In a world first for low-cost airlines, Jetstar and AirAsia have formed a new alliance that will reduce costs, pool expertise and ultimately result in cheaper fares for both carriers.

The alliance brings together Asia Pacific’s two leading low-cost, low-fare carriers and will focus on a range of major cost-reduction opportunities and potential savings – to the benefit of customers throughout the region.

Key to the agreement is a proposed joint specification for the next generation of narrow-body aircraft, which will best meet the needs of the low-fare customer of the future. Both airline groups will also investigate opportunities for the joint procurement of aircraft.

Alan Joyce CEO of Quantas, Jetstar’s parent company, Jetstar CEO Bruce Buchanan and AirAsia Group CEO Tony Fernandes finalised the agreement in Sydney where Joyce said the historic non-equity alliance would give Jetstar and AirAsia a natural advantage in one of the world’s most competitive aviation markets.

The agreement includes the development of co-operation in areas such as:

• Future fleet specification – both carriers will investigate opportunities for joint procurement of the next generation of narrow-body aircraft. A collective goal is to achieve cost reductions in terms of order volume and influencing design specification to deliver more efficient, low-cost operations;

• Airport passenger and ramp handling at overlapping airports;

• Shared aircraft parts and ‘pooling’;

• Procurement – Joint procurement, with a focus on engineering and maintenance supplies and services, with Jetstar maintaining its existing use of and commitment to Australian facilities and

• Passenger disruption arrangements – reciprocal arrangements for passenger management (i.e. support for passenger disruptions and recovery onto the other airline’s service) across both the AirAsia and Jetstar flying networks.

Fernandes hailed the agreement as another step in his airline’s strategy to maintain its global leadership as the lowest-cost airline operator.

The two largest airlines in the Asia Pacific region in revenue terms, Jetstar and AirAsia jointly earned nearly AUD3 billion ($2.8 billion) in revenues in the 2009 financial year.