AirAsia & Jetstar: The deal that could make or break them

Malaysia-based AirAsia, headed by the colourful Tony Fernandes, and Melbourne-based Jetstar, owned by Qantas, announced a deal to pool certain operations in an effort to reduce costs.

The deal involves no equity, meaning the two companies will remain officially independent but from a branding perspective, the issue becomes how close they can get without confusing consumers.

On the surface, as long as the marketing of the two brands remains separate, pooling operations to save money makes sense.

Tim Riches, chief growth officer for Asia-Pacific at FutureBrand, argues that the savings resulting from the deal may allow the two brands to go even further; it may enable investment in the customer's in-flight experience with lots of potential to create brand loyalty.

One benefit of the deal is that, although the two companies overlap on some routes, they are pushing in different directions - AirAsia into Asean and now Europe; Jetstar across Oceania and North Asia. Riches adds that the tie-up creates an operation with significant scale and reach that is not a national carrier.

In the long term, that may create new challenges. “When you end up with major airline brands disconnected from national identities, those brands have to look elsewhere for depth and authenticity to their brand image.”

That may not be the only challenge. Roll argues that, in practice, this semi-merger could be difficult. Regardless of the external face shown to consumers, a brand’s internal culture can be compromised.

Then there’s the next step - further collaboration, including perhaps some marketing operations. While the two firms have stressed this will not happen under the current agreement, they have not ruled out extending the terms of the deal in the future. If their priority is costs, pooling media buying, for example, could give the two firms greater efficiencies.

In fact, some in the industry believe the deal may be a first step toward a merger. Joseph Baladi, CEO of BrandAsian, says: “The obvious is sometimes the most likely - that the two airlines are indeed planning a merger of some sort, but are simply not saying.”

If that’s the case, the branding implications could soon become a lot more serious.




This article was originally published in the 28 January 2010 issue of Media.