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Malaysia Airlines and AirAsia share swap is coming to an end as it was recalled by the Malaysian government. The deal was celebrated in August 2011 as a way to put a term to unproductive competition in the Malaysian skies, the share swap helped to reinforce a strong Malaysian airlines’ grouping composed of both carriers. However, the deal -which looked very favourable for both carriers on paper- brought increasing frustration to both consumers and unions. Many voiced their concerns over the supposed benefits of such an agreement. While Khazanah Nasional Bhd (which is the umbrella owner for MAS- took up to 10% stake in AirAsia, Tune Air Sdn Bhd – the company owning AirAsia- acquired a 20.5 % stake in MAS under the share-swap deal.
Following the August agreement, the first casualty rose with Firefly, MAS own low cost subsidiary when the airline announced abruptly to put an end to its new services between peninsular Malaysia and Malaysian Borneo. The airline also left KLIA to only fly out of old Kuala Lumpur Subang airport with its fleet of turboprops ATR 72. Consumers then complaint about reduced competition and consequently rising fares. They put the blame on AirAsia, which had made no secret to look at rationalizing the offer at both airlines.
In an interview to Malaysian national news agency Bernama in September 2011, AirAsia CEO Tony Fernandes indicated that while growth was very much on the agenda of both MAS and AirAsia, it was necessary to strengthen the specificities of both carriers without any overlapping. MAS would then concentrate on premium service while AirAsia would continue to concentrate on the low cost segment. Tony Fernandes however rejected any rumours of merging both carriers. “The key is to remain focused on the respective strengths and the same formula should apply to MAS,” he told then Bernama. Then came the biggest rationalization exercise by MAS, which cut earlier this year up to 12% of its capacities, especially in its long-haul network to stem abyssal losses.
The carrier lost in 2011 almost US$ 841 million following a profit of US$ 163 million in 2010. Routes cut included Dubai, Johanneburg/Buenos Aires, Karachi, Rome but also Surabaya and regional flights out of Penang and Kota Kinabalu. Regional cuts were likely done with a view to boost AirAsia’s presence in Malaysian secondary destinations. Meanwhile, AirAsia X withdrawal from Europe (London Gatwick and Paris Orly) as well as from New Zealand (Christchurch) could be interpreted as an attempt by AirAsia to reinforce MAS positions in some long-haul markets. Even AirAsia X gives the explanation that it was purely motivated by economic considerations. The rationalisation exercise helped reinforced Malaysian air carriers finances by increasing yields, an effort lauded by the financial community.
However, AirAsia did probably underestimated Malaysian travellers’ discontent and the the staunch opposition from MAS to the share swap exercise. Unions accused AirAsia to bargain the interests of the national carrier for its own stake. And as soon as the deal was inked, MAS new management’s efforts of restructuration rose objection from unions which even met with Malaysian Prime Minister Najib Tun Razak to express their concerns.
The resilience from unions became however so strong that it distracted both Khazanah and Tune Air of focusing on business consolidation. Even plans from MAS to create a short-haul subsidiary with lower costs could not be realized due to Unions’ opposition. Decision was then taken to cancel the share swap. It is then back to square one for MAS which continues to remain fragile due to widening losses and competition in its home market.
What will then be the consequences? Both airlines vowed to continue cooperation in some areas such as technical maintenance, procurement and oil purchase. But the end of the deal is also likely to ignite again competition on many regional routes. It might be good for the consumer but probably financially disastrous for MAS which could see its losses further dive. At AirAsia, optimism prevails with Tony Fernandes indicating in an interview to the Malaysian daily “Star” that new ventures in Japan and the Philippines will further boost AirAsia’s group growth with additional countries are already targeted. And the government promised to set up a new aviation council to oversee the aviation sector and resolve potential disputes for traffic rights between Malaysia two carriers.
Luc Citrinot a French national is a freelance journalist and consultant in tourism and air transport with over 20 years experience. Based in Paris and Bangkok, he works for various travel and air transport trade publications in Europe and Asia.
