AirAsia, Jetstar form alliance

Airasia Bhd (5099) and Australia's Jetstar Airways Pty Ltd have formed a cost-savings-driven alliance that could well change the region's low-cost carrier (LCC) landscape.

The first such alliance between two LCCs, it will involve both airlines buying planes and parts together and offering joint ground-handling services, a strategy that could result in annual cost-savings of some A$200 million to A$300 million (RM620 million to RM930 million) for both airlines.

The partnership could even lead to a code-share agreement in future for two of Asia-Pacific's leading LCCs, AirAsia group chief executive officer (CEO) Datuk Seri Tony Fernandes said.

"The next logical step would be to look at a code-share agreement. It will not be your traditional code-share agreement, but for routes that we don't have the rights to fly to or if we don't have the (right) planes," Fernandes told Business Times in a telephone interview.
He was speaking after AirAsia, Jetstar and its parent airline Qantas Airways Ltd finalised the alliance agreement between both LCCs in Sydney, Australia, yesterday.

"This will be an exclusive partnership between both airlines. It's difficult to have two husbands," Fernandes said.

The alliance will help both airlines reduce costs, pool expertise and, ultimately, offer even cheaper fares.

Under the agreement, the airlines will look at opportunities for joint procurement of the next generation of narrow-body aircraft, such as the Airbus A320.

The goal is to reduce costs through large orders and work with aircraft manufacturers on the design of planes and specification that suit their operational needs as LCCs.

"We will have the economies of scale to help us cut cost," said Fernandes.

They will also jointly procure engineering and maintenance supplies and services and pool their inventory arrangements for aircraft parts.

"We have already started doing so for some parts like brakes, wheels and engines," Fernandes said, adding that AirAsia could see savings of some RM100 million this year from the alliance.

In addition, both airlines will have a cooperative arrangement for passenger and ground-handling in Australia and within Asia at overlapping airports.

"There won't be any duplication of staff because we are short-handed in some areas. So there will be no job cuts. Instead, we are interested in developing our own ground-handling unit through this alliance," Fernandes said.

The agreement also allows for reciprocal arrangements for passenger management, support for passenger disruptions and recovery onto the other airline's service across their networks.

Fernandes strongly believes the strategic tie-up will help AirAsia maintain its position as the lowest-cost airline in the world despite rising costs associated with the fledgling global economic recovery.

Asked when AirAsia would begin flights to Sydney, Fernandes said he was looking at July.

"It's difficult to answer that question because we are awaiting the approvals. We were asked the same question by journalists in Sydney (yesterday) given that we already fly to Perth, Melbourne and Gold Coast," he said.

Meanwhile, Qantas Airways CEO Alan Joyce said the historic non-equity alliance would give Jetstar and AirAsia a natural advantage in one of the world's most competitive aviation markets.

"Jetstar and AirAsia offer unmatched reach in the Asia-Pacific region, with more routes and lower fares than their main competitors, and this new alliance will enable them to maximise that scale," he said in a joint statement issued yesterday.

He said the aviation sector in Asia was a growth market and had been resilient over the past year despite the tough operating environment.

Jetstar CEO Bruce Buchanan said the cooperative approach was a result of both airlines' strong focus on costs.

He said Jetstar had reduced its controllable costs by up to 5 per cent annually and that the agreement would enable a further step-change in its cost position and ensure sustainable low fares.