MAS and AirAsia Shares Swap

[Raymund Yeoh 1]

How are they going to service London flights if doing hybrid with the A380? One in LHR, one in Gatwick soon...Unless Mr Tony have some "brilliant" ideas...

 

well...he's full of suprises.....who knows he may move the regional office to London instead of Jakarta with the pretence of blah blah blah

[BC Tam 2]

Where did I mention anywhere of any AK/MH hybrid ?

Can anyone exclude the possibility of the red one having gobbled up the distressed one lock stock and barrel, by the time the Malaysian dugongs finally arrive ?

[Waiping 12]

Possibly in full Air Asia red ?

 

Ewww that's boring!

 

Why not instead the Hibiscus & Heliconia being reproduced in A320 airframe?

[flee 5]

Interesting perspective from airpearl on A.Net:

 

This is a Tony Fernandes masterstroke. It is not a coincidence that just one day after the share swap, AirAsia X announces that it has appointed its adviser for its IPO and that the listing is going ahead. Fernandes is indeed a crafty genius - one of the main stumbling blocks for the IPO (from which he would gain substantially as the majority shareholder) is really MH and its lobbying of the Malaysian government to exclude D7 from some of its lucrative routes like SYD. In fact, the IPO would probably have failed if MH had lobbied hard enough because institutional investors would have deemed D7 too risky. The only way around it is to remove the competitor and trouble-maker. Thankfully it's not so difficult in Malaysia if you're as powerful as Fernandes is these days. He gets a 20% stake in MH in exchange for giving up 10% in AK - a good bargain considering he also gets effective control of the national carrier. And that's almost a consequential bonus - MH's shares are battered down so badly anyway so anything he does with MH will boost its share price. He may or may not succeed but Fernandes will also know the Malaysian government wouldn't let MH fail and will probably buyback the share if necessary to save the company again, so his investment is safe as houses. He makes a lot of money from the D7 listing, makes more money from the upside in AK shares (since the main local competitor is gone), makes money from his MH shares upside and not to mention the further upside potential from the listings of AirAsia Thailand and AirAsia Indonesia. The potential for growth from Indonesia particularly is much higher than Malaysia and it's no surprise that's where Fernandes is headed. He'll probably want to have a direct investment into AirAsia Indonesia as I'm sure he's seeing growth starting to slow in Malaysia (which also makes sense why he's starting to offload his AirAsia shares). Clever bastard.

 

See more here: http://www.airliners.net/aviation-forums/general_aviation/read.main/5224440/

[KK Lee 5]

TR is no longer prosecuted for his misadventure at MH may be is for TF to have a free hand without worry about consequences. However, MH management or gomen can tell they never heard nor seen such a policy

Edited August 11, 2011 by KK Lee

[KK Lee 5]

Interesting perspective from airpearl on A.Net:

 

 

 

See more here: http://www.airliners.net/aviation-forums/general_aviation/read.main/5224440/

 

Given AK brandname, success and track record, D7 IPO will be over subscribed with or without MH obstacle. After D7 is listed, among its shareholders will be institutions and people with influence, MH resistance level will be curtailed. Given D7 network and frequency will be expanded, is almost certain will send MH further into red.

 

By having TF personal money in MH, it is TF personal interest to see MH is not diminished, and Khazanah obtained AK shares for almost nothing.

Edited August 11, 2011 by KK Lee

[flee 5]

Malay businessmen advocate management change, not share swap for MAS

 

UALA LUMPUR, Aug 11 — The government should have changed management rather than a share swap to rescue loss-making Malaysia Airlines (MAS) — as the measure is not right for growing a strategic company, said Malay Chamber of Commerce Malaysia (DPMM) president Syed Ali Al-Attas today.

Syed Ali said DPMM was also concerned that share swapping will become a trend in the restructuring of government-linked companies.

 

“We are concerned with these sort of transactions in which stakes held by the government on behalf of the public will eventually be eroded and given to outsiders,” he told reporters in response to the share swap between MAS and AirAsia this week.

 

He said MAS was the “flag carrier” of the country and for the people, and has a “higher value” compared to market value.

 

The share swap was based on the last traded prices on August 5 of RM3.95 for AirAsia and RM1.60 for MAS.

 

The deal saw AirAsia’s controlling shareholder Tune Air Sdn Bhd, take a 20.5 per cent stake in the national carrier in exchange for Khazanah Nasional, which controls MAS, getting a 10 per cent share in the low-cost airline.

 

Syed Ali said instead of an exchange in shares, management changes should be the main solution to ensure strategic government entities continue to grow.

 

“We have a lot of brains out there that can steer MAS. We also have many intellectuals to seek views from before making such decisions.

 

“MAS is in a class of itself, and it should be treated preferably by a management who understands the purpose of this establishing this national airline,” said Syed Ali.

 

When asked what action can be done now that the exchange has taken place, Syed Ali said, “Malaysia has witnessed a crooked bridge being built, and then cancelled midway. This is a single stock exchange transaction.”

 

Khazanah and AirAsia’s main shareholder TuneAir Sdn Bhd have agreed to keep both entities separate but work on synergies including aircraft procurement, maintenance, repair and overhaul work, training and other areas of mutual concern.

 

Despite the share swap, Khazanah remains the single largest shareholder in MAS, holding 48.9 per cent of the stock, substantially more than the 32 per cent held by former owner and executive chairman Tan Sri Tajuddin Ramli between 1994 and 2001.

 

Source: http://www.themalaysianinsider.com/business/article/malay-businessmen-advocate-management-change-not-share-swap-for-mas/

[Cire 0]

Wouldn't that be like shoving the fox into the chicken coop ?!

 

hm...it looks like there's more reasons for this merger than disclosed to the public..

[alberttky 0]

Up to RM1.2b cost savings for MAS and AirAsia

 

PETALING JAYA: The collaboration forged between Malaysia Airlines (MAS) and AirAsia Bhd on Tuesday can turn in up to RM1.2bil in cost savings for both the airlines, said MAS newly appointed executive director Mohammed Rashdan Mohd Yusof.

 

“We have already identified savings in the area of procurement, but I cannot tell you exactly where now ... but the capital expenditures are large. We have basically looked at a very detailed study done by Bain & Co and there are many areas where we can cooperate and save,'' he said in an interview with StarBiz yesterday.

 

Though these are preliminary figures and Rashdan's figures are a bit conservative, others are more bullish to say the cost savings could be as high as RM1.6bil.

