April 27, 2006
Qantas' Jetstar Asia headache dogs Dixon
Eric Ellis, Singapore
MADAME Chong Phit Lian, Geoff Dixon's new right-hand stewarding Qantas' Big Asian Adventure, Jetstar Asia, used to run Singapore's government mint.
Unfortunately for Dixon and Qantas shareholders that's probably the last time Madame Chong was awash in cash. The struggling budget airline, 45 per cent owned by Qantas, is proving anything but a licence to print money.
Take the midday flights this correspondent took last week, a shuttle return from Singapore to Jakarta. This should be one of Jetstar Asia's better patronised routes; Singaporeans are investing heavily in President Yudhoyono's economically-rekindled Indonesia, and Jakartans return the favour with some power retail therapy in Singapore's gleaming malls. Flights between the two are usually packed.
But not this week. Just 10 of 100-odd seats were occupied on the run down, and no more than a third coming back. The fare was $A200 - Singapore Airlines's fares are about double - so it can't have been the price. Some passengers paid just $A50 one-way. "How do they survive?" rhetorically inquired one passenger of her husband, as she surveyed Dixon's row on row of empty seats.
Great question, and one that dogs Dixon and his fellow shareholders at Jetstar Asia, which includes the Singapore government's Temasek Holdings, owner of Qantas' great regional rival Singapore Airlines, and of five per cent of Qantas as well. The $S60 million injection when Dixon merged Jetstar Asia with Temasek's other Singapore-based start-up Valuair only last July has just about been drained. Singapore's mostly good-news-only newspaper Straits Times was uncharacteristically muscular when it described Jetstar Asia's dilemma as a cash crunch. Jetstar-Valuair has had five CEOs in two years, and the latest one - Madame Chong - had never worked in aviation until she joined Jetstar Asia last month.
Dixon clearly has a problem on his hands in Singapore that tests both his corporate and political skills. Its all a long way from the cockiness when he launched the airline in October 2004, while boasting about his Singapore connections. "I don't know where the other (low-cost) airlines will end up. But I can tell you that Jetstar Asia will still be around in three or four years. I often think it's best to wait to see how everybody else destroys themselves, and then you come in and maybe pick up some of the pieces. We intend to be profitable in year one."
That hasnt happened, and as fuel prices head north again and look like staying there, at least while Washington and Tehran continue to stalk each other and send oil soaring, it won't be without more pain for Qantas. Its further complicating that Dixon's partner in Jetstar Asia, Temasek, has a jumble of Singapore-based aviation interests; Singapore Airlines, Tiger Airways, SilkAir, and all competing with Jetstar Asia. Singapore Airlines recently boasted that its revenue and passenger loads had never been higher than over the last nine months, that is since Jetstar Asia merged with Valuair.
Vexatious stuff and in stark contrast from the thumping success story next door in Malaysia, Air Asia. Launched in 2002, this genuine budget airline - KL-Bali for $A30 - has rattled the government-owned incumbent Malaysian Airlines' cage so hard, it has taken over from MAS as Malaysia's leading airline. Last month it acquired 99 of MAS' 118 domestic routes.
Dixon can only drool at the rapid rise of the privately-held Air Asia; profitable from day one, a $A400 million IPO in 2004, 26% higher revenues in Q1 2006 over Q4 2005, 20% higher profits of $A20 million for the same period, 1.3 million passengers carried during Q1 2006, 19% more than last year, two profitable subsidiaries in Bangkok and Indonesia launched, a huge fleet of new planes on order.
Where Air Asia are adding routes virtually by the day, Jetstar Asia are scaling back, planning to drop Calcutta and Phnom Penh. Jetstar's Madame Chong reckons she needs another $S36 million to see her airline through the crunch. But what she really needs is genuine entrepreneurship of the kind displayed by Air Asia, which has perfectly caught the middle class Asian travel boom.
Perhaps the two saving graces for an envious Dixon are that Air Asia are allowed only one flight from Singapore - to Bangkok - and that its CEO Tony Fernandes, like Dixon's Madame Chong, had never worked in aviation before launching the new airline. Forty-two year-old Fernandes was a music industry executive - and a big fan of Richard Branson's start-up methods. Even down to its club colours of red and white, Air Asia seems a Virgin clone.
Jetstar Asia bleats its been excluded by government from routes, that its hamstrung by protected skies. Perhaps that's some of the same protection that keeps Air Asia out of Singapore, which has one of the cosiest aviation sectors in the world. It was only recently that Singapore's aviation regulator, the same group that hands out air rights, dropped from its board its chairman who was also a director of Singapore Airlines. Singapore's current Minister of State for Transport was a senior executive of Temasek until 2004. In Singapore, it doesn’t take much for its authorities to bump into each other.
Still, there's entrepreneurial hope for Jetstar Asia yet. It recently became something of a cousin of the booming Air Asia, when Temasek inherited a shareholding in Tony Fernandes' Bangkok-based Air Asia Thailand, which had been a joint venture with the ousted Thai PM Thaksin Shinawatra's Shin Corporation, acquired by Temasek. Fernades' business ethos seems at odds with Singapore's top-down approach and its still early days for that partnership, if it lasts at all. While Fernandes once told me he saw Singapore as a rival, Temasek and Dixon would do well to listen and learn from their new family member. And maybe that Asian mint would be in sight for Qantas after all.
Eric Ellis is Fortune Magazine's South-East Asia Correspondent