Jetstar links with Air Asia

Jetstar and AirAsia have formed the first integral alliance between low cost airlines. Jetstar - which is owned by Qantas Airways - and AirAsia - based in Malyasia - have finally come to an agreement on passenger handling and aircraft maintenance deal, which both airlines argue will save millions of dollars from their costs per year.

The deal has been a long time coming (Qantas's attempts to form ties with AirAsia go back to 2003) and the announcement was timed to spike the formal launch of an initial public offering to raise up to S$273m (£130m GBP) by Singapore-based Tiger Airways, which is in a competition battle with both jetstar and AirAsia.

The deal marks another step in Qantas’ strategy of moving flights from its main Qantas brand to Jetstar to counter the effects of the economic downturn, however Qantas say that "jetstarification" (SIC) has pretty much reached its limits on many routes, and that there will always be a core of passengers who want the extra services (likes meals, legroom and baggage transfer) that Qantas provide.

This now seems to be the next step, as Qantas says its strategic alliance between its budget offshoot, Jetstar, and the rival AirAsia would include working together to gain better deals on the next generation of aircraft, sharing parts and ground handling services, and joint procurement of engineering and maintenance supplies. The new Jetstar-AirAsia alliance could examine the formation of a new leasing company based around their older Airbus A320 aircraft.

Jetstar A330

Indeed Qantas's chief executive, Alan Joyce argues that "This could develop very fast into revenue synergies into code-sharing", which is likely to see Jetstar codes put onto AirAsia flights.

The president of the Australian and International Pilots Association, Barry Jackson, said staff feared the deal would lead to Qantas and Jetstar sending jobs offshore in an effort to slash labour costs. But Qantas deny this, arguing aircraft engineering would remain in Australia.

Disputing the significance of the deal, industry insiders said such ties were common between airlines and they doubted that Jetstar and AirAsia could wield much influence over Boeing and Airbus.

AirAsia has now become Malaysia's biggest low-cost carrier, and is looking to expand more routes across south-east Asia and Australia.

The prospect of even closer ties poses the biggest threat to the Singapore Airlines-backed Tiger Airways, which continues to suffer large losses in Singapore and Australia, and last month announced plans to raise S$273 million on the stock market. The announcement by Jetstar and AirAsia was timed to spike that.

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AirAsia has also showed interest in setting up a low-cost domestic carrier in Australia. It held talks with Virgin Blue a couple of years ago, but that came to nothing.