Interview: Jetstar CEO on Running the World’s Most Unique Low-Cost Carrier

To its customers in Australia, New Zealand, Singapore, Japan, and Vietnam, the low-cost airline airline called Jetstar is a model of simplicity.

Like most discount carriers, Jetstar’s aircraft have relatively spartan cabins and limited legroom. And while fares are cheap, customers pay extra money for just about everything from bags to food.

But in its corporate structure, Jetstar is far from simple. The  company that runs the airlines — Jetstar Group — is headquartered in Australia and is a wholly-owned subsidiary of Qantas.

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But the airlines that operate as Jetstar are all slightly different. In Australia and New Zealand, the carrier known as Jetstar Airways is fully owed by Qantas. In Singapore, however, Jetstar Asia Airways is 51 percent owned by a local investor, with Qantas owning the rest. In Vietnam, Vietnam Airlines owns most of Jetstar Pacific Airlines, with Qantas owning 30 percent. And in Japan, Qantas, Japan Airlines, Mitsubishi Corporation, and Century Tokyo Leasing Corporation all own pieces of Jetstar Japan.

Each Jetstar segment has a local CEO, but Jayne Hrdlicka directs the overall strategy from Melbourne. For Hrdlicka, CEO of Jetstar Group, the key is to keep the airlines operating as a cohesive unit, even though they’re all slightly different businesses. That’s not always easy, but Jetstar Group, created by Qantas in 2004, has made a profit for its parent company in recent years.

We met recentlyat the Global Aviation Festival in London with Hrdlicka, who grew up in Kansas and has a MBA from Dartmouth and a degree in mathematics and economics from the Colorado College, to discuss Jetstar’s unique challenges. This is the fourth in a series of airline CEO interviews we plan for the next several months.

Note: This interview has been edited for length and clarity.

Skift: How would you explain Jetstar Group to readers who aren’t familiar with it?

Hrdlicka: Jetstar Group is a pan-Asian airline that last year served 34 million customers, flying to 85 destinations across 18 countries, with roughly 54 of those destinations in Asia. We’re five airlines operating as a group. One in Australia, one in New Zealand, one in Singapore, one in Vietnam, and one in Japan. We fly a fleet of about 127 aircraft, 11 of which are 787s. We have both long-haul operations as well as a short-haul operation. We’re in a market that’s incredibly dynamic. The growth and the outlook for opportunity is quite significant.

Skift: You have five airlines and several operating certificates. You have different local investors in most of your airlines. How do you ensure that, for customers, all Jetstar airlines all feel the same?

Hrdlicka: That’s a really important part of our motto — one brand, one experience. We do that by having a set of guidelines from the standpoint of what the brand stands for, [including] brand values and the experience we want to create for our customers. [We have guidelines for] how long it takes to check in and what the policies are around various things. There’s a common framework for all airlines. The aircraft all look the same, for example the interior, but they’ll be quite different depending on the local culture. For example, our business in Japan, the opportunity to buy food on board is quite different to the opportunity to buy food on board in New Zealand. There’s different food that is oriented to local market.

The brand is tailored to the local market as well. In Japan, we have a mascot. We sell product through kiosks in Japan. Instead of just using the website and [online travel agencies] and travel agents, we’re also doing really creative things to stimulate the market, like selling through kiosks in convenience stores. The number of kiosks now I think is close to 15,000. That’s a really important way for the Japanese who are new to aviation to be in a comfortable place and use their credit card through the convenience store to buy their ticket.

Skift: Qantas is a major investor in all of your airlines, and it owns 100 percent of the Australia and New Zealand operations. Historically, legacy airlines have not always fared well while trying to operate discount brands. Why has it worked so far for Jetstar and Qantas, at least in some markets?

Hrdlicka: We’ve got a very powerful model which is built from customer smarts. We know in great detail what the aviation market looks like from a customer standpoint. We know our customers better than anybody in the markets we’re operating. That enables us to figure out where and how much capacity we put in each one of the brands.

What having two brands has enabled Qantas to do at a group level is to recognize if we focus our full service airline on the market that’s prepared to pay more for a premium experience, it’s better for everybody. The innovation that comes from being squarely focused on your core customers is phenomenal.

The things that are happening in Qantas right now that were inconceivable 12 years ago — even six years ago — [are occurring] because we keep getting better and better at how we apply the two brands. Qantas is a far better product and experience for premium customers today as a consequence of Jetstar being in the marketplace because [Qantas is] not trying to serve all customer groups. Jetstar is focused on understanding the mix of customers who are driven by the price of the ticket.

Skift: There’s no other airline group in the world with this model, right?

Hrdlicka: No. From an outsider’s point of view, the question always is, ‘how do you stay true to [low cost carrier] principles when you got so much complexity?’ The fact is that there’s complexity at a governance level that we have put a huge amount of effort into simplifying. There’s a secret sauce in that. That enables us to run the group … [and to achieve] scale that benefits everybody — even though in effect, we’re a number of different airlines.

Skift: When you decide what food to serve on Jetstar Japan, is that a decision that is made by your head office in Australia? Or is it done locally?

