Aviation circles around the world are pondering the likely impacts of the world's first (and most dominant) LCC joint venture on the Asia-Pacific market.
From a route development point of view, the message coming from AirAsia's CEO, Tony Fernandes, is that its new strategic alliance with Jetstar will drive down costs for both airlines, enabling his carrier to conserve its fleet for serving new Indian destinations during 2010.
"For us, 2010 is shaping up to be the 'year of India', says Fernandes. "We already fly to four destinations in southern India - Kolkata, Trivandrum, Tiruchipillai and Kochi - and we plan to launch five more - New Delhi, Mumbai, Chennai, Bangalore and Hyderabad."
In fact, AirAsia has just announced it will go ahead with six new services to key Indian cities this year. From Kuala Lumpur, the carrier will serve Mumbai (from May 6) Chennai (from May 17), Bangalore (from May 20), Hyderabad (from July 20), and New Delhi (from August 4) and from Penang there will be a daily service to Chennai (from April 28).
The decision to pair up with Jetstar is just as much about cost saving as it is about clawing the competition.
"An overwhelming factor [in the alliance agreement] has been our determination to maintain our status as the world's lowest-cost airline operator. The strategic alliance will help by enabling us to use economies of scale in joint procurement efforts and I envisage annual cost savings of AUD$100 million (US$92.3 million) for both airlines," says Fernandes.
"And we welcome competition and are confident that we can triumph over all-corners. In fact, even with this alliance, we are competing in the marketplace while collaborating in operational aspects."
The partnership has, inevitably reduced competition in the Asia market, however is undoubtedly a positive step not only for both carriers, but for Kuala Lumpur airport, as Yvonne Lunsong, client director at ASM explains.
"There are limited opportunities for Qantas or Jetstar to expand in Asia without coming into direct competition with AirAsia. Likewise, there are limited opportunities for AirAsia within the Australian/New Zealand domestic market, so a commercial arrangement between both airlines makes sense, which combined, would weaken Tiger Airways," says Lusong.
"This tie-up also strengthens Kuala Lumpur's chances of becoming Jetstar's South East Asian hub for European operations and overall, would be great for Kuala Lumpur's position as the Next Generation Hub."
The next logical step for AirAsia would be to explore codesharing possibilities with Jetstar for routes on which AirAsia does not yet have the right to serve, or in cases where its aircraft aren't best suited to a particular new route.
Meanwhile the carriers will be able to continue to expand their routes and reach, offering passengers a greater choice of destinations and removing costs on routes that overlap.
Fernandes explains: "It dovetails with what we want to do going forward. We are obsessive about keeping costs low and apart from operational synergies; we share the same passion for developing new markets. Where we operate routes in tandem, we can each back up the other in the event of a grounded aircraft situation and for routes where this doesn't happen, there are opportunities for us to collaborate and codeshare in future."
Multiple brands
Looking at the respective brands, AirAsia operates its long-haul arm, AirAsia X; Thai AirAsia (based in Bangkok); Indonesia AirAsia (offering 574 flights from Jakarta); and has created Vina AirAsia for the Vietnamese market (but this is not yet operational). AirAsia uses Singapore (SIN) as a virtual hub and all its Singapore services are operated from secondary hubs in Indonesia, Malaysia and Thailand.
Jetstar, Qantas' low-cost subsidiary, with bases in Melbourne and Sydney, has expanded with Jetstar Singapore (with 231 weekly flights from Singapore) and Jetstar Pacific (with 260 weekly flights from its main base in Ho Chi Minh City).
Route network analysis
There is some inevitable overlap with both airlines' operations in the Australia- Malaysia market, although only on seven services (all of which are to/from Singapore). This could potentially lead to one of the carriers scrapping the duplicate route and therefore reducing operational costs. It would also provide the separate brands with access to over 50 new destinations each. Furthermore, AirAsia can gain access to Sydney and Melbourne through the alliance, while Jetstar can access AirAsia's hub in Kuala Lumpur.
Here's a summary of route network crossover:
Kuala Lumpur: The only route that is duplicated is Jetstar's Singapore and AirAsia's Singapore service.
Jakarta: Indonesia AirAsia's and Jetstar each serve Singapore (Jetstar only operates twice-weekly)
Bangkok: Both Thai AirAsia and Jetstar serve Singapore (Jetstar with seven-times weekly flights compared with AirAsia's 41-weekly services).
Looking forward, Fernandes is confident that the alliance will play an integral role in his long-term vision for continued growth. "I am convinced that no matter how the market evolves, we are strongly placed to maintain our growth trajectory. Our strategic alliance will initially impact the Asia-Pacific market but the possibilities are endless. We've just started this journey and as we work closely together, who knows where that will lead.
Data source: FlightBase
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