 

An area that MAS will focus on to save cost is in aircraft purchases, engines, spare parts purchasing. These are big ticket items and AirAsia boss Tan Sri Tony Fernandes and his partner Datuk Kamarudin Meranun have the expertise and bargaining clout and “savings culture'' which MAS could leverage upon.

 

Another area is on training where both can collaborate and reduce redundancies to save cost.

 

“There are so many areas of collaboration like joint training and take the example of the A330 aircraft, both of us have simulators and facilities. Why can't we share the simulators and facilities and save the cost. We can work together on shared services and even share best practices, so there are a lot of areas of opportunities,'' he said.

 

He also revealed that the exco meeting chaired by MAS chairman Tan Sri Md Nor Yusof met for the first time yesterday morning.

 

“All of the shares crossed today (yesterday) and the board members crossed today. They (Fernandes and Kamarudin) joined our board and I and Datuk Azman Yahya joined the AirAsia board. Today they got grips of MAS as before this the new shareholders never saw the inner workings of MAS. We discussed about where we are now and there were also some discussions on the future strategy,'' he said.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/8/12/business/9288332&sec=business

[flee 5]

And the new MAS MD is...

 

Kuala Lumpur: The new managing director (MD) of Malaysia Airlines (MAS) is - your guess is as good as mine. At least that is what analysts are saying.

 

While they expect an MD to be named in the next couple of weeks, a source believes that he or she could be named as early as today.

 

The MAS executive committee (exco) is believed to have had its first official meeting yesterday.

 

While analysts agree the person will be independent of all the three parties in the deal - Khazanah Nasional Bhd, AirAsia Bhd and MAS, no one has a clue as to who could be the likely candidate.

 

"I think it's safe to say the person won't be from (Time) Warner," quipped one analyst who declined to be named.

 

At the possibility of a foreigner coming in to run the troubled carrier, he said the exco seemed to brush off the idea when asked.

 

Another analyst opined that having a foreigner would not be a politically sound move.

 

"The new guy will probably just come out of the blue, just like how (Tan Sri) Tony Fernandes came out of the blue and bought Tune Air Sdn Bhd for RM1," he said.

 

At the possibility of MAS' newly appointed executive director Mohammed Rashdan Yusof becoming the new managing director, an analyst said "definitely not".

 

Furthermore, he would have already been made the chief if Khazanah had wanted him to be from the start, another reckoned.

 

One of the biggest challenges for the new MD is to deal with the airline's eight unions and 19,000 employees. The new boss will also have to contend with a new board of directors who are known to be strong personalities.

 

MAS and AirAsia stocks were the two top most traded shares yesterday, with MAS shares inching higher by 8 sen, extending gains seen on Wednesday, to close at RM1.80.

 

AirAsia shares fell by another 4 sen, ending the day at RM3.50.

 

Source: http://www.btimes.com.my/Current_News/BTIMES/articles/maai4f/Article/index_html

[alberttky 0]

“IF you want to make peace with your enemy, you have to work with your enemy. Then he becomes your partner.”

 

That is Nelson Mandela's quote and it aptly describes Tan Sri Tony Fernandes who was once a critic of Malaysia Airlines (MAS). Fernandes and Datuk Kamarudin Meranun bought a 20.5% stake in MAS and both of them have now become directors of the national carrier.

 

For nearly a decade, he has been lambasting MAS for his airline's - AirAsia - failure to get the right routes among many other issues. Things had not been going well at MAS and it needed to be salvaged.

 

Tuesday marked an important milestone for both the airlines as the demarcation lines were drawn very clearly.

 

And for the umpteenth time MAS will undergo a restructuring, turnaround or transformation to get it back on course.

 

The ultimatum is for MAS to regain its lost glory and that means being only a premium full-service airline.

 

That is going to be tough when its competitors are already so far ahead.

 

Execution will be key to making that dream of the airline's shareholders come true.

 

Fernandes and Kamarudin are the best man for the job, but they will not dabble in the the day-to-day operation of the airline.

 

So the search for CEO/MD is on.

 

The person should possess Fernandes' magic touch, Kamarudin's finance acumen and the wisdom of MAS chairman Tan Sri Md Nor Yusof.

 

Fernandes said he preferred someone who was “numbers-driven like AirAsia X's CEO Azran Osman-Rani, someone with a clear focus, possibly not someone from the airline industry, humble yet analytical, understands the basics of marketing and has a strong head for communications.”

 

Those who had endured the pain of holding MAS shares for nearly a decade now have their own wish list too. MAS shares, which are at a nine-year low, closed at RM1.80 yesterday.

 

The person should be ambitious, not just for himself but the airline, someone who sees the big picture, a leader with guts to hire and fire, cut and stop the bleeding, brave enough to end procurement contracts that are at expense of the airline. The candidate should not be distracted just because other airlines dumped fares. He or she has to rebuild the airline, staff morale, shareholder value but the biggest challenge is handling the perception issue. That is why the person needs to be the best communicator and best salesperson. The person has to be mindful of cultural issues and who his or her masters are the passengers or the bosses?

 

And don't fumble on the front-end passenger seats issue again as the travellers know whether the seats they have bought are really flat for their comfort or otherwise. Get it right once and for all if MAS aspirations are to be a premier airline like Singapore Airlines and Emirates.

 

The person should eat, breath, think of yields, that's the hallmark to profitability, as without that no number of passengers, connectivity, frequency and comfort can bring in the profits that the airline desperately needs. We are talking about a premium brandnot a mixed bag of premium-to-mid and low-cost.

 

Throw the dice, take your pick.

 

An executor who can perform his job with gusto is what MAS needs. If those in power really want the problem at MAS to be resolved once and for all, they should warm up to the idea of even hiring a foreigner, not necessarily a mat salleh. But certainly not someone who is into a quick fix and short-term gains.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/8/12/business/9283285&sec=business

 

And the new MAS MD is...

 

While they expect an MD to be named in the next couple of weeks, a source believes that he or she could be named as early as today.

 

The MAS executive committee (exco) is believed to have had its first official meeting yesterday.

 

While analysts agree the person will be independent of all the three parties in the deal - Khazanah Nasional Bhd, AirAsia Bhd and MAS, no one has a clue as to who could be the likely candidate.

 

"I think it's safe to say the person won't be from (Time) Warner," quipped one analyst who declined to be named.

 

At the possibility of a foreigner coming in to run the troubled carrier, he said the exco seemed to brush off the idea when asked.

 

Another analyst opined that having a foreigner would not be a politically sound move.

 

"The new guy will probably just come out of the blue, just like how (Tan Sri) Tony Fernandes came out of the blue and bought Tune Air Sdn Bhd for RM1," he said.

