Having Khazanah as shareholder is a boon for AirAsia

WHILE most analysts have considered the share swap between major shareholders of AirAsia and Malaysia Airlines (MAS) a blessing for the latter, there are those who believe that AirAsia will reap the greatest benefits.

AirAsia’s new shareholder, Khazanah Nasional Bhd, brings with it the re-assurance that the budget carrier can now receive new routes and ensure the development of more low-cost carrier terminals in Malaysia. A clear benefit of Khazanah emerging as a shareholder in AirAsia is “the connections it brings with it”. Khazanah, which is a major shareholder of MAS and Malaysia Airports Holdings Bhd, will now also be looking after the interest of AirAsia Bhd.

Instead of constant lobbying to secure new lucrative routes, AirAsia and sister airline AirAsia X can now be assured that the process of route allocation is expedited.

On the cards is the imminent approval of the much-sort-after KL-Sydney route by AirAsia X.

AmResearch Sdn Bhd says in an aviation report this week that AirAsia X may possibly gain access to key trunk routes which will feed into AirAsia’s network.

“Common interest allows issues such as landing rights and irrational pricing to be settled faster and in a more amicable manner,” it says.

Khazanah is also expected to take-up a 10% stake in AirAsia X through the issuance of new shares, before the latter is listed next year.

AirAsia can play a very big part in the development of Iskandar in Johor especially since tourism is a big part of Khazanah’s portfolio,” AirAsia chief Tan Sri Tony Fernandes tells StarBizWeek.

The collaboration could also result in potentially lower cost for AirAsia from outsourcing maintenance, repair and operations to MAS instead of third parties, AmResearch says.

The agreement focuses on immediate synergy opportunities, which means the airlines will potentially be able to realise savings and increase revenues in aircraft purchasing, engineering, ground support services, cargo services, catering and training.

The market has been swirling with talks that the potential synergies to be realised by these airlines through the collaboration can range from RM1bil to RM1.6bil.

Market observers say that AirAsia has also managed to pull the rug from under Firefly, which had just started to spread its wings earlier this year with the commencing of jet aircraft operations from the KL International Airport to East Malaysia. This was on top of its existing turbo prop operations based in Sultan Abdul Aziz Shah Airport in Subang.

With competition intensifying between AirAsia and Firefly, the former has successfully eliminated its competitor as the deal spells out that AirAsia will be the only short-haul low-cost carrier locally while AirAsia X focuses on the medium-to-long haul routes.

Firefly will be turned into a regional full-service carrier (FSC), which will feed traffic into parent airline MAS, which will focus on being a premium FSC.

“Some ideas involving Firefly includes revenue enhancing such as increasing its fares by 30% and making it a business class airline. The Subang airport can be positioned as an airport for business class passengers since most people going there are businessmen anyway,” says an industry source.

AmResearch says “the elimination of competition from Firefly could see AirAsia’s yield gap-up possibly in financial year-ending 2012 forecast and result in earnings upgrades.” The research house adds that a co-ordinated interlining with MAS may potentially increase AirAsia’s ancillary income. It says another benefit for AirAsia is a potential cargo service collaboration, where a synergy and feeder traffic can be derived from AirAsia’s point-to-point network versus MAS’ trunk route network.

While some AirAsia investors may be concerned with the share swap executed by AirAsia co-founders Fernandes and Datuk Kamarudin Meranun, both co-founders maintain that they are committed to AirAsia and will continue to manage the airline.

The shareholding swap between Tune Air and Khazanah is done to ensure both parties interests are aligned, says Kamarudin. “The biggest concern of this deal has been about people misunderstanding it. Some people think I will not be running AirAsia anymore - but nothing changes,” says Fernandes.