Jetstar Asia: A Low-Cost Airline in Trouble

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Case Details:

Case Code : BSTR234
Case Length : 19 Pages
Period : 2004-2006
Organization : Jetstar Asia Airways Pte Ltd.
Themes: Business Model | Regulatory Environment | Mergers | Subsidiaries
Pub Date : 2006
Teaching Note : Available
Countries : Singapore
Industry : Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS

Jetstar Asia's Business Model

Soon after its launch in December 2004, Jetstar Asia announced an aggressive expansion plan to operate flights from Singapore to major cities like Shanghai, Taipei, Hong Kong, Jakarta, Pattaya, Manila, Surabaya, and some cities in India. According to the company, its target customers were a 'combination of business and leisure travelers.'

Commenting on Jetstar Asia's route expansion plan, Con Korfiatis (Korfiatis), the COO and one of the founders of Jetstar Asia, said, "...our success will depend on our ability to grow the market, and by becoming the first low-cost carrier to serve several major population centers that support millions of people, as well as opening new routes, we're doing just that: making air travel more accessible and more affordable to more people." Jetstar Asia did not position itself as a 'typical' LCC.

Generally, airlines following a low-cost model offered low fares by eliminating as many costs as possible from their operations...

Jetstar Asia's Problems

LCCs in the SEA region faced several hurdles in the early 2000s, a major one being that the air travel market in the SEA region was subject to several restrictions. Air traffic rights between most of the SEA nations were dependent on bilateral agreements between the countries.

This prevented airline companies from having unfettered access to destinations across the region. Apart from this, the number of LCCs in the SEA region was increasing rapidly, resulting in severe competition.

Problems like increasing fuel costs, and natural disasters like the Asian tsunami also added to the airline's troubles. The Asian tsunami struck just a few days after Jetstar Asia began operations.

The result was that tourism in the SEA region fell drastically and this affected Jetstar Asia along with all the other airlines. Consequently, it found it very difficult to get a foothold in the market.

Excerpts Contd... >>