Ancillary revenues add to Jetstar earnings

May 18, 2011

JETSTAR now derives more of its profit from ancillary revenues than it does from tickets and the trend is expected to continue after the airline yesterday unveiled a streamlined fare structure that further unbundles its product.

The low-cost Qantas offshoot is collapsing its existing four fare types into one starter fare covering the seat and 10kg of carry-on luggage. Travellers can then add extras such as the ability to earn frequent-flyer points, seat selection or check-in baggage for a fee.

The new structure makes it easier for passengers to earn Qantas frequent-flyer and status points and, on Airbus A330 long-haul flights, will see the airline's Star Class replace Business Max fares. But premium passengers will also be able to reduce the price of the fares by removing benefits such as frequent-flyer points.

Jetstar group chief executive Bruce Buchanan said about 20 per cent of the airline's total income now came from ancillary charges -- equivalent to about $23-$24 a ticket -- but this was net profit that flowed straight through to the bottom line.



"If it wasn't for ancillary revenue, we wouldn't be making money in our business at the moment," he said. "It's that important."

Mr Buchanan said ancillary revenues had increased from $2-$3 per ticket to the mid-$20s in the space of a few years and were growing "very fast". "So, it's not inconceivable we'll get to a point where we can start to offer a considerable portion of the aircraft for very, very affordable airfares and still have a profitable business that we can grow and are viable," he said.

Mr Buchanan said the move was about both driving profitability and increasing market share. He said Virgin's move upmarket had opened up opportunities for Jetstar, which now had 60 per cent of the Gold Coast market compared with 45 per cent 18 months ago.

Mr Buchanan also revealed that the traditional link between leisure travel and retail sales appeared to have weakened as the services sector remained "pretty strong" while the goods sector suffered, possibly because of the high Australian dollar and the affordability of overseas goods online.

"But we're seeing a very robust services market in terms of leisure travel, holiday travel and just generally the 'visiting friends and relatives' market, which is a big part of our consumer base," he said.

"So we haven't seen the same sort of shift that a lot of our big retailers have been feeling over the past couple of months."

Qantas chief executive Alan Joyce said mainline operations were seeing continued strength in the business market, although key markets such as the US and Britain remained weak.



(Steve Creedy From: The Australian )