 

At the possibility of MAS' newly appointed executive director Mohammed Rashdan Yusof becoming the new managing director, an analyst said "definitely not".

 

Furthermore, he would have already been made the chief if Khazanah had wanted him to be from the start, another reckoned.

 

One of the biggest challenges for the new MD is to deal with the airline's eight unions and 19,000 employees. The new boss will also have to contend with a new board of directors who are known to be strong personalities.

 

MAS and AirAsia stocks were the two top most traded shares yesterday, with MAS shares inching higher by 8 sen, extending gains seen on Wednesday, to close at RM1.80.

 

AirAsia shares fell by another 4 sen, ending the day at RM3.50.

 

http://www.btimes.com.my/articles/maai4f/Article/

[BC Tam 2]

"The new guy will probably just come out of the blue, just like how (Tan Sri) Tony Fernandes came out of the blue and bought Tune Air Sdn Bhd for RM1," he said.

Totally out of the blue eh ?

Celcom's corporate colours no ? How about Mr 019 himself making a comeback, now that everyone seem so keen on wiping the slate clean ?

[KK Lee 5]

Up to RM1.2b cost savings for MAS and AirAsia

 

PETALING JAYA: The collaboration forged between Malaysia Airlines (MAS) and AirAsia Bhd on Tuesday can turn in up to RM1.2bil in cost savings for both the airlines, said MAS newly appointed executive director Mohammed Rashdan Mohd Yusof.

 

“We have already identified savings in the area of procurement, but I cannot tell you exactly where now ... but the capital expenditures are large. We have basically looked at a very detailed study done by Bain & Co and there are many areas where we can cooperate and save,'' he said in an interview with StarBiz yesterday.

 

Another Con-sultan to justify drastic cut e.g. Sell off 738, A33E, 772 and wet lease A320, A350 from AK; terminate catering purchase from LSG and buy from AK suppliers; subcontract ground handling to AK? Lower salary and benefits, cheaper purchase, lower overhead, shorter turnaround time, etc.

[jani 0]

I'd rather they swap shares

[leon t 0]

the govt shd have allow foreign airlines to take a substantial stake in MH back abt more than a decade ago when MH needed a huge 2nd bail-out n PNB was roped in to buy aircrafts n then lease to MH. If they have done that, MH would likely be profitable and not kept bleeding n losses till now. Even when Jalil took over MH technically still was losing money - but it was just the mass selling of MH physical assets like buildings, land, n some aircraft that MH made marginal profits under Jalil time. Now this share swap is still somewhat a bail-out for MH. The only real way out is for MH to be brought up from the ground up and total management n executive changes with out any politickings.

[leon t 0]

its not just the new CEO/MD - MH needs to overhaul n revamp all its current senior management n execs and relook into all its Heads of Depts (HODs) and staffing. A complete audit on manpower and the way it outsources its requirements or its tender system and its suppliers' "special"relationships with the airline. Otherwise its too limited what it can do by just a change in CEO.

[flee 5]

Once a new CEO is appointed by the MAS Board, the above will be some of the items on his todo tasklist...

Edited August 12, 2011 by flee

[KK Lee 5]

Another Con-sultan to justify drastic cut e.g. Sell off 738, A33E, 772 and wet lease A320, A350 from AK; terminate catering purchase from LSG and buy from AK suppliers; subcontract ground handling to AK? Lower salary and benefits, cheaper purchase, lower overhead, shorter turnaround time, etc.

 

MH should outsource IT, e-ticket to AK. In return AK could contract aircraft MRO to MH engineering.

 

[Harun Omar 0]

if we look at the news, the fate that befell our airlines (MAS), indeed we feel very disappointed by the actions of top management who are willing to settle with the way shown on TV.

 

Is not there another way to solve the problems incurred by MAS? ... while the MAS is an airline that is the pride we as malaysia ..

 

if this is common? if the government-owned companies are in financial problems .... a way to solve the combination for the non-state-owned companies. MoU has been signed ... the only disappointment peganggan MAS shares 10%

 

What will happen to the airline malaysia next ....??????

 

I am very disappointed with what happened .... because I was among the millions of loyal users ... MAS is always in my heart ... but what could ..........

[alberttky 0]

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.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/8/13/business/9291852&sec=business

 

Who will solve MAS’ operational problems?

 

AT the end of the day, the alliance between Malaysia Airlines (MAS) and AirAsia achieved via share swaps between their major shareholders does nothing by itself to improve MAS' operations (see our cover story this issue for full details).

 

In fact a misguided overemphasis on MAS focusing on being a premium full service carrier (FSC) can have dire consequences on its revenue and viability as we shall explain.

 

What is clear from the figures in the chart is that the national airline has a severe revenue management crisis, which it must solve or perish. The yields broadly track the airline's operational profits.

 

The problem with the yield and hence revenue is not the product, for MAS is rated consistently among the top airlines in the world for service.

 

The problem is not capacity utilisation because seats are on average filled three quarters, despite increases in capacity.

 

The problem is pricing. Despite a good, and even excellent, product it is not able to price it properly and this is reflected in its yield, which is the revenue per revenue passenger km flown (sen per RPK the average amount an airline gets for flying a paying or revenue passenger one km.). Hence there are no profits but losses now.

 

If we look at the RPK in the chart for the first quarter of this year, it is back to what it was in the first quarter of 2006 after Datuk Seri Idris Jala joined MAS in December 2005. Idris' quote above in February 2006 shortly after he took over is exactly applicable to MAS today, over five years later!

 

An examination of the chart shows that since Idris came in to MAS in December 2005, MAS had experienced a relentless increase in both RPK as well as revenue per available seat km or RASK (available seat km is a measure of capacity obtained by multiplying seats available by the kms flown and totalling them) up to end-2008.

 

The increase in RASK at the same time indicates that the seat factor (how much seats are filled, obtained by dividing the RPK by the ASK) or capacity utilisation was maintained at healthy levels.

 

Maximising revenue is a function of trying to control three key variables capacity, capacity utilisation and fares. When any one of these increases, revenue increases if the other two at least stay where they are. The ideal is when all three increase simultaneously.

 

The issue is complex to say the least and is at the heart of the profitability of any airline. Costs, in contrast, are much easier to control and quantify. But in revenue management you need to have a good feel for what price you can charge without affecting capacity utilisation.

 

For this you need very good people who can feed the right information to some of the most complicated and complex modelling systems in airline operations. And you need to be constantly refining this because the situation changes all the time and from day to day.

