AirAsia X CEO backs merger with AirAsia Bhd

[Naim 6]

Thursday July 23, 2009

AirAsia X CEO backs merger with AirAsia Bhd

By B.K. SIDHU

 

Azran: Merger will let AirAsia tap into long-haul markets

 

SEPANG: A merger between AirAsia X and AirAsia Bhd makes business sense and the combined balance sheet would make sourcing for future funding much easier, said AirAsia X chief executive officer Azran Osman-Rani.

 

“It would be difficult for AirAsia in the future if it did not have trunk routes as (this) is where the traffic volumes come from, so AirAsia needs growth from AirAsia X and the merger allows it to tap growth opportunities in the long-haul markets,” Azran told StarBiz in an interview.

 

“AirAsia cannot continue to just criss-cross and enter new markets, it needs a bigger base,’’ he added.

 

Given the nature of the business, which is counter-cyclical, a large base was necessary to balance the routes in peak and non-peak months, he said.

 

Azran Osman-Rani … ‘AirAsia needs growth from AirAsia X.’

 

That is why AirAsia X has to sell beyond Kuala Lumpur or else only 20% of the seats will be taken up. It has to sell destinations, be it in Malaysia or the region, and 80% of those travelling with AirAsia X use AirAsia to travel to Langkawi, Penang, Phuket or even Bali.

 

“That is why AirAsia needs growth from AirAsia X and for that greater control of AirAsia X is needed,’’ Azran said.

 

Recently, AirAsia group chief executive officer Datuk Seri Tony Fernandes was reported as saying his personal preference was for a merger of the two companies.

 

AirAsia has a 16% stake in AirAsia X and an option to increase it to 30%.

 

The remaining shareholders in AirAsia X are Aero Ventures Sdn Bhd (48%), the Virgin Group (16%), while Bahrain-based Manara Consortium and Japan-based Orix Corp hold the remaining 20%.

 

Aero Ventures is owned by Fernandes, Datuk Kamarudin Meranun, Datuk Kalimullah Hassan, Lim Kian Onn and former Air Canada chairman and CEO Robert Milton.

 

Fernandes and Meranun are controlling shareholders in AirAsia with a 30.7% stake via Tune Air Sdn Bhd.

 

Even though it is still at the idea stage, critics are already saying the merger is necessary to rescue AirAsia X as, to them, AirAsia is now subsidising AirAsia X.

 

“Rubbish, we can clearly dispute that. For the first quarter ended March 31, 2009 our net profit was RM18mil and we are net cashflow positive. We even had a little cash at RM3mil.

 

“We are in a very good position and on a much firmer footing and now is an interesting time to talk about merger,’’ Azran said.

 

Fernandes, in a separate interview with StarBiz recently, said the merger was merely his proposal but felt it was a good model. However, no decision has been made thus far.

 

“When we started AirAsia X, a lot of critics said we could not do it but AirAsia X has turned out to be a very cash-flow positive company. Azran will be going on a roadshow soon to explain so that people have a better understanding that this long-haul, low-cost model can work,’’ Fernandes said then, adding that the roadshow would cover Kuala Lumpur, Singapore, Hong Kong, New York and London.

 

A share swap is likely but Azran said AirAsia had an option to increase its stake from 16% to 30% and with that it could equity account its venture in AirAsia X.

 

“They can either put cash in and increase the stake from 16% to 30% or do a share swap. It is a decision only the shareholders can make and I am not privy to that,’’ he said.

 

Asked when the merger was likely to happen, he said: “I will be surprised if it happens this year. AirAsia X has not received any offer and the process cannot begin. We also have to appoint a valuer and AirAsia has to hold an EGM.’’

 

AirAsia X was last valued at RM1.3bil when Manara and Orix took up their stakes.

