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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Background Note Contd...

Until the early 2000s, the airline industry in Singapore was dominated by Singapore Airlines (SIA)⁵ and its subsidiary Silk Air, which catered to regional routes. The government of Singapore (GoS) implemented an open skies policy in 2003, paving the way for the 'low-cost revolution' in the country's airline industry. In 2004, three LCCs - Tiger Airways, Valuair, and Jetstar Asia - began operations in Singapore.

Jetstar Asia began its operations on December 13, 2004, with daily services between Singapore and Hong Kong.

It was established jointly by Qantas and Temasek Holdings (Temasek), a government-owned investment company in Singapore. While Qantas was the largest shareholder with a 49 percent stake, Temasek held a 19 percent stake in the airline.

Tony Chew (Chew) and Fong Fui Wong (Wong), two well-known businessmen in Singapore, owned the remaining shares in the airline with stakes of 22 percent and 10 percent respectively.

Qantas

Qantas was established as Queensland and Northern Territorial Aerial Services Ltd. (QNTAS) on November 16, 1920, in Queensland, Australia, to provide airmail services. By the early 1930s, QNTAS had begun offering airmail services from Australia to the UK.

Later in 1934, QNTAS together with Imperial Airways⁶ of the UK set up an airline company called Qantas⁷ Empire Airways Ltd (QEA)⁸. In addition to regional services, QEA also offered air passenger services from Australia to the UK.

QEA's operations were adversely affected by World War II and the company's financial condition weakened. After the war, QEA was taken over by the Australian government. It was later renamed Qantas Airways in 1967.

Over the years, Qantas launched services between several destinations around the world and established itself as the leading airline company in Australia.

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5] SIA is the state-owned airline company in Singapore. Its operations began with the establishment of Malayan Airways Ltd. in 1937, in Malaysia. SIA came into being with the separation of Singapore from the Federation of Malaysia in 1966. As of 2006, SIA was one of the leading airline companies in the world with a network that spanned 90 destinations in close to 40 countries. SIA is known the world over for its superior customer service.

6] Imperial Airways was the forerunner of British Airways, the largest airline company in the UK as of early 2006.

7] Qantas was the acronym for the company's original name.

8] Qantas and Imperial Airways each held a 49 percent stake in this company. The remaining stake in the company was held by an independent arbitrator.