 

Most FSCs like MAS have a basic fare to fill most of their seats. But with an average seat factor of say 75%, one quarter of the seats are empty and wasted if they are not utilised. They target these seats to be sold too, often at lower prices, because they bring in revenue at the margin almost all of which goes straight to profit because it is incremental.

 

Now here's the paradox: MAS, like any other FSC, must in areas where the load factor or capacity utilisation is low compete on the back-end or economy class with the low cost carriers (LCCs). Not to do so would make it severely uncompetitive as an airline.

 

If the flights are likely to be full, MAS should move to higher prices and if they are not, than the airline has to offer discounts sometimes considerable discounts to fill up the seats and improve capacity utilisation. The conditions for these seats are like for LCCs inflexible schedules and early bookings but low price.

 

The trick is to do this without actually cannibalising your current base customers who are willing to pay a premium for flexibility and full service and to charge a rate the market can bear for the front end business and first class where demand is not that price sensitive.

 

Now, lets look at the chart again. MAS' yields increased steadily and peaked in the fourth quarter of 2008 for a gain of 60% in just three years and exceeding even that of Singapore Airlines, indicating excellent revenue management.

 

It took a massive dip in 2009 along with other airlines in the aftermath of the global financial crisis which started in the last quarter of 2008. Most airlines recovered after that but MAS did not. Idris left in the third quarter of 2009 to head the Performance Management and Delivery Unit and become a Cabinet minister.

 

Singapore Airline's yield in 2009 fell to 25.7 sen per RPK from 31.3 sen per RPK (at current exchange rates), down 18% and MAS' fell from 32.9 sen per RPK to 23.4 sen by the fourth quarter of 2009, down a massive 29%. But in the first quarter of this year, SIA's was back up to 29.9 sen per RPK but MAS' continued to languish at 22.7 sen, even lower than that at the height of the crisis!

 

The difference between SIA's and MAS' yield now is a massive 7.2 sen. MAS has estimated in the past that one sen in yield translates to about RM500mil in revenue a year. That means that if MAS can increase its yield to that of SIA's not impossible, it has done it before - that's an extra RM3.6bil in revenue.

 

Since this is incremental, it means an operating profit of over RM3bil assuming MAS' operating profit this year is likely to be less than RM600mil!

 

That is basically the problem at MAS its yields have not recovered post the world financial crisis which affected airlines very badly in 2009. If MAS focuses on getting its yield back while keeping costs down, it's back in business and in a great big way too.

 

MAS is an airline. The argument that ancillary services will make most of its money is false, although that income is useful. It can and must make money from the airline operations, although there will be cyclical downturns.

 

The guy (or gal) who will turn MAS around has to understand airline fundamentals and if he has no experience in how pricing affects revenue in the airline world, he must learn pretty fast. And he has to be pretty fixated on costs and have a good eye for market opportunities. Someone like Idris.

 

Back to the deal. It is good for AirAsia, some of it for good reasons and some for bad reasons. It is good because AirAsia can get routes and compete with MAS on the long, medium and short haul. But bad if the intention is to cut competition through uneconomic means.

 

MAS should be able and allowed to compete on economic terms with AirAsia in the same way that AirAsia can the competition must cut both ways. That is the key to a more vibrant airline sector. If MAS can increase its revenue overall and make money by offering cheaper fares on some routes, they must be permitted and indeed encouraged to so.

 

By all means collaborate via common procurement, maintenance, training and the like to bring costs down but allow full economic competition on pricing. Don't carve the market out rigidly but let the markets overlap on the fringes as they do in reality.

 

Let MAS be a full service carrier on all sectors but with the liberty to compete on pricing when the economics dictate it. Let AirAsia do its low-cost thing which it has done so well and with so much benefit for travellers wherever it wants to and give it access to any route it wants.

 

And let Firefly do what it will from Subang with no restriction, meaning it does not have to be an FSC.

 

Then we have the best of both worlds the most collaboration to bring down costs with the most competition to keep efficiency up, deliver excellent service and low fares. Then we will truly recognise the three elements in this equation the two airline groups and the customers without whom the first two don't exist.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/8/13/business/9293481&sec=business

 

Rashdan: MAS off to a good start

 

The same team that crafted and undertook the widespread asset unbundling (WAU) exercise a decade ago to bail out the then debt-ridden Malaysia Airlines (MAS) on the brink of bankruptcy is back on board. And on Tuesday, MAS tied up with its once arch rival AirAsia founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun. This marks yet another fresh start for MAS which has seen more than its fair share of restructuring, turnaround and transformation plans in the past decade.

 

The idea for the collaboration is to get MAS to do what it's best at being a focused full premium service carrier. The newly-set up executive committee led by new MAS chairman Tan Sri Md Nor Yusof met for the first time on Thursday. It plans to scrutinise every single document, contract, strategy, profit and cost centre to weed out the weak areas and bolster the airline's financial status.

 

StarBizWeek's B.K. SIDHU met up with MAS' newly-appointed executive director Mohammed Rashdan Yusof, who says the team is off to a good start. Below are excerpts of the interview:

SBW: What is the biggest problem facing MAS?

 

Rashdan: If you look at its operating statistics, the airline's cost is one of the best versus other full service carriers. Its cost per ASK is competitive but the RASK (revenue per available seat km) is suffering. It (lacks) the ability to charge on a global basis, and this in turn is connected to our products. What we need is quality. We need a product which is highly competitive, the likes of the Middle Eastern airlines, and not Singapore Airlines alone. They are formidable competitors and we need to be at least at par or better.

 

Our strength clearly lies in our service the golden girls, the golden touch, the Malaysian touch, Malaysian hospitality. Hopefully people will pay what it's worth and we can raise yields and RASK. We want to bring back the golden days that is how we made money and that is how we want to continue to make money. It is a simple strategy. We need to get back to that.

 

Do you agree that share swap does not address the fundamental need to manage revenue?

 

RASK is about revenue quality. In the past, the airline did a lot of global sales. We had revenue but now we want high quality revenue such as high yields and high RASK. People will only pay high yields and RASK if the product and service is good. So we will continue to maintain our competitive edge in services, both cabin and ground crew and also our inflight products. The good thing now is that we will no longer be distracted or detracted.

 

The A380 aircraft is coming in May. That will be a class of its own. Tony and Kamarudin have a fantastic relationship with Airbus and we can do a lot of things with them on our side. They are a clear asset ... the way they negotiate for engines, spare parts and even planes and their cost savings culture. We could use all of that expertise at MAS.

