Asian low-cost link-up

Leading Asian low-cost carrier groups, AirAsia and Jetstar, hope their recently sealed alliance can help influence the future design of narrowbody aircraft as well as improve their purchasing power of such aircraft in future.

Qantas unit Jetstar and AirAsia in January detailed the new alliance, which does not involve any equity nor codeshare-style co-operation. It instead largely concentrates on procurement synergies by bringing together the region's two largest low-cost airline groups, which generated revenues of more than $2 billion between them in 2008/09. They say the move will give them "a natural advantage in one of the world's most competitive aviation markets".

Jetstar chief executive Bruce Buchanan says the partners have identified "many hundreds of millions of dollars of cost saving opportunities", but admits most of this would come from aircraft design and purchase initiatives.

For future fleet needs, the carriers will look at opportunities for joint procurement of the next generation of narrowbody aircraft hoping for cost reductions from order volume and influencing design specification. "Aircraft are generally designed for full-service carriers," says AirAsia chief executive Tony Fernandes. "What we need is an aircraft designed for low-cost carriers in Asia." He says the design can be enhanced to reflect the stresses on aircraft particular to low-cost operations, notably on fuel savings and reliability issues. A solution, he adds, could be for manufacturers to develop separate types of narrowbody aircraft for low-cost and full service carriers.

He adds the alliance's purchasing power could be used beyond narrowbody aircraft. "There are no reasons why this can't be extended to includes widebodies as we both have Airbus A330s."

Other savings will come from co-operating on passenger and ground handling in Australia and within Asia at overlapping airports, and from pooling inventory for aircraft components and spare parts. They will jointly procure engineering supplies and services, Jetstar adding it will maintain its existing use of and commitment to Australian facilities. The alliance is also looking at the joint purchase of fuel. Reciprocal arrangements for handling passengers during service disruptions also features.

For More on... Moves by low-cost carriers to co-operate on codeshare-style arrangements go to

The new Jetstar-AirAsia alliance could also examine the formation of a new leasing company based around their older Airbus A320 aircraft. "This is an interesting option for us," says Fernandes, adding such a venture would have to overcome tax issues. Given that the companies operate a large fleet of A320s, it would enable them to provide easy access to spares and overcome other issues, he adds.

Read the Airline Business cover interview with Tony Fernandes from June 2009

According to Flightglobal's ACAS database, AirAsia operates 48 A320s, with a further 22 in service at its Thai and Indonesian associate carriers. It has a further 105 Airbus narrowbodies on order. Jetstar Australia, which flies to regional and long-haul destinations out of Australia, operates 32 A320s with 57 more on order. It has associate carriers in Singapore and Vietnam, the former operating six A320s.

It marks the latest sign of co-operation among low-cost carriers. While largely reluctant to get involved in merger and acquisition activity, with notable exceptions in some local markets, there are increasing moves to co-operate. This includes informal attempts to develop self-connections - AirAsia X has highlighted the large number of onward self-connections made on its flights. More formal attempts range from cross-listing selected flights from partner websites, such as between Air Berlin and its Turkish carrier partner, Pegasus, to codeshare-type co-operation. This has seen low-cost carriers forming a variety of different codeshare-style deals with both network and other low-cost carriers.

Source: Airline Business