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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Please note:

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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"We're very confident about the timing of the launch of this airline. I don't know where other airlines will end up but I can assure you Jetstar Asia will be around in four years' time and will be profitable, so Temasek and our other investors can be confident." ¹

- Geoff Dixon, CEO of Qantas Airways Ltd., in 2004.

"2005 has generally not been great to LCCs in the region. While they have continued to increase market share, they have suffered from a weak industry environment marked by high jet fuel prices, industry over-capacity, and pressure on pricing." ²

- Shukor Yusof, aviation analyst at Standard & Poor's, Southeast Asia, in February 2006.

Introduction

Jetstar Asia Airways Pte Ltd. (Jetstar Asia) was launched in December 2004 by Qantas Airways Ltd. (Qantas), a major Australian airline, and a few investors in Singapore.

At the time of its launch, Jetstar Asia announced that it intended to establish itself as one of the leading low-cost airlines in the Southeast Asian Region (SEA).

However, far from achieving this objective, the airline ran into trouble within the first few months of its operation itself. While other low cost carriers (LCCs) like Tiger Airways³ were gaining popularity in the region, Jetstar Asia struggled to make a mark.

In mid-2005, Jetstar Asia merged with Valuair⁴, another Singapore-based LCC, with a view to strengthening its operations by gaining new routes.

However, even this failed to bring any significant benefits to the airline. By the end of 2005, Jetstar Asia had cut its fleet size, dropped some routes, and was struggling to improve its weak financial position.

Background Note

The early 2000s saw an increase in the popularity of LCCs in Asia. During this period, many Asian countries were liberalizing their economies and opening up their airline industries to the private sector.

Many Asian LCCs like Air Deccan (India) and AirAsia (Malaysia) had become popular by offering low air fares, which made air travel affordable to a large number of people. Rising income levels in Asia also played a part in their growth.

The success of these LCCs in attracting passengers led to a low-cost revolution in Asia as the region saw the launch of many new LCCs during the period.

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1] Ria Voorhaar, "Asian Jetstar is born," Travel Trade, October 6, 2004.

2] Ven Sreenivasan, "Budget carriers facing restructuring," http://business-times.asia1.com.sg, February 20, 2006.

3] Tiger Airways, an LCC, has Singapore Airlines (SIA) as its major shareholder. The company began its operations in August 2004.

4] Valuair was established as an LCC by former SIA employees and other local businessmen. Major shareholders included Star Cruises and Asiatravel.com. It began its operations in May 2004. Although Valuair was the first LCC to start operations in Singapore, it was not considered a true LCC as it offered frills like free food on board. Valuair merged with Jetstar Asia in July 2005.