Collective Strength

Sharp said the new partnership is a win-win for every Value Alliance airline, delivering significant benefits for Tigerair Australia customers.

“Tigerair Australia customers will be able to view, select and book the best available fares and optional extras like meals and seat selection from any partner airline in a single transaction, directly from the Tigerair Australia website. This is a major milestone for Tigerair Australia, expanding our existing network from 21 routes and 12 destinations to span one third of the world to over 160 destinations throughout the Asia Pacific region.

“By working together we can enable more people to travel for less to more places than ever before in a single transaction from the convenience of each airline’s website. It’s a great fit for Tigerair Australia which is all about delivering value, choice and innovation. ” Essentially, the alliance in its first phase is a network and distribution agreement. Unlike the big global full-service airline alliances it won’t involve such things as combined frequent flyer schemes, joint purchasing or shared maintenance, although the agreement does cater for such developments some time in the future if the members see potential. Using new technology developed by UK-based Air Black Box (ABB) the system allows each individual airline’s website to become a one-stop shop for travellers, touting not only its own flights and products but those of all other members as well. Thus a traveller can go on to Tigerair Australia’s website and book travel with Japan’s Vanilla Air or any of the other alliance members. At the same time, Japanese travellers will have access to the Tigerair Australia brand.

The result will be a strengthening of each airline’s distribution in their non-home markets, expanding their saleable networks via the provision of interline itineraries, retaining their ancillary revenue opportunities and offering their customers a better, one-stop shop experience.

Critically, unlike legacy interline technologies, the ABB technology allows customers to enjoy the full suite of ancillary choices LCCs offer, such as seat and meal selection, variable baggage allowances and other inflight features across all partner airline sectors in a single itinerary.

“The opportunity enabled by ABB and the Value Alliance to offer ancillary products through interline channels is a significant benefit over other partnerships, given LCCs typically earn 10 per cent to 25 per cent of their revenues from such items,” said Nok Air chief executive Patee Sarasin.

Outgoing Scoot chief executive Campbell Wilson said the catalyst for the new alliance came with Nok, Scoot and NokScoot, all independent businesses, realising there was value in working together.

“We found we had very much a meeting of minds on the strategy side of it. We knew what we wanted to do but the secret really was how do we get the technology to facilitate it so that it’s not burdensome. The last thing you need is burdening cost. So once we cracked that part of it with the new technology then it became much easier to go out to (other) airlines and say: there’s only upside here. Make a one-off investment in connecting to this technology which we have developed and then any sales that come are incremental revenue. It might not move the needle massively for you originally but what have you got to lose. ” Also important for the LCCs, the cost of implementation is very low. Indeed, even the cost of developing the technology was low, with Nok and Scoot putting in a mere US$1 million.

It is a major development in the no-frills world. Until now the only partnerships with the ability to co-ordinate to this extent have been groups of LCCs within the same ownership structure, such as Tigerair Singapore, Scoot and NokScoot, all owned or part owned by Singapore Airlines. For the first time travellers will be able to view, select and book the best available airfares on flights from any of the airlines in a single transaction, directly from each partner website.

The ABB technology is based on the new data transmission standard being fostered by the International Air Transport Association (IATA), known as NDC, or New Distribution Capability. ABB is the first to actually leverage this standard and develop the technology. It has filed for NDC Certification with IATA and is expected to complete full certification soon.

While the Value Alliance was only launched in May, two of its members, Nok and NokScoot have actually been using the system since February. Just how effective it has been is shown by the number of interline passengers Nok has gained from NokScoot flights out of China onto its domestic services.

“I’ll give you numbers,” said Nok’s Sarasin. “We just started with NokScoot selling NokAir tickets and in the second month we are already selling up to 30,000 tickets. So we are talking about a tremendous boost and that is just from one airline, NokScoot alone. You can imagine how it will be with passengers coming in from other places around Asia doing the same thing. ” Value is being touted as the first “pan-regional” budget airline alliance, for good reason. It isn’t actually the first LCC alliance in Asia. Last year a group of small Chinese LCCs formed the U-FLY Alliance. Members are HK Express in Hong Kong, Lucky Air from Kunming, Urumqi Air and West Air from Chongqing. It spans some 85 destinations and the group did put out a statement congratulating the new alliance.

“The launch of this new alliance poses no threat to the competitive landscape. In fact, it would encourage creative collaboration and foster healthy growth in the LCC industry,” it said.

But the arrival of Value is hardly likely to get such a warm reception from Jetstar or AirAsia. Analysts see the formation of Value as a step towards strengthening its members’ position in what has become a fiercely competitive market in Asia. A Jetstar spokesman did react to the news by saying that when customers travel on Jetstar “they can be assured of a consistent brand and with it, the same product, level of service and flight experience across any of our airlines”. The clear suggestion is that passengers on Value airlines can’t expect the same level of commonality.

But the incumbent market leaders may do well to keep a close eye on how Value develops. In comparison to Value’s 176 aircraft and more than 160 destinations, the AirAsia group has about 200 jets operated by eight carriers in Malaysia, Indonesia, Thailand, the Philippines and India. In the near future it will add Japan, serving some 120 destinations. The Jetstar group has 122 aircraft flying from Singapore, Australia, New Zealand, Japan and Vietnam to 75 destinations in 17 countries.

Membership of Value is by invitation only and there is good reason the likes of Jetstar and AirAsia aren’t on the welcome list. Many of the new groups members are embroiled in tough competition with Jetstar and AirAsia offshoots in their own and foreign markets. With more than 50 no-frills carriers now operating in the region, AirAsia’s marketshare is a sizeable 15 per cent, with Jetstar holding about 9 per cent.

Value will be looking to expand and attract new members in future. “We think we’ve got the principle key markets covered with the exception of India and Indonesia,” said Campbell Wilson. “Vietnam is certainly an opportunity. With China, there are some opportunities we are pursuing but for the moment we have got eight carriers, six countries, 17 hubs. That is the focus of making this work but we are always open to expansion. ” And Tigerair’s Sharp: “The reason we are all together is that we are badging as champions in our local markets, we are customer focused, we’ve got a sizeable marketshare or reach in the countries and that means you can work together and you have a similar way of dealing with your customers. That’s been fundamental to it. I’m sure the alliance will grow over time. ” No-one is saying who future targets may be but there certainly would be a case to chase the likes of Spring Airlines in China and VietJet in Vietnam, both fast-growing budgeteers whose networks would add strength to the Value Alliance.

Campbell points out that almost 60 per cent of the seats operated in South-East Asia alone are operated by LCCs.

“Yet most LCCs are not well known outside their home market. By bringing together our individual home market strengths combined with our collective network the Value Alliance offers travellers the convenience of transacting with an airline they know and trust and has proven its local market commitment, yet enjoy a vastly broader network than any individual airline can offer alone. So from Australia to Japan, from the South-East Asia markets to the Middle East (Scoot and Cebu Pacific both operate to the Gulf), LCC travel just became a whole lot more convenient. ”

The system allows each airline’s website to become a one-stop shop for travellers.