Trailblazing tie-up but benefits may take time

"This is the first step, in what could be a bigger collaboration between the two airlines, perhaps an equity arrangement ..., we don't know yet, but there are definitely positives there," Standard & Poor's research analyst Shukor Yusof told Business Times yesterday.

While cost-savings may not be immediate, substantial savings should be possible in the future, when resources are pooled together in the area of maintenance and aircraft engine and spare parts procurement.

"This is really a sign that things have changed profoundly in the (aviation) business, and that things which would not have been possible five or six years ago can be done ... and that's the way the industry is going," Shukor said.

The partnership comes as the global aviation industry had its toughest year in 2009 as recession hurt demand for travel.
Unlike full-service carriers, budget carriers are known for their cost-cutting ways. This gave them little room for further cost reductions, leading them to boost flights instead.

AirAsia for instance, launched new flights to destinations in India, China, and Sri Lanka and it managed to keep average load factors of over 70 per cent.

It also maintained its profitable streak for the first three quarters of 2009, a year in which the International Air Transport Association had forecast a net loss of US$11 billion (RM37.8 billion) for the airline industry.

But now, the AirAsia-JetStar alliance could potentially help with cost savings in the future.

Shukor said the partnership also opens an avenue for other airlines to talk about collaboration and cooperation, paving the way for the much anticipated consolidation in the airline sector.

"Of course it (the alliance) will try to be replicated but it will be very, very difficult, because it needs a lot of synergies between the parties for it to happen. It is even more so true with legacy carriers, which come with more baggage," Shukor said.

Another analyst however was not convinced that the benefits of the alliance would flow down to AirAsia's bottomline.

Both AirAsia and JetStar have a sizeable backlog order of planes, which means that it was highly unlikely that much savings would be coming from procurement of aircraft anytime soon.

AirAsia has 105 A320-200s on order, while JetStar Australia has 57 still to be delivered.

The analyst, who preferred to remain anonymous, said with ground-handling costs making up less than 1 per cent of overall costs, on a best case scenario, collaboration on the area would give little savings for the carrier.