 

Do you have the buy-in from the employees?

 

We met the union leaders and to my sweet surprise they are fully behind us. They understand that if we succeed, so will they. The rest is about execution and the new team will not let them down.

 

Where will immediate savings come from?

 

At our very first exco meeting, we identified savings in procurement. I can't tell you where as we have not told our suppliers yet. They are capital expenditures and are large.

 

We have looked at the detailed study done by Bain & Co and the figure is up to RM1.2bil cost savings jointly.

 

The immediate areas will be training, (the whole gamut of) procurement from aircraft, spares, engines to simulators. As for funding, we can look at new ways of financing our aircraft purchase. In training, both of us have simulators and facilities. We will look at how we can share and have best practices.

 

What is the cash situation at MAS?

 

It is manageable and we have in excess of RM1.6bil. Obviously we have very large deliveries in the pipeline in terms of aircraft and these are for replacement of the aging B747 aircraft which have a high fuel burn. But with the new B737 and the A380 coming in, we immediately move to a higher productivity platform. If we use these new aircraft for our thick trunk routes, and promise improvement of product, which we assure you will be second to none in the region, surely people will pay more for it.

 

(That will lead to) fuel ASK improvement, and yield and RASK improvements. If we are able to demonstrate that and generate positive cashflow, the financing will surely come.

 

There has been much criticism over WAU, which you were also part of. Your comment.

 

WAU was successful in that it saved the airline from the brink of bankruptcy in 2001/2002. It gave the then MD Tan Sri Md Nor Yusof a platform to put into place operational restructuring, which he did. If you look back at the share price chart right up to his last day, it peaked during his tenure and shareholder revenues increased. So it is up to MAS to continue the good work he has done. Md Nor did financial restructuring and the managers (his successor) should have followed through.

 

Now his return as chairman is more meaningful as he understands the industry well.

 

In your opinion, what is the biggest challenge that could derail these big plans?

 

The biggest risk is if we take our eyes off the ball on how difficult this is to execute. It is not an easy ride.

The global economic outlook points to a double dip. Will this throw a spanner in the works on your plans?

 

Economic cycles come and go. But when the cycle is going up, you better be sure you are there to milk it. That comes in well with our aircraft deliveries. The future is for our taking. We just have to make sure we have the capacity to deploy and take advantage of it. Of course, we will face fierce competition from the usual suspects Garuda, China carriers that have identified Asia as their playground, the Middle Eastern carriers and Qantas, Jetstar ... Why on earth should we retract when Asia is the playground?

 

To compete with SIA or Emirates, you need connectivity, frequency and comfort. How do you stack up?

 

We are seriously looking at launching the premium segment for short-haul carrier and that will serve us a strong feeder network. We already have the resources from Firefly jet services and that resources can be directed for full services proposition. It takes only months to realise this.

 

Three years from now, will we have to hear the story again of why MAS failed?

 

Three years from now, the only airline you will want to fly is MAS.

 

http://biz.thestar.com.my/news/story.asp?file=/2011/8/13/business/9292984&sec=business

[flee 5]

Pulling out all the stops to rebuild the MAS brand

 

SEPANG: The executive committee for Malaysia Airlines (MAS) have agreed on two main issues - spare no cost in building back the Malaysia Airlines premium brand and focus on developing its people.

 

The committee met for the the first time on Thursday.

 

The Joint Collaboration Committee for MAS and AirAsia Bhd partnership met for the first time yesterday.

 

The Executive Committee and Joint Collaboration Committee have almost identical members.

 

Datuk Mohamed Azman Yahya, MAS executive director Mohammed Rashdan Mohd Yusof, Tan Sri Tony Fernandes and Datuk Kamarudin Meranun are on both boards.

 

MAS chairman Tan Sri Md Nor Yusof is the chairperson for the Executive Committee while Azman is the chair for the Joint Collaboration Committee.

 

"The board decided that while we are looking at cost savings, we will not sacrifice the brand and the product. We will not hesitate to spend to make MAS better, if not on par with all the other existing legacy carriers," Kamarudin told Business Times.

 

AirAsia Bhd's co-founder and group deputy chief executive officer is also MAS' newest substantial shareholder.

 

The board will not hesitate to review some decisions which have been made.

 

For example, the committees are looking at a possible revamp of the airline's seats.

 

"While cost is of a concern, at the same time you wouldn't want to be penny wise and pound foolish. Why not sacrifice RM10 million, if you can make it back in six months for example," said Kamarudin.

 

AirAsia X had done something similar with its revamp more than a year ago, when it exchanged its stiff XL seats for Flat Bed ones, which have been a hit with passengers.

 

On whether the airline has the necessary funds for such an exercise, Kamarudin said he was confident that action could be taken to free up enough cash to fund it.

 

"I don't foresee a need for a rights issue. Yes there is a need for cash, but obviously there are many ways we can streamline and get a more cost efficient operation and therefore improve cash flow," he said.

 

On the matter of people, the board is also exploring further enhancements to incentivise employees of MAS.

 

The possibility of a Voluntary Separation Scheme has not been discussed.

 

"We are looking at the overall organisation chart, so we can realign the people and grow it. Not shrink it. We believe there is a lot of room for MAS to grow," Kamarudin said.

 

Source: http://www.btimes.com.my/Current_News/BTIMES/articles/ton4/Article/

[flee 5]

Friendlier skies

By ANITA GABRIEL

 

MAS and AirAsia have given up their bitter feud to chase revenues. Can it work?

 

A DEAFENING theme rings through the historical pact between state-controlled Malaysia Airlines and entrepreneur-charged AirAsia Bhd the oft-quoted wisdom to “keep your friends close and your enemies closer” by Sun Tzu. Couched in corporate jargon as a “comprehensive collaboration framework”, what it implicitly does is slam the brakes on the sky warfare between both carriers. Let's face it collaboration eliminates competition.

 

Driving this long-elusive tie-up between the once-upon-a-time rival carriers (such a pact could have once been deemed preposterous) is a share swap deal, simple in structure but radical and far reaching in implications. For just over RM2bil, Khazanah Nasional Bhd and Tan Sri Tony Fernandes' Tune Air Sdn Bhd have swapped their 20.5% and 10% stakes in MAS and AirAsia respectively to each other.

 

Indeed, it's a “no frills” deal that took over two years in the making for the key protagonists to finally warm up to.

 

“The fact that it took a long time is a reflection of how much effort and thought went into this. It wasn't a spur of the moment deal or one that was driven by a specific event,” the deal's advisor and chief architect, CIMB Group Holdings Bhd's Datuk Seri Nazir Razak tells StarBizWeek.

