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 Contd...

The Merger with Valuair

In June 2005, there were reports that Jetstar Asia had entered into merger talks with another loss-making LCC in Singapore, Valuair. However, both the companies soon announced that the merger talks had ended over differences on the proposed shareholding pattern in the merged entity.

Meanwhile, there were reports that AirAsia , a successful LCC from Malaysia, was also interested in acquiring Valuair and that it had offered SGD 20 million. However, in July 2005, Jetstar Asia and Valuair announced their decision to merge. This was the first merger in the low-cost airline industry in the SEA region. After the merger, a new holding company called Orangestar Investment Holdings (Orangestar) was created to operate both the airlines. Qantas infused SGD 50 million to obtain a 44.5 percent stake in Orangestar. The remaining stake was held by Temasek, Chew, Wong, Star Cruises, and Asiatravel.com (who were the major shareholders in Valuair)...

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Jetstar Asia Vs. Competition

While Jetstar Asia was not very successful in the market, analysts noted that its rival Tiger Airways, with its strong business model, had managed to make an impact in the highly competitive low-cost market. Tiger Airways mostly served secondary cities. This helped it tap the markets ignored by the major carriers, which concentrated on big cities. Also, Tiger Airways followed a strict no-frills model to offer the lowest fares possible to its passengers. In contrast, Jetstar Asia catered to high traffic routes like Singapore to Hong Kong, Bangkok, and other cities where it competed against established airlines like SIA...

Outlook

In April 2006, Qantas applied to the Australian Competition & Consumer Commission (ACCC) to allow it to co-operate with Orangestar in fixing airfares. The application was accepted by the ACCC in May 2006. However, it was only an 'interim authorization' and the ACCC could withdraw it at any stage in future. The approval by the ACCC meant that there would be collaboration between Qantas, Jetstar Airways, and Jetstar Asia with respect to air fares, network routing, and scheduling. Once again, Tiger Airways officials criticized this deal, saying that it might prove anti-competitive to LCCs in Singapore...

Exhibits

Exhibit I - Logos of Jetstar Airways and Jetstar Asia
Exhibit II - Destinations Served by Jetstar Asia and Tiger Airways as in June 2006
Exhibit III - Air Travel Market in the Southeast Asian Region in 2005-2006

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