstar Loses Its Shine For Qantas In Vietnam, But Singapore’s Jetstar Asia Still Strong

Qantas is calling time on its Jetstar Pacific airline in Vietnam and will exit the joint-venture budget carrier.

Qantas appears unwilling to fight a marketshare battle in Vietnam, which is not a hub in Qantas’ strategy to bridge Australia and Asia.

That’s unlike Singapore, where Qantas’ other Southeast Asian budget carrier, Jetstar Asia, provides connections to incoming Qantas flights from Australia, turning Singapore into Qantas’ gateway to Asia.

“On paper Vietnam has all the hallmarks of a great place to be running an airline,” Jetstar Group CEO Gareth Evans told investors last year. He cited Vietnam’s GDP per capita growing 17%, Hanoi-Ho Chi Minh being the sixth-largest route in the world, and some yield growth occurring.

“But domestically Vietnam is an incredibly competitive market. There is 35% capacity growth going on,” Evans conceded, flagging Qantas needed to make changes in Vietnam.

Even without major capacity growth, Jetstar Pacific has been characterized by losses, although it posted a profit in 2018, Evans said.

The short-haul market from Vietnam on Jetstar Pacific compares to Australia-based Jetstar Airways finding pre-coronavirus success with long-haul flights between Australia and Vietnam.

“Our direct services using the Jetstar brand from Sydney and Melbourne to Ho Chi Minh are performing strongly,” Evans said.

There’s no competition from Bamboo Airways and VietJet, which are rapidly growing in the domestic Vietnamese market and around Asia. They have a “land grab mentality,” a Qantas presentation said last year.

The Jetstar franchises in Southeast Asia are similar in size. Jetstar Pacific has 17 A320 family aircraft while Jetstar Asia has 18 A320s, according to Airfleets.

But Singapore is more stable for Jetstar since there is only one local rival: the Singapore Airlines group.

There are also high strategic synergies between Qantas and Jetstar Asia in Singapore. They use Changi airport as a hub connecting passengers between Asia and Australia, leveraging the Jetstar Asia and Qantas networks on a smaller-scale than Singapore Airlines.

“It’s not just the standalone financial performance of Jetstar Asia that is important to the group,” Evans said.

“With the re-hubbing of Qantas International into Singapore, we are undertaking and operating a dual-brand strategy within that market,” Evans explained.

Jetstar Asia saw an 80% increase last year in passengers connecting to other flights – most of that, 72%, onto Qantas services.

Connections were expected to grow, pre-virus, a further 39% in 2020. “We are deliberately adjusting and altering the timing of services to tighten and improve those connections,” Evans said.

That is a changing role for Jetstar from when it was established under Alan Joyce, now CEO of the Qantas Group.

Bookings out of Australia comprised 14% of Jetstar Asia’s revenue last year despite Jetstar Asia having a light footprint in Australia. Only sales out of Singapore were larger at 36%. Australia sales were even higher than from Indonesia and China, which Jetstar Asia has multiple flights to.

The growing significance of Singapore differs from the weakening competitive outlook in Vietnam.

Three airlines applied for local Vietnamese licenses last year. “AirAsia…we will imagine it will do so again,” Evans said. One startup, Vinpearl Air, withdrew in January. Despite COVID-19’s damaging effects on aviation, local airlines in Vietnam remain ambitious.

Qantas in coming months plans to offload its 30% stake in Jetstar Pacific. Co-owner Vietnam Airlines expects to own 98% of Jetstar Pacific in the future, it told local media.

Vietnam Airlines has largely sat out the strong growth from private competitors. With full ownership of Jetstar Pacific, Vietnam Airlines will have control of a dual-brand strategy.

Vietnam Airlines EVP Trinh Hong Quang told local media that Jetstar Pacific was held back due to differences in view, culture and practices between Vietnam Airlines and Qantas.

Qantas last year said Vietnam has “several aggressive, well-funded entrants that are unconstrained by need to protect legacy businesses.”

Jetstar Pacific will drop Jetstar branding and related support, like the Navitaire booking system in favor of Vietnam Airlines’ Sabre
SABR
. It will revert to its former name Pacific Airlines, which was used until Qantas took a A$30 million stake in 2007 and transformed the carrier into one of its Jetstar franchises.

Jetstar Pacific even at the best of times seemed unaligned to the Australian group and was more independent, sourcing aircraft on its own instead of the central group’s orderbook.

At worst was the 2010 incident, which Qantas has since moved past, in which two executives from Australia were prohibited from leaving Vietnam for six months. Vietnam was looking into Jetstar Pacific’s fuel hedging losses before suddenly dropping the investigation.