Jan 8, 2010

Five things you need to know....AirAsia-Jetstar partnership

Low cost carriers AirAsia and Jetstar's partnership is probably the first of its kind in the budget carrier category in the world. Rahul Thappa, leader of Mindshare Malaysia reveals why it makes sense.

Five things you need to know....AirAsia-Jetstar partnership
1. In a sector where margins are at a greater premium than ever before and where there are far too many players competing for demand, a long term, expanded AirAsia/Jetstar alliance makes sense on many levels. There are obvious mid to long-term operational economies of scale to be achieved - from the cost of fuel to influencing the development of future narrow-bodies aircraft. This alliance would bring significant influence to bear on the two largest aircraft manufacturers Boeing and Airbus - from driving down the cost of spares to the development of future aircraft designs which would suit the needs of their passengers and routes.

2. But what may be of even more interest is that they have largely complementary existing routes from three separate hubs and both are looking to expand their business beyond their current footprints. While AirAsia dominates the Asean sector and is focusing its energies in developing its European and Gulf sectors, Jetstar is a major player in the Oceania and North Asia sectors and would rather develop its ambitions in the Pacific/Northern Asia sector. This alliance would help either airline concentrate on its core route expansion plans which together would offer either airline a much larger market to extend to the alliance’s customers.

3. Obviously the biggest gain from this alliance would accrue to passengers of either carrier as well as those they seek to woo away from the competition. Not only will destinations across Asia be well connected and well served, the cost advantages either airline reaps can be passed on to the passengers. For example an AirAsia passenger in Malaysia would have easy and cost-effective access to Japan and at the same time a JetStar passenger in Australia would have a high-quality, low-cost option to fly to the UK. It is a matter of time before AirAsia and Jetstar add more European and North American routes to this alliance’s rich offering of routes.

4. The fact that both are also robust, innovative brands in their own right, means they can maintain that strong sense of individual identity whilst enjoying the benefits of partnership. Both brands can, with this alliance, fend off strong competition from national carriers in the region and from other LCC carriers like Tiger - whose IPO would almost certainly have been affected by this announcement as investors would look at its (Tiger's) competition in a whole new way in light of this new entity.

5. The next phase of change in the aviation industry will undoubtedly see more meaningful and concrete alliances that help leverage joined-up volumes to bring down costs and at the same time help build scale.

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