 

http://biz.thestar.com.my/news/story.asp?file=/2009/7/23/business/4369512&sec=business

[flee 5]

Frankly, the only reason why they are talking about this is to "tease" the analysts who are not too savvy about LCC business models. This is a capital intensive industry and they are always on the lookout for finance. So increasing the awareness of the brand and business model will be good for it.

 

They are so closely knit operationally already and the synergy is clear for all to see. AirAsia just needs to increase its shareholding in AirAsia X slowly and it can then call it a subsidiary. And if AirAsia X has sufficient financial muscle, it can also do a reverse "takeover" and take AirAsia private!

[Tony 1]

Makes sense to me if AK and D7 merges. Most people I talked to about these two airlines thought they were the same airline anyway!

[Mohd Suhaimi Fariz 2]

I think it's a bad idea. Long haul, low cost airlines have yet to prove their viability. If D7 and AK merge it could lead to catastrophe if one of them, more likely the long haul airline failed. AK themselves could be shut down. Of course, that's the worse case scenario.

[mokhzani 0]

I don't understand, why did they go separate way in the first place? Why not just let AK extend their flight internationally?

[Naim 6]

I don't understand, why did they go separate way in the first place? Why not just let AK extend their flight internationally?

 

That's called spreading the risks. Common practice for start-ups.

[Mushrif A 3]

I don't understand, why did they go separate way in the first place? Why not just let AK extend their flight internationally?

 

They had to prove the concept works, and existing shareholders of AK would not have been too happy carrying that burden.

 

Now that the concept has been proven to have worked, is it commercially viable in the long run?

 

Looking at airfare offers these days, legacies are practically encroaching into D7's airfare territory.

 

The fact that a merger is being seriously considered to help funding just shows that some (many?) financiers out there still harbour some doubts.

[BC Tam 2]

Looking at airfare offers these days, legacies are practically encroaching into D7's airfare territory.

In case anyone need reminding, that same 'encroachment' (read predatory approach ) was a major, major contributory factor towards eventual demise of Sir Freddie Laker's fledging, but revolutionary business model

Mind you, D7 now has one principal weapon not available to Sir Freddie all those years ago - the internet !

[Cheng Long 0]

In case anyone need reminding, that same 'encroachment' (read predatory approach ) was a major, major contributory factor towards eventual demise of Sir Freddie Laker's fledging, but revolutionary business model

Mind you, D7 now has one principal weapon not available to Sir Freddie all those years ago - the internet !

 

Hmm..but legacies airlines are embracing the internet also.. guess they don't have LCCT.

[Juergen Witte 0]

Well, i can see D7 merge with AK ! Albeit not before 1-2 yrs of time from now ...

 

One major (in my opinion neccessary) step would be to officially offer connections via LCCT to support the loadfactor of the long range flights. Offering connections will substantially increase the catchment !

 

I think it is well possible to offer connections without totally sacrifying the point-to-point system. Connecting traffic might be limited to shorthaul-longhaul vv. itineraries (there´s no need to "cross-subsidise" long/shorthaul like the legacies do ! - just the two sector prices valid at a time would need to be combined - ) ...

[flee 5]

If they do it properly, they might even be able to charge extra for connections!

[KK Lee 5]

Believe D7 will provide baggage transfer to AK but not vice versa unless AK to change its business model.

 

[mokhzani 0]

Thanks Naim & Mushrif....

 

Unfortunately the Gov didn't think they're separate.....

 

AirAsia X fails to get Govt nod for flights to Sydney and Seoul

 

 

SEPANG: AirAsia X’s expansion into Sydney and Seoul will be delayed as it has failed to get the nod from the Malaysian Government to fly to the two cities, forcing the long haul low-cost carrier to formulate a back-up plan to utilise some of the new aircraft that will be delivered later this year.

 

“We had asked for rights to fly to Sydney and Seoul and the Government decided to defer granting us the approval. They want (AirAsia) to settle (its) dues with Malaysia Airports Holdings Bhd (MAHB),’’ AirAsia X chief executive officer Azran Osman-Rani told StarBiz in an interview recently.

