Sunday, January 10, 2010

Budget carriers’ jousting may not benefit travellers yet

08 January 2010



AirAsia and Jetstar have formed a non-equity partnership. — Reuters pic

Since then, the carrier has been hit by an avalanche of negative press, much of which has come out of Australia, where archrival Jetstar is based.

Turning the tables, Tiger announced earlier this week that it had received financial backing from a European institution to buy two new aircraft.

But the biggest news by far in the budget airline jousting came on Wednesday.

Qantas’ chief executive Alan Joyce, flanked by Jetstar’s boss Bruce Buchanan and the flamboyant head of AirAsia Datuk Seri Tony Fernandes, unveiled what they hailed as a world first — an alliance between two low-cost airlines.

To slash costs and drive efficiencies, AirAsia and Qantas-controlled Jetstar have agreed to pool resources and expertise in several areas.

These include buying aircraft, ground-handling and maintenance, as well as stockpiling aircraft components and spare parts. The deal is expected to shave hundreds of millions of dollars off annual operating costs.

Clearly, the dogfight for supreme control of the fast-growing low-cost travel segment is intensifying.

The stakes are high. Asia is set to become the world’s largest aviation market in the next 10 to 15 years, outstripping those of the United States and Europe.

But what does it all mean for the traveller? Will fares come down? Will it be easier to book air tickets? Will there be more routes and flights?

On the surface, the possibilities that come with two major players ganging up are mind-boggling. The Sydney-based aviation think-tank, the Centre for Asia Pacific Aviation, calls the alliance a “formidable low-cost combination”.

Together, AirAsia, which has subsidiaries in Indonesia and Thailand, and Jetstar, which is associated with Singapore-based Jetstar Asia and Jetstar Pacific in Vietnam, have 142 aircraft flying and another 165 on order.

To put that in context, Singapore Airlines has 108 planes in the air and 60 on firm order, according to information on its website. This does not include Tiger aircraft.

For its part, Tiger, which also owns a domestic carrier in Australia, has 17 aircraft in its total fleet, with another 51 due for delivery by 2015.

With Jetstar’s strong presence in Australia, and AirAsia’s wide regional reach, the two carriers could develop a single booking platform for travellers transferring between their two airlines.

Code-sharing, where a flight operated by one airline is offered as a service by other airlines, is also a possibility that could open up more flights and routes to consumers.

As for Tiger Airways’ planned listing, a successful initial public offering would give the airline the funds it needs to buy and/or lease more aircraft, launch new routes and bump up flight numbers — all good news for the traveller.

What could happen in theory, though, may not translate into reality.

Fares, for example, are not going to tumble just because Jetstar and AirAsia have joined hands. While the hope is that savings derived from the alliance would be passed on to the consumer by way of lower fares, fuel remains the No 1 cost for any airline and if prices keep rising, total operational costs will increase.

The average cost of jet fuel this week is about US$88 (RM299) a barrel, 3.7 per cent higher than that a week ago, and more than 50 per cent higher compared with the rate this time last year.

As for the grand plans that Jetstar and AirAsia have announced to join forces, it seems little more than a gentleman’s handshake for now. Neither side has unveiled any concrete plans, details or timeframe.

Both carriers can also be sure that attempts to cement their relationship operationally would be subject to close scrutiny by national watchdogs that exist to weed out anti-competitive practices and ensure a level playing field for all parties.

As for route expansion and development of new markets, airlines are still subject to regulatory constraints, and while the pace of liberalisation has picked up in recent years, Asia still has a long way to go before free skies become a reality.

So, while low-cost carriers are grabbing the headlines these days, travellers are unlikely to reap any significant benefits in the short term from these recent eye-catching developments.

Still, the Jetstar/AirAsia partnership is a clear and positive sign that both carriers are very much focused on trimming costs and maintaining lean operations. The tie-up and the rivalry with Tiger Airways also promote healthy competition in the industry. In the end, this can only be good for consumers.

The Straits Times

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