Malaysia’s AirAsia and Australia’s Jetstar announce alliance to help reduce costs

AirAsia, Jetstar form low cost airline alliance

SYDNEY — AirAsia and Jetstar announced an alliance that includes cooperation on passenger handling and possible joint purchases of aircraft as two of Asia’s biggest budget airlines seek to trim costs.

Key to the agreement signed Wednesday in Sydney is a proposed joint specification for the next generation of narrow body aircraft, the carriers said in a statement. The airlines will consider buying aircraft together so that bigger orders lower the cost per plane.

Jetstar, a unit of Australian flag carrier Qantas Airways Ltd., and Malaysia-based AirAsia will also share aircraft parts and cooperate on passenger handling at airports in Australia and Asia.

Analysts said the tie-up showed that the aviation market remains tough.

Airlines are under pressure to find new ways to reduce costs as demand for travel remains weak despite some signs of recovery from the global recession. The International Air Transport Association forecasts the global airline industry’s losses to reach $5.6 billion this year after an estimated $11 billion of losses in 2009.

AirAsia, however, made a profit in the third quarter of last year — its most recently released result — as travelers traded down to budget airlines. Qantas has said it returned to profit in the second half of 2009 after a loss in the first half.

Qantas Airways chief executive Alan Joyce said Jetstar and AirAsia would gain a natural advantage in one of the world’s most competitive aviation markets through the alliance.

“Jetstar and AirAsia offer unmatched reach in the Asia-Pacific region … and this new alliance will enable them to maximize that scale,” Joyce said in a statement.

AirAsia chief executive Tony Fernandes described the agreement as a logical development.

“AirAsia strongly believes the strategic tie-up will help the airline maintain its position as the lowest-cost airline in the world despite rising costs associated with the fledgling global economic recovery,” Fernandes said in the statement.

Analysts said the alliance would give the two carriers more bargaining power when they shop for parts and other products.

“It signals that the market remains difficult and consolidation and cooperation are essential,” said Shukor Yusof, aviation analyst with Standard and Poor’s in Singapore.

“For AirAsia, it gives an extension into a market that it currently hasn’t penetrated. For Jetstar, a stab at AirAsia’s ever-growing network,” he said.

Passengers could see lower fares but this will be minimal as low-cost carriers are already offering very competitive prices and oil prices continue to be a challenge, he said.

IG Markets research analyst Ben Potter said the alliance was “very positive” given the extremely competitive airline industry and the pressures under which carriers operated.

“The Asia-Pacific region is one of the biggest growth markets in aviation so any ways to further reduce costs and offer more competitive fares will benefit both shareholders and customers,” Potter said.

Qantas shares rose 1.7 percent to 3.01 Australian dollars ($2.75) after the announcement.

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Associated Press Writer Eileen Ng in Kuala Lumpur contributed to this report.