Jetstar confident it can keep up the cost-cutting

Jetstar has cut costs by about 5 per cent a year since it started flights in 2004. Photo / Greg Bowker

MELBOURNE - Jetstar, Qantas Airways' budget airline unit, expects to further cut costs as rising Asian travel demand and new routes boost traffic.

"We can definitely continue to drive costs out of our business," Jetstar chief executive Bruce Buchanan said.

"If you want to drive growth and a decline in real airfares you have to drive your costs down further or it becomes an unsustainable proposition."

Automated check-in services and more efficient aircraft enabled Jetstar to cut per-passenger expenses, excluding fuel, 6.1 per cent in the six months to December, with the carrier prepared to abandon routes where costs can't be contained. The savings and a buoyant domestic holiday market helped Jetstar to surpass Qantas' main brand in terms of profit last year on about a quarter of the revenue.

"Jetstar is continuing to go from strength to strength," said Jason Teh, who helps to manage US$3.2 billion ($4.49254 billion) at Investors Mutual in Sydney. "The expected growth from Jetstar is much stronger than you can expect from the Qantas mainline carrier."

Buchanan is doubling the size of his Airbus SAS A330 fleet to 12 planes to support a push into long-haul services.

The company is considering as many as four new destinations in China as well as Europe and mainland North America. It already flies to destinations including Japan, Hawaii, Hong Kong and Shantou, China. Flights to Fiji will start in about two weeks, Buchanan said.

"The leisure end of the market has been doing exceptionally well," he said.

"You have seen that in Jetstar's results."

Since starting flights in 2004 as Qantas sought to blunt the loss of market share to Virgin Blue Holdings, Jetstar has cut costs by about 5 per cent annually. It posted earnings before interest and tax of A$121 million ($111 million) in the fiscal first half on sales of A$1.1 billion.

The Qantas-branded carrier had a profit of A$60 million on sales of A$5.3 billion in the six months ended December as the global recession sapped international business and premium-class travel.

Qantas last month announced plans to spend A$400 million reconfiguring its planes, including scrapping first-class on most international flights.

The changes, which won't start until next year, will give Qantas coach, premium-economy and business-class configurations on its planes. Jetstar offers two classes - economy and its StarClass business class.

Jetstar this month scrapped flights to Rockhampton in Queensland after failing to reach agreement on airport charges. Jetstar says other destinations may be next, as some terminals have proposed price increases of as much as 50 per cent.

"If we see a non-level playing field we will pull our services," Buchanan said.

"If you don't want a partnership with us to drive retail spending and car-parking revenue streams from passengers that's fine, we can take our business elsewhere."

- BLOOMBERG