Jetstar and AirAsia Form Alliance

Qantas Airways Ltd.'s cut-price unit Jetstar and Malaysian discount carrier AirAsia Bhd. said Wednesday they have formed an alliance aimed at cutting costs, pooling their expertise and reducing air fares.

The non-equity alliance between two of Asia-Pacific's largest discount carriers will also see them work together on a proposed specification and joint procurement for the next generation of narrow-body aircraft, the two groups said in a joint statement.

The airlines have also agreed to cooperate on passenger and ground handling in Australia and Asia at airports they both serve, pooling their inventories of aircraft components and spare parts, and joint procurement of engineering and maintenance supplies and services.

The deal is an "important first step," Jetstar Chief Executive Bruce Buchanan said at a media conference, and could result in costs savings "in the hundreds of millions of dollars."

Qantas Chief Executive Alan Joyce said in a joint statement that the airline industry in the Asian region held up relatively well in 2009.

"The aviation market in Asia is a growth market and has proven resilient over the past 12 months, despite the tough operating environment, with significant growth in passenger numbers forecast in the region," Joyce said. "This partnership will ensure that both airlines can capitalize on these growth opportunities."

AirAsia Chief Executive Tony Fernandes said a common aircraft type specification in terms of the next generation narrow-body planes would be pursued by both airlines because of the many efficiencies it would bring.

"With joint purchasing power it means that we can potentially work with airline manufacturers on the right configuration and design of an aircraft specifically for AirAsia and that best suits our operational needs for the future," Fernandes said.

Qantas shares were up 4 cents or 1.4% at A$3.00 on news of the alliance.

IG Markets analyst Ben Potter said the tie-up is a positive development for both carriers and shows both management teams are "thinking outside the box" to ensure they remain leaders in the region. "In an extremely competitive environment where airlines have been under constant pressures from a number of different forces, this world first alliance is very positive indeed," Potter said in a client note.

"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," he said.