 

What finally thawed the icy relations between Khazanah's head honcho Tan Sri Azman Mokhtar and AirAsia's Tony took place several months back. In High Street Oxford. Under the Magdelan bridge. In a boat.

 

Nazir, Azman and Tony were punting down the river a quintessential Oxford activity. But it wasn't quite a leisurely river activity. There was a single agenda on deck Nazir asked both men to contemplate on a share swap plan to align their widely-divergent interests and give a collaboration a realistic shot.

 

Perhaps, it was the soothing ambience of the surroundings' rich cultural heritage. Maybe, the stars were aligned. Or simply (and in less romantic terms), it could have been MAS' worryingly waning financial position that finally brought the two men over to the same side of the pitch.

 

With that, Azman readily admits in an interview that the airline industry will have “a period of calm for both airlines to focus and collaborate.”

 

Tony does little to hide his glee. “You dont have to be an enemy forever. Life is too short. I'm liberated in many ways that we all have the same aim now to make money and do a good job.”

 

Big deal masked in simplicity

 

The deal was so simple that both parties shared a common adviser (CIMB).

 

Following the share swap, Tune Air, controlled by Tony and chum Datuk Kamarudin Meranun will hold 20.5% interest in MAS and Khazanah will own 10% in AirAsia. Khazanah's stake in MAS will be reduced to 49% while Tune Air's interest in Air Asia would stand at 15%. The transaction valued MAS at RM1.60 a piece and AirAsia at RM3.95 a piece (last traded price on Aug 5).

 

Critics have slammed the swap ratio of 2.05:1 (MAS and AirAsia) shares given that MAS, is far superior to the low cost carrier (LCC) by certain benchmarks namely network reach, assets, operating revenue, less debt and cash position.

 

To widen the deal beyond its major shareholders, MAS and AirAsia will issue free warrants to each other's shareholders; AirAsia shareholders will receive one free MAS warrant for every 10 shares held while MAS shareholders will receive 1 free AirAsia warrant for every 30 shares held. The warrants entail a 2.5 year tenure with a RM2 (MAS) and RM4.94 (AA) strike price (both are priced at 25% premium to Aug 5 levels).

 

“AirAsia's share price rose significantly before the deal was announced. Setting the warrant strike price at 25% premium to its pre-announcement level is that good for MAS shareholders?,” asks an observer.

 

Nevertheless, the swap serves a single purpose of aligning the economic interests of the major shareholders of both airlines. Notably, it has managed to do so by avoiding the more complex and unwieldy merger option.

 

“The (intention) to collaborate was always there. But there had to be a proper structure to allow that. The economic alignment cemented that. Even so, if there's not enough trust or spirit of partnership, that is not going to be enough,” says Khazanah's Azman. “Collaboration doesn't mean mean consolidation. The companies are separate listed entities. We could have done a merger or amalgamation and we reviewed six to seven different structures but this one allowed for separate cultures and focus on respective areas,” he elaborates.

 

The five-year collaboration (with an option to extend by another 5 years), the details of which are expected to be thrashed out by November this year, is hoped will allow the airlines to utilise each other's respective competencies. The synergies, if worked out right, is aplenty from joint procurements, increased scale, lower cost, enhanced ability to capture non-captive third party revenues in areas such as maintenance, repair and overhaul, ground handling, training, catering and cargo.

 

The new crew

 

The boards of both companies will see the entry of new faces. Khazanah director Datuk Mohamed Azman Yahya, better known for his role in the Asian Financial Crisis as the chief of Pengurusan Danaharta Nasional Bhd, an asset management company set up to relief the tottering domestic banking system of its sour debts will join AirAsia's board. He also plays a key role in the collaboration as chair of the joint collaboration committee which members comprise Rashdan Yusof, MAS newly-elected executive director, Tony and Kamaruddin.

 

For MAS, it's no less than a massive shakeup of board and management. The new board line up may impress some - Land & General Bhd founder Tan Sri Wan Azmi Wan Hamzah, IJM Corp Bhd executive deputy chairman Tan Sri Krishnan Tan, Astro Malaysia Holdings Sdn Bhd CEO Datuk Rohana Rozhan and Axiata Bhd director David Lau Nai Pek were appointed independent non-executive directors of MAS while seven directors stepped down.

 

Tony and Kamaruddin have also joined the board as non-independent non-executive directors.

 

MAS' targeted business segment, having turned fuzzy in recent years, will be sharpened - from hereon it will focus on becoming a full-service carrier (FSC). Incidentally, that's very much in sync with Tony's long-expressed critical mantra that MAS should focus on being a premium carrier. As for AirAsia and AirAsia X, the stipulated focus under the pact doesn't require much tweaking - the carriers will remain focussed on being a regional low cost carrier and a medium to long haul LCC respectively.

 

With that, it's hard to shake off the nagging notion that perhaps Tony has come out of this deal getting most of what he has long been voraciously and publicly fighting for.

 

Misdirected perception

 

Over at the market place, since the deal was unveiled, AirAsia has suffered a trouncing. The counter has lost 50 sen or 13% in three trading days, closing the week at RM3.45. MAS shares, on the other hand, behaved just as it should - as if it's been thrown a lifejacket;the counter steadily gained 27 sen or 17% to end on Friday at RM1.87.

 

Put differently Tony's investment in MAS has grown while that of Khazanah's in the LCC, to date, is unfortunately in the red. The deal's backers staunchly dismiss such short-sightedness: “We are talking about loose change here. What's the point of arguing over that when there's so much more money to be made down the road.”

 

The selling in AirAsia shares, says an analyst is largely led by foreign funds. “Foreign funds love AirAsia because of its beautiful againt-all-odds entrepreneurial story. Most of them want little to do with Government (linked companies). That story is now disrupted, so they are selling the shares,” says the analyst.

 

Other concerns run deeper.

 

“AirAsia shareholders perceive the recent deal as one that merely benefits Tony, not them. AirAsia was doing quite well, charting its growth path independent of this tie up. It makes little difference to AirAsia. On the other hand, it's AirAsia X which is the real winner as it can now get its much-fought for routes,” says the analyst.

 

Nazir lends perspective: “Perhaps one party will gain more than the other but that doesn't matter because both will do better with than without the CCF (comprehensive collaboration framework).

 

“It is interesting that analysts are divided on who got the better deal which means that it is difficult to tell. After all, the objective was to arrive at a fair deal for both parties,” says Nazir.

