Jetstar, Qantas Airways Ltd.’s low- cost unit, may open a base in Southeast Asia to support the introduction of European flights, likely challenging local carriers on profitable long-haul routes.

The Australian carrier plans to start flights to Europe as economic growth in the Asia-Pacific region spurs international travel. The move may add to competition for Thai Airways International Pcl and for Singapore Airlines Ltd., which flew 27 percent of passengers on European routes last year.

Melbourne-based Jetstar may select Singapore for maintenance and the administration of its European flights because it owns stakes in two carriers already based in the city-state, Jetstar Asia and Valuair, Buchanan said. Bangkok has the advantage of being closer to Europe, while costs in Malaysia are lower, he added.

Jetstar is doubling the size of its Airbus SAS A330 fleet to 12 planes to support the push into long-haul services. The carrier has also added operations in Vietnam and New Zealand.

“Our prime focus is always going to be Asia as our business is about creating critical mass,” Buchanan, 36, said.

Jetstar profit

Shares of Qantas, Australia’s largest airline, rose 2.4 percent to A$2.97 at the close of trading in Sydney. The stock has gained 13 percent this year compared with the benchmark S&P/ASX 200 index’s 28 percent rise.

Jetstar’s profit rose 4.9 percent in the year ended June as it added routes and won customers. Earnings at the Qantas-brand carrier dropped more than 99 percent on a slump in demand for business and first-class travel. The low-cost unit expects sales of A$2.6 billion ($2.4 billion) this fiscal year.

Buchanan took control of five-year-old Jetstar 12 months ago, after founder Alan Joyce became chief executive officer of parent Qantas. The unit offers a “no-frills” economy-class- only service, where customers have to pay extra for checked baggage and meals. The carrier has business class on overseas services including Malaysia, Hawaii and Japan.

New Zealand

Jetstar’s expansion overseas has been hit by late arrivals and poor customer service in New Zealand, where it began domestic flights in June. The airline subsequently took out full-page newspaper advertisements apologizing to customers, and it now plans to add more services.

“The lesson in New Zealand is the degree of responsiveness,” Buchanan said. “Customers can be pretty understanding when you say, ‘It’s my fault.’”

The 27 percent-owned Jetstar Pacific in Vietnam is also considering expansion, including adding to its network of seven domestic destinations and possibly opening an international hub in Ho Chi Minh City, Buchanan said. The carrier became profitable in July after boosting market share to 23 percent from 14 percent and driving down operating costs by 29 percent.

Within Australia, Buchanan said keeping Jetstar’s operations as a single-class product has helped Qantas avoid following British Airways Plc, Air France-KLM and Delta Air Lines Inc. in losing money while building a discount carrier alongside a full-service brand. The split may also help Jetstar avoid competing with its parent as the economy improves and business travel rebounds, he said.

“Businesspeople are after a premium product, which we are not in the business of providing,” Buchanan said. “That is Qantas territory.”

Source: Bloomberg