Why Air Asia's "budget alliance" with Qantas and Jetstar is a stroke of genius – Live on CNBC Asia with Martin Soong

Let me say this again. I think Air Asia is one of the most innovative airlines in the world today – right up there with JetBlue, Virgin, Singapore Airlines, Southwest Airlines and LAN Airlines. And today they pulled out a trump card – a joint venture with Australia’s Jetstar Airways. You can keep reading the press releases, but here’s the essence of the agreement and how it will benefit the airlines and their customers (you and I!)

What the AirAsia and Jetstar “budget alliance” means

The most significant difference is the departure from Star Alliance – type marketing or revenue driven alliances. Air Asia and Jetstar have formed a cost alliance, or what I’d call a “budget alliance” (pun intended). Here is the nitty gritty.

1. The airlines will pursue joint procurement of aircraft – This means that they will be able to leverage economies of scale while buying from Airbus.
2. Joint design specifications – since they’re going to order a lot of planes, they can demand from Airbus things like a twin-aisle A320 or more efficient engines suited for their own operations. I think this is HUGE!
3. Pooling of inventory and spare parts – both airlines operate only A320s and A330s, so this was an easy one
4. Combining Airport passenger and ramp handling services – this is crucial for cost savings as during an emergency, the airlines can use one another’s planes to carry passengers.
5. It’s a non-equity partnership – so both will work on reducing costs together, but will not share revenues.
6. There is no maintainance involved – this can get tricky, with different safety regulations in different countries and result in safety lapses. And I think Qantas has learnt its lessons with the failed partnership with Malaysia Airlines last year.

For the consumers, this means lower costs for both the airlines and benefits for all of us. Hurray!

Though, if I was working at Tiger Airways right now, I’d be worried. Especially with the upcoming IPO!

Why it’s a genius move, as shared Live at CNBC studios in Singapore

I spent this morning with CNBC’s Martin Soong & Sri Jegarajah sharing my thoughts about the joint venture Live on SquawkBox. The interview now available on CNBC’s website and I’ve embedded it here for your convenience. (Click here if you can’t view the video interview).

So, what do you think about this budget alliance? Is this the beginning of a new era for airline alliances? Will other LCCs or legacy carriers follow? Let’s discuss in the comments or over on Twitter (@simpliflying)