Cartel concerns remain for AirAsia-MAS share swap deal
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Cartel concerns remain for AirAsia-MAS share swap deal

In the past, like it or not, Malaysia’s national carrier, Malaysia Airlines (MAS), and Asia’s leading low-cost carrier, AirAsia, have often been regarded as rivals.

But this may not be the case anymore, as the shareholders of the two flight operators have recently made a pact to do a share swap. The end-result will be this: MAS’ major shareholder, Khazanah Nasional (Malaysian state investor) will swap a 20.5% stake in MAS for 10% stake in AirAsia.

The deal will ultimately see AirAsia’s major shareholder, Tony Fernandes, as a major shareholder in MAS as well. This deal has also catapulted Fernandes to be a liner mogul, having significant stakes in two major airline companies within 10 years of being in the aviation industry.

What transpires out of this is that Fernandes, known for his Midas touch on AirAsia, will be given a role in turning MAS’ ailing operations back into a profitable liner. MAS will also see some new management changes, more specifically, its board of directors, which now boasts several high-flying captains of various industries in Malaysian corporations.

An industry observer says Khazanah is seen to be passing the buck of responsibility in MAS to Fernandes, in hopes that the latter will use his Midas touch to turn MAS around.

“Khazanah is increasingly roping in entrepreneurs from the private sector to help rebrand and rejuvenate the GLCs (government-linked companies , especially those that are seen to have stagnated in growth or been bleeding as a result of poor business directions by the companies’ current leaders,” he says.

MAS has been bleeding for several quarters now due to high operating costs and unprofitable routes.

Industry observers say the deal looks like a bailout for MAS, a claim that Khazanah, which means ‘treasure’ in Malay, has vehemently denied.

To some, this deal may give a sense of deja vu, as MAS has experienced several major restructuring exercises before, with the most recent being in 2006, after massive losses incurred almost bankrupted the liner.


Visitors walk next to Air Asia X's new Airbus A330 aircraft during a ceremony at the Kuala Lumpur International Airport's low cost air carrier terminal in Sepang, Malaysia, Tuesday, Sept. 18, 2007. Pic: AP.

At first glance, the MAS-AirAsia share swap deals seems to be beneficial for both liners. Some aviation analysts see this plan as a long-awaited move, as it now means that the two liners may be able to move away from inefficiences in their operations such as overlapping of routes and improved sharing of information that would result in cost-savings, better yields and profitability.

It is also believed that with this collaboration pact, AirAsia and MAS will be differentiated in terms of flight services, with MAS concentrating on premium long-haul flights, while AirAsia continues its reign as a leading low cost-carrier.

Differentiation between the two liners have gotten vague in recent years, as MAS embarked on a strategy to offer passengers value flights- full-services flights at a lower price, which in turn, puts it into competition with AirAsia, rather than other premium full-service liners such as Singapore Airlines.

The result of it is that these two liners are often in head-on competition to provide lower fares for passengers.

However, an industry observer says with this deal in place, the government is now seen as controlling the country’s aviation industry all over again, which may not be a healthy development for the industry.

It is noteworthy that MAS was once a government agency, but was privatised in 1985, as part of the country’s policy to divest the government’s interest in businesses.

As both Khazanah and Fernandes will be holding major stakes in the two Malaysian-based airlines, it is no surprise that this has sparked concerns that domination in the aviation industry by these two shareholders will result in higher fares.

AirAsia may have started as a low-cost carrier, but now that it has common shareholders with MAS via Khazanah and Fernandes, an industry observer says AirAsia has fewer incentives to price its flight services lower, as it no longer has a compelling competitor.

From a consumer perspective, this is not very good news, as competition ultimately enhances the efficiency of pricing for goods and services. Competition also forces companies to embark on differentiation strategies, which allows consumers to pick and choose the goods and services based on their affordability and needs.

Fernandes has denied that AirAsia will increase its fares as “low fares is our religion”.

However, an industry observer says that deal or no-deal with MAS, AirAsia flight tickets are no longer cheap even compared with regional liners.

In the meantime, whether this deal works or not remains to be seen as it still has to surpass anti-trust laws.

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