 

Noteworthy, is that AirAsia has a large foreign shareholding, some 53% as at June this year, to be exact.

 

“In this market environment, news tend to be interpreted negatively. When CIMB merged with Bumiputra Commerce in 2005, the foreign investor reaction was also initially quite negative. Some thought my management team would not be able to cope with the enlarged franchise. In this case, Tony and Kamaruddin are non executives at MAS. So I am sure they will be fine. And the collaboration will benefit AA too,” says Nazir.

 

There's yet another suspicion. Is this part of Tony's exit plan? Naturally, Tony vehemently denies that.

 

The big winner

 

Examined closely, the deal in fact benefits AirAsia most. “MAS was always the stumbling block for AirAsia - in terms of routes, pricing war ... This just eliminates the competition. It can't be anything but good for AirAsia,” says an observer. A foreign research house was more direct: “While positive for the Malaysia aviation sector, benefits look disproportionately larger for AirAsia and Tune Air relative to MAS and Khazanah, reflecting Tune Air's stronger bargaining position.”

 

That's not lost on all analysts. “We believe the bulk of low hanging fruits in this deal favours AirAsia,” says AmResearch. It expects the “elimination of competition” to push the budget carrier's yield “gap up” , in other words, it will have more room to raise fares. This in turn may result in the ultimate sweet pursuit of listed companies from the analyst fraternity - an earnings upgrade.

 

AirAsia's ancillary income could also get a boost as it could feed off the national carrier's trunk routes and comprehensive point-to-point regional network.

 

Then ofcourse, there's always the plus points of having state-owned Khazanah as a shareholder no more lengthy lobbying for routes and cumbersome bureaucratic hurdles.

 

Even Tony, readily admits to that: “If you think about the amount of politics this airline has taken in to get to where I am ... that amount of time spent on lobbying is freed up now.”

 

Lifting MAS

 

Sadly, the collaboration is no magic bullet for MAS which urgently needs to turn around its flagging financials. “Given that the share swap involves the shareholders and not company level, the driving force is more strategic than operational in nature...the much-needed operational improvements at MAS (especially a change in corporate culture) may take longer to crystallize, as shareholders' decisions take longer to distill to the operational level,” says a regional airline analyst.

 

The root of the national carrier's woes, if not already glaringly obvious, is that it lacks a gameplan to effectively compete with regional carriers, product quality is below par, cost base has gaping room for improvement and the all-important yield factor is paltry compared to regional rivals namely Singapore Airlines, Garuda Indonesia and Thai Airways.

 

One main culprit for the slipping yields stems from a misdirected strategy to compete with AirAsia. “It is poor financial logic for a full service carrier with a much higher cost and value proposition, to be charging the same fare with a competing LCC. The (previous) management stated that this strategy is to maintain market share and manage the weak travel periods. It has however been proven many times that market share does not translate to bottom line,” said Maybank Investment Research in an earlier report.

 

The potent combination of predatory pricing against a high cost structure was an unfortunate mistep. Toss in brutal competition from regional peers and rising fuel cost and they make a concoction for a stomach churning hard landing.

 

“It's about how the airline carries out yield, reveneue and load management. That can be a slippery slop once you lose it ...,” says an observer

 

MAS' unit cost is also high relative to peers which an analyst attributes to its old fleet which are ineffecient, fuel guzzlers and soak up high maintenance cost. For this reason, the fleet renewal plan which the airline has already undertaken needs to be speeded up.

 

But here's where the collaboration could prove to be useful. Without AirAsia or AirAsia X on its crosshair, MAS will hopefully, be better focussed on its full-service premium business with improved revenue yield.

 

Significant cost savings can also be extracted once duplication of routes is (over 50 routes of both carriers are currently overlapping) rationalised and procurement bargining power improves. The alliance will be designed to greater exploit cost-side economies of scale and cost reduction through joint procurement and so forth.

 

“There's a great deal of duplication, which makes it hard to plan. Now the routes can be better reorganised,” says Azman.

 

In fact, analysts expects synergistic savings of over RM1 bil from the collaboration. For MAS, this deal done rightly will also allow it to chase more revenues, the lifeblood of an airline.

 

Quasi or mini monopoly?

 

Scepticisms and concerns, some more justifiable than others, abound over the potential collaboration. At the heart of it, they revolve around two issues is the coming together of these three carriers creating a monopoly of sorts in the airline industry. If the answer is yes or an iffy “no”, consumer advocates reckon the era of bargain basement air fares, which consumers have long basked in, will be a thing of the past.

 

Less vigorous competition means price wars among airlines desperately seeking to fill up seats may be curtailed.

 

Tony firmly stands his ground on this issue that low fares are AirAsia's bread and butter, hence they will not rise. “If you put fares up, less people are going to fly.”

 

That means AirAsia will have to be judicious. What no one would care to admit though is that the collaboration leaves more wiggle room on how low the fares need to get.

 

“Higher fares is highly possible,” says the Maybank analyst, adding that this is more likely on domestic routes since the domestic operations of foreign carriers (both LCCs and FSCs namely Tiger Airways, Lion Air, SIA and Silk Air) are somewhat restricted by the Malaysian government.

 

But rules are rules. In January next year, the Competition Act, which took 15 years to craft, will be enforced in the country. In essence, it prohibits anti-competitive agreements and abuses by dominant players in order to create a business environment that's conducive to healthy competition.

 

“There are three principles which anti trust laws essentially prohibit - price fixing, carving out of markets and limiting capacity,” says a lawyer.

 

The alliance between MAS and AirAsia will have to navigate around this somewhat arcane web of anti trust rules and the announcement to Bursa Malaysia by the airline companies well reflect that as they stress that collaboration in any particular area can only be done once a review and analysis of anti trust laws are done.

 

Interestingly, while most have raised concerns on the three carriers forming a sort of cartel, what has drawn less notice is the fact that the deal effectively creates another kind of “monopoly” (AirAsia and AirAsia X) in the budget travel segment.

 

Execution dilemmas

 

The hurdles in fine tuning the collaboration, though not insurmountable, are daunting. While the deal escapes the most feared trappings of a merger - clash in cultures - there exists a wide corporate cultural gulf between the two partnering shareholders who over the next few months will be huddled together in lengthy, gruelling discussions.

 

Khazanah, led by its chief Azman, largely embodies a GLC culture - suited up, calculated, staid even. That very tone and posture varies greatly from the daring, entrepreneurial spirit of Tony and Kamaruddin. But that could be a good thing. MAS could do with a dash of entrepreneurial spice to get its operational adrenalin up.