 

“It is a high profile issue and needs a lot of justification but we are AirAsia X and not the ones that owe MAHB money for airport services. Every invoice that we receive is paid within 30 days.”

 

"It is unfortunate that we are brought into the AirAsia issue but we have written and explained that our accounts are all current,’’ he said.

 

About RM65mill payment due to MAHB from AirAsia is in dispute.

 

Azran reiterated that “the dispute is between the two (AirAsia and MAHB) but delaying us from flying into these two destinations will not help travellers who have limited choices and we lose opportunities of the multiplier impact (that) tourism has.”

 

“We know the Koreans are keen to have us and both the airports – Sydney and Seoul – welcome us,’’ he said.

 

The delay may be seen as a setback in its expansion plans as with so much capacity coming onstream, AirAsia X has to work fast to secure rights for other markets so that its planes are not grounded for too long.

 

“We believe the two markets are big enough for more players. MAHB has been trying hard to get Qantas and Jetstar back and here we are waiting to fly to Sydney,’’ Azran added.

 

Whether it is AirAsia or AirAsia X, there are common shareholders in both companies and allowing AirAsia into newer markets will certainly heat up competition and drive fares down as seen from its flights to Gold Coast, Melbourne, Perth and London.

 

“Fundamentally, we do not fly to a destination and take passengers away. We create a new market which even other players can tap into,’’ the AirAsia X chief said.

 

AirAsia X is set to take delivery of three A330 this year – one each in September, November and December.

 

It needs to utilise these aircraft and Azran said he was now busy trying to come up with a plan so that the aircraft would be fully utilised since the Sydney and Seoul routes would be delayed.

 

“We will look at the near term first since we will take delivery of an aircraft in September. We may add capacity on our existing routes to Gold Coast, Hangzhou and Taipei. The new destinations that we are considering include Chengdu. We are hoping to get the time slots soon and the Transport Minisntry has been really helpful in all this,’’ he said.

 

AirAsia X might fly into either Sharjah or Abu Dhabi sometime this year as part of its plan to venture into the Middle East, he said, adding that Baharin was also on the cards but Teheran would be delayed.

 

India is a market that AirAsia X wants to look at in 2010 but Amritsar may come earlier if it manages to get the rights, but via Bangkok.

 

As for the US, the airline liked New York, San Francisco and Los Angeles but formal submissions had not been made, although the process had begun, Azran said, adding that AirAsia X hoped to cover the US by next year.

 

http://biz.thestar.com.my/news/story.asp?file=/2009/7/28/business/4362667&sec=business

[Naim 6]

 

Unfortunately the Gov didn't think they're separate.....

 

AirAsia X fails to get Govt nod for flights to Sydney and Seoul

...

 

 

What a pity, does not sound fair to me. Maybe they should block AK owners from leaving the country till debts are paid, like what they do to delinquent tax payers now.

[KK Lee 5]

What a pity, does not sound fair to me. Maybe they should block AK owners from leaving the country till debts are paid, like what they do to delinquent tax payers now.

 

Believe the due from AK to MAB is disputed amount, and MoT is protecting MH by other mean.

 

Debt between AK and MAB is commercial matter, don’t believe the rights to travel should be restricted by commercial matter. If taking to the extreme, can credit card company and the bank stop over due account holder from travelling?

 

[flee 5]

Unfortunately the government may have a point here. AirAsia is a shareholder of AirAsia X and it also stands to benefit from the pax AirAsia X brings in. However, the government also forgets that if AirAsia X brings in more pax for itself and AirAsia, MAHB will also collect more taxes. So the government has failed to see the big picture.

 

However, based on how this BN government previously behaves, I think they just want to squeeze them by the balls and see them squirm. In the end they will approve, so this means delays. They just want to tell Uncle Tony that they are the bosses, so don't try to be funny!