Friday, June 15, 2012

Why Airