KUCHING: It was confirmed that Jetstar Airways and AirAsia have entered into discussions on a potential cost-saving joint venture that presently remained in the preliminary stage and nothing has been agreed upon.According to OSK Research Sdn Bhd (OSK) in a research report yesterday, AirAsia and Jetstar Airways Pty, Qantas Airway Ltd’s wholly owned low-fare unit were discussing cooperation in cutting costs amid rising competition for budget conscious Asian travellers.

It added that AirAsia’s chief executive officer Datuk Seri Tony Fernandes expressed that this would be an excellent way to combine the airlines’ strengths and an agreement may be reached as soon as next month.

The research firm related that as AirAsia has not made any formal announcement pertaining to the cooperation, the details were still sketchy. However, it revealed that the partnership may cover procurement and ground handling that might generate as much as 10 per cent in cost saving.

It was also estimated that this joint venture could lead to revenue and route collaboration in the future. Other billets also predicted that the two low cost carriers (LCCs) might eventually cooperate on plane purchases, which could give them more clout to influence the designs of narrow body aircraft.

As cost savings are already phenomenal in the airlines’ daily operation, the potential cost cutting collaboration was definitely welcome as any positive cost reduction may eventually bolster their bottom lines.

OSK stated that albeit the potential joint venture seemed forthcoming, it was not overly excited with the proposed cooperation as it was still in the preliminary stages and was not seen to materialise so soon.

It added that despite the potential collaboration, it remained mindful of the fact that high crude oil prices may squeeze AirAsia’s margins, especially given that price-undercutting activities may persist in the short to medium term.

Coupled with the budget carrier’s recent weaker than expected results, its recommendation on AirAsia was maintained with a 12 month target price of RM1.13. The fair value was derived from 10 times the financial year 2010 earnings per share.