 

Still, it won't be easy to juggle what everyone wants, how much they want it and what they will give up to get it. Bridging these differences ofcourse is one common factor - their respective stakes in the carriers.

 

But for all you know, it could be as easy as a MAS stewardess trading her batik-inspired feminine kebaya for the stunning fiery red suit of an AirAsia flight hostess and vice versa.

 

Source: http://biz.thestar.com.my/news/story.asp?file=/2011/8/13/business/9276350&sec=business

[flee 5]

Fernandes: Low fares here to stay

Stories by JEEVA ARULAMPALAM

 

A decade long rivalry between AirAsia and Malaysia Airlines (MAS) came to an abrupt end on Tuesday when major shareholders of both airlines extended the olive branch to forge a collaboration agreement.

 

The battles between AirAsia and MAS have been long and loud, to say the least, with Tan Sri Tony Fernandes protesting over stumbling blocks placed on the path of his fast growing low-cost carrier resulting in it not securing new lucrative routes and not having low-cost carrier terminals (LCCTs) to support growth.

 

With Khazanah Nasional Bhd holding controlling stakes in MAS and Malaysia Airports Holdings Bhd, AirAsia was relegated to a “step-child” status in the aviation sector.

 

But with this deal, Fernandes, who is best known for not having a defeatist attitude and his tenacity to push boundaries, can now give up the tiresome “lobbying” to grow AirAsia and its sister airline AirAsia X.

 

In an interview with StarBizWeek, Fernandes, who sits on MAS board and an executive committee set up to oversee the management of the airline until a new managing director is appointed, shares his thoughts on the deal.

 

SBW: As AirAsia’s group chief executive officer, you oversee AirAsia and advice AirAsia X, as well as keep an eye on Thai AirAsia and Indonesia AirAsia. Now, you have become a shareholder in yet another airline, MAS, and will provide your inputs. Do you think you have spread yourself too thin?

 

Fernandes: No, because the deal frees us from having to lobby, which took so much of our time. If you think about the amount of politics this airline (AirAsia) has endured to get to where it is now, that lobbying time is now cut and we can focus our resources into growing the airlines and strategising on the best way to deploy our resources. I’m free to do a lot more now and people forget that I already did a lot more outside of AirAsia - the Tune Group and owning a Formula 1 team but yet AirAsia’s profits have never been better.

 

In your opinion, what type of CEO will be apt to run MAS?

 

I would like a numbers-driven CEO. I would like someone like Azran (AirAsia X Sdn Bhd chief executive officer Azran Osman-Rani), to be honest. Someone who has a clear thinking mind and doesn’t come from the airline business. Someone who is humble, analytical, knows numbers and understands the basis of marketing. But I also think there needs to be a very strong commercial head at MAS. There has been a lot of good people brought into MAS, judging from the impressive board line-up so this signals a new beginning.

 

You are best known for being a “no-frills man” but you have been placed on the board and exco of MAS to give some inputs to turn it around into a premium full-service carrier. How do you expect to contribute to a premium airline?

 

In terms of running an airline, there will be similarities in certain areas such as aircraft utilisation, negotiation of aircraft prices, marketing and branding, route development and people management. Now, I’m not going to be the one to say what is the right cutlery to be used or food to be served.

 

Having said that, I have flown on first class many times, so as a consumer, there are inputs that can be given. But I’m just a board member at MAS and there will be a CEO leading the management so my inputs will be given to this CEO. In the same way I advise AirAsia X, I can advise MAS. But my job is with AirAsia – nothing changes.

 

Is cutting staff strength at MAS on the cards? And do you think MAS will be able to adopt the cost discipline AirAsia has executed based on its business model?

 

I don’t see staff as an issue at MAS. With the airline poised for growth, there are other ways of reducing costs – staff is not a major cost and it is about the same as AirAsia’s in terms of cost out of overall revenue. I think too much has been made out about staff – numbers are not really an issue but I believe we can always work to improve productivity in any organisation.

 

As far as cost discipline, in any business, cost is important. While we haven’t looked over the numbers extensively, you can start looking at some comparisons between peer groups and benchmark yourself. But ultimately, it is down to the people who manage the business and if there is a way of decreasing costs and increasing efficiency, then the staff will have to buy into it.

 

It would appear as if AirAsia benefits the most from this deal over the long-term, especially with the group’s route impediment removed? Do you think AirAsia has the best deal from all this?

 

People are evaluating that MAS has a better deal but we both have gotten a good deal. We (Fernandes and Datuk Kamarudin Meranun) are entrepreneurs and have a longer-term vision of what we would like the airline to be.

 

But what it means for AirAsia, on top of route approvals, is that we can channel our resources to building the airline and our network in Asean now.

 

Aside from this, the tie-up will also help us build more LCCTs around the country – Penang and Kuching while we are now allowed to remain in Kota Kinabalu Terminal 2. We don’t harbour hopes of running our own LCCT but giving us the right airport charges is extremely important.

 

There are concerns in the market that this collaboration will lead to air fares increasing, especially since there are bound to be some streamlining of routes operated by MAS and AirAsia. Will AirAsia’s air fares increase?

 

AirAsia’s fares will not go up because such a strategy is not our bread and butter. If we increase fares, less people are going to fly. The whole basis of AirAsia is to make people fly.

 

And in terms of rationalisation, it not necessarily has to come in the form of routes but instead, aircraft capacity. So we could look at first class and business class travel for MAS while AirAsia focuses on economy – this means a segmentation of the market. So instead of an aircraft with 180 seats flying seven times a day, you can re-configure the aircraft to have 140 seats flying seven times a day.

 

Would AirAsia and MAS ever consider a code-share agreement? A: No. Never. As both are two different models - AirAsia operates in the low-cost segment while MAS is to operate as a premium full-service carrier.

 

Source: http://biz.thestar.com.my/news/story.asp?file=/2011/8/13/business/9282774&sec=business

[Cire 0]

hopefully with the new management team, the government must also abstain from interfering in the running of MAS. If this could be done, MAS will make a fantastic turn-around. By the way, don't just look local, look abroad as well. MAS's overseas counters need a total revamp as well. Folks there who clocks in and out routinely is a not reflecting MAS's core value - hospitality.

 

Foreign employed ground staffs who are clueless of how Malaysian live and behave should not be put to the front to represent the airline. First impression is always the most important. Robotic mono-toned staffs should not be in the service line!

[Nicholas Wan 0]

http://malaysianewsnetwork.net/portal/2011/08/air-asia-and-mas-fiasco/