If I told you that two of the largest low cost carriers in the Asia Pacific region got together to form an alliance, that would be pretty big news, right? Well, that’s what is happening now as Jetstar and Air Asia have decided to link up. This is big news, but for passengers, it’s not news at all. This is going to be a 
behind-the-scenes link for now, but I wouldn’t rule out bigger changes up front later on.
For those who aren’t familiar, Air Asia is the monster of the low cost carrier world in Southeast Asia. They started out with a couple used 737s, but they’ve now grown into a behemoth. They should be flying 100 airplanes by the end of this year, most of which are A320s. They have plenty more on order as well, effectively trying to turn themselves into the Asian version of Ryanair (though, funny enough, unlike Ryanair, with European-built airplanes). They’ve also recently started Air Asia X for long haul low cost flying with A330s. (Strange fact: Air Asia X inexplicably sponsors the Oakland Raiders despite a) them not flying anywhere on this continent and b) the Raiders absolutely sucking.)
Jetstar has taken a different path. They are a very rare specimen – a successful low cost airline within an airline. They are a part of Qantas and are about half the size of Air Asia in terms of fleet. They have a bunch of A320s buzzing around Australia, and they added long haul flying on A330s. They’ve grown their Jetstar Asia (and Jetstar Pacific in Vietnam) product in the same region as Air Asia, but they don’t actually overlap that much.
Jetstar started the consolidation party by merging with Valuair a few years back. You’ll still see Valuair flying airplanes but the branding is Jetstar these days. Now, Jetstar is getting together with Air Asia, but it’s not like you think.
This alliance is supposedly all about cost savings. They’re going to get together to try to build purchasing power for fuel, ground handling, airplanes, and more. The airplane piece is particularly interesting in that they’re really going to try to push the development of the successor to the 737 and A320 airplanes. They want the next generation so they can drive down costs.
There are some really good points in a blog post over at Plane Talking covering the announcement. Air Asia is really focused on driving down costs – lower costs means they can lower fares and stimulate travel. They’re gonna make money on volume. And it’s been working for them so far.
This does put an abrupt end to the rumors swirling about Air Asia and Virgin Blue coming together to create an ultra low cost carrier in Australia. That’s probably a good thing. There’s already a blood bath in that country, so they don’t need any more rock bottom fares.
All eyes are now on Tiger Airways, the biggest competitor in the region. Tiger not only flies around Southeast Asia, but they opened up an Australian division as well. They don’t appear to be making money on that, and this is likely to put more pressure on them. If Air Asia and Jetstar can lower costs and fares, that can’t be good for Tiger.
Now, will this spill over into a customer-facing alliance? I don’t see why it wouldn’t some day. Though Qantas has done a good job with Jetstar, why not join forces with Air Asia and let the leader in the space run your low cost carrier? Keep a stake and watch your fortunes rise. But for now, there’s nothing to announce on that front. We’ll see how long it takes.