Hrdlicka: We have a group of people who support all the airlines in defining the experience and customizing the experience for local culture. [They] drive all the commercial activity in the business. They work hand in hand with every one of the [executives] running the airlines. Those people also have teams embedded in each one of the markets. It’s quite an integrated function where there are decisions [made] about scale and economics and margins and then local custom and practices and what’s important to our customers in an individual marketplace. Decision-making responsibilities are all driven by our services agreement [with each airline]. In practice, however, it is a team effort to ensure that we’ve got the best product on board each aircraft for the market we’re serving.

Skift: In which market do you see the most first-time fliers?

Hrdlicka: In Japan, we’re seeing a lot of new first-time fliers. The market is quite young. Also Vietnam where the country is developing at a high pace and so people now have disposable income and they’re just growing into the middle class. That’s also a big market for first-time fliers. China has a lot of first-time fliers. Those are probably the principal places. For us, it’s probably the first five to six years of building a market where you’ve got a lot of first-time fliers.

We’re proud of the fact that in Australia, there are 20 million more trips taken every year now as consequence of Jetstar dropping the entry price for travel. That fundamentally changes people’s lives. You can travel more often. You can travel for the first time where you can grow a small business in ways you otherwise couldn’t. We take our role quite seriously in the way that we engage in a community and the way that we help build tourism and opportunities that otherwise wouldn’t exist.

Skift: From Australia, you fly 787s to destinations like Bali, Thailand and Hawaii. Relatively few low cost carriers fly long-haul routes. Another is Norwegian Air. Do expect more airlines will adopt this approach?

Hrdlicka: What I know is that there is part of the market that really can only travel if the price are low. Where there are markets where it’s predominantly people flying who are going for purposes of holiday, I think long haul, low fare opportunities are going to grow significantly. It just makes sense. Where there are markets where there’s both a strong high-yield market as well as a low fare market, then there will be a mix of both [regular airlines and low cost airlines]. Where the market is principally high yielding or really long haul, then I don’t think the opportunity is that significant for low fare airlines.

Skift: Most low-cost airlines must pack in seats to amortize the cost of operating the aircraft among more fare-paying passengers. How can you do this while still ensuring passengers remain relatively comfortable?

Hrdlicka: That’s why I think there’s a boundary on how long the flight can be. Our 787s are a fantastic customer experience. And we’ve put more seats on the 787 than any other carrier had before. We’ve channeled some infrastructure on the plane in terms of the way that we have configured galleys, et cetera, and we’ve still done that in a way that gives a really great experience and plenty of leg room for economy passengers. I flew back from Hawaii to Australia with my family in our 787 few weeks ago — just a fantastic experience. The in-flight entertainment is of really high quality.

If it’s a 15-hour flight or a 13-hour flight, well then, you’ll probably want a full-service experience. You’re probably more prone to pay a bit more for that. But when you’re looking anything from a five to 10-hour flight, I think it’s a good experience.

Skift: Does that mean we shouldn’t expect Jetstar to fly from Sydney to Los Angeles?

Hrdlicka:  We would have to do some things differently in the way that we have configured the interior of the aircraft in order to do that extra distance for two reasons. One, I think customer expectations are a bit different. Two, the requirements for crew rest are quite different, [and crew rest pods] take up space, so it would change the economics a little bit. We will stick to … markets that fit within our model. We’ll continue with other opportunities. [Ultra long haul] is a big step change in terms of adding complexity and changing the pattern of what we know works.

Skift: For your 787s, you’ve installed in-seat screens. Most airlines say the systems are heavy, which means the burn more more fuel having them on board. Some are not installing them anymore. Do you think they’re still necessary?

Hrdlicka: This is a topic where the views have changed a lot over time. We might have slightly different perspective because most of our long haul flights are longer than most airlines’ long haul flights. Our view is that people will bring their own devices but if you don’t have entertainment for them, you’re missing an opportunity because our passengers come on board looking for entertainment. They don’t want the stress of having to prepare 150 percent for every eventuality on board. If they’ve forgotten to load content or they don’t have enough content and they’re on a [long] flight, that’s a big deal.

Nobody’s carrying around books anymore. They’ve got their eReader. If you don’t have enough content on your eReader and you don’t have in-flight entertainment provided to you on the seat-back and you don’t have a movie lined up, you’ve got a long time to stare at the back of the seat in front of you. We think it’s important to do a combination of things to make sure it’s possible for people to bring their own devices and keep those devices charged but also to provide in-flight entertainment.

Skift: Like most discount airlines, you charge customers for most extras. Why is that so important for low cost carriers?

Hrdlicka: We look at the market through the eyes of our customers. Our customers are driven by value— as in not paying more than they have to for something.  We’re always looking for creative ways to ensure that we’re keeping the cost of the seat as low as possible and enabling people to add where there’s a benefit to them, so it’s not factored into what they have to pay for the seat.

[You want to] charge people for things that will really add value to their experience and then revenue manage it so that you’re [pricing appropriately when] there is a lot of demand for a little amount of resources.