Qantas to Offload Minority Stake in Jetstar Pacific | KOSEC

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Qantas to Offload Minority Stake in Jetstar Pacific

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Australia’s national carrier, Qantas Airways, continues to adjust its portfolio of businesses. The airline has confirmed that it will be letting go of its 30 per cent stake in Vietnamese airline, Jetstar Pacific. The decision will, therefore, hand complete ownership to co-owner Vietnam Airlines. Qantas had established Jetstar Pacific thirteen years ago when it forked out $30 million to pay its Vietnamese counterpart for a stake in the local carrier. The rationale behind the decision then was to substantiate its presence in Asia through a joint venture capitalising on the Jetstar brand.

Jetstar Pacific has 15 Airbus A320s, and despite the ample growth opportunities in the Vietnamese market, the business had been incurring a loss for most of the decade. A key obstacle the airline faced was the intense competition following the launch of rival budget airlines, including Bamboo Airways and VietJet. Speculations have been put to an end after Qantas confirmed that the low-cost carrier would revert to its original name of Pacific Airlines alongside a rebranded logo. More broadly speaking, discussions with Vietnam Airlines did not occur overnight. Rather, discussions were ongoing for a while now but were accelerated due to the current macroeconomic environment.

Meanwhile, there are no changes in Qantas’ 49 per cent ownership in Jetstar Asia in Singapore.  This is because Singapore appears to be a more stable option for Jetstar as Qantas only has one local competitor – Singapore Airlines. In 2019, outbound travel from Australia constituted 14 per cent of Jetstar Asia’s revenue, despite the airline holding a small presence in Australia. More importantly, Qantas and Jetstar Asia capitalise on the fact that Changi Airport makes an excellent hub that links travellers between Australia and Asia. Therefore, the growing significance of Singapore is a stark contrast from the fiery competition within Vietnam.

Back at home, the airline is busy channelling their focus on domestic services. As border restrictions ease, Qantas is aiming to operate up to 850 return flight weekly by the end of July. The goal is achievable given that both Queensland and South Australia have agreed to open up borders once again. Specifically, interstate travel is expected to reconvene in Queensland and South Australia on 10 July and 20 July respectively. This, therefore, leaves Western Australia to be the only outlier.

Aside to cost-cutting measures Qantas has actively adopted, the airline also has the support of Moody’s Investor Service. The credit rating agency is a firm believer that Qantas will do well due to the high potential of a trans-Tasman bubble as well as the airline’s reliance on domestic air travel. Yet, the optimism did not result in a change in Qantas’ credit rating, which remains at Baa2 with a negative outlook. Ultimately, Moody’s remains confident that Qantas would stand to gain from domestic success in containing the spread of the virus and similar results in New Zealand, who has now successfully become coronavirus-free.

By Caroline Wong 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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