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)

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Shashank Nigam

Shashank Nigam

Shashank Nigam is the CEO of SimpliFlying and a globally sought-after consultant, speaker and thought-leader on airline branding and customer engagement strategy. He is also the youngest winner of the Global Brand Leadership Award and has addressed senior aviation executives globally, from Chile to Canada and from Sydney to San Francisco.Shashank's perspectives have found their way into major media outlets, including CNN Travel, CNBC, MSNBC, Bloomberg UTV, Mashable and in leading publications like Airline Business, ATW, Aviation Week, and others.Shashank studied Information Systems Management and Business Management at Singapore Management University and Carnegie Mellon University. Hailing from India, he splits his time between Singapore and Vancouver, among other cities.
Shashank Nigam
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Showing 23 comments
  • Airobserver
    Reply

    Hello Shashank, great talk on CNBC! Do you think that such agreement can happen between european low cost airlines?
    The recent Vueling/Click air is closer to a traditionnal merger than this kind of “cost-based” agreement.
    Regarding to you point number 6, about maintenance, AFP says that “They will also investigate jointly procuring new aircraft, cooperate on buying engineering and maintenance supplies”

  • oussama
    Reply

    Cost alliances, sounds very similar to the ATLAS and KSSU consortium in the seventies and eighties. European airlines teamed up in what was maintenance consortia and shared maintenance, aircraft specifications, part pooling and handling both ground and technical. So maybe this is history repeating itself. Maybe Air Asia and Jetstar Airways look back at history to avoid some of the pitfalls.

    • simpliflying
      Reply

      Great points Oussama. I guess one of the first lessons they've learnt
      is not to have too many airlines in the “alliance”. I'm guessing ATLAS
      and KSSU, along with Star Alliance's efforts for joint procurement
      failed because of too many airlines flying too many planes to too many
      destinations. Here, we have just two airlines, flying in the same
      region (APAC), flying the same planes (A320/330) and having similar
      business models (LCC). And on top of that, we've got executives like
      Tony Fernandes, who have a reputation for making things happen. I'm
      optimistic about this partnership.

  • Sergio Mello
    Reply

    Hello Shashank, congrats for hitting the screens at CNBC.
    I agree on your comments but I ask your clarification on the following two topics:
    What do you mean by a “twin aisle A320”?
    Does Emirates really carry fuel to India to avoid the local taxes there? That is not very “green”..

  • oussama
    Reply

    You are quite right, the ATLAS consortium got so big the maintenance lines for airframe and engines were duplicated almost in ever member airline.

  • Karen Price
    Reply

    Great and informative interview. I am interested specifically in the seat configuration that was briefly mentioned. Twin aisle on an A320? How would that be possible, or beneficial? Do you feel that more passenger places could be added? 2015 for these type of changes? Is this a new A320 model and where could I get more information on this? Thank you!

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    Reply

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  • falcon124
    Reply

    Actually, Jetstar will be performing heavy maintenance on aircraft from both airlines. This gives some fuel to Joyce's announcement that they're investing in maintenance here in Australia and taking on more apprentices. Folks were wondering how they'd justify the investment with JQ's fleet, but throw in AirAsia's as well and that's definitely enough to keep them busy 🙂

    I'm in agreement that this link up is all about a 'buying club' and that it makes more sense than the marketing alliances. Keeping it to just two or three airlines with the same equipment and similar ideals will help as well.

  • qubeemee
    Reply

    hello Shashank!!!
    could u explain to me the factors of air asia and jetstar build alliance??
    thank u.

  • philiptd
    Reply

    I have a hard time believing that a LCC would want a twin aisle A320 or 737, as it pretty much strips out one row of seats the whole length of the aircraft (5 across instead of 6 across) probably losing what 25 or so seats?. Maybe a large full service network carrier, such as Singapore Airlines, would consider this, but no way a LCC.

    • Shashank Nigam
      Reply

      That's a good point. Lower density overall may not make the option so
      attractive for LCCs after all.

  • mahesha13
    Reply

    Great bit of work!

  • Reply

    Great and informative interview, you are right.

  • tankless water heater
    Reply

    Actually, Jetstar will be performing heavy maintenance on aircraft from both airlines. This gives some fuel to Joyce's announcement that they're investing in maintenance here in Australia and taking on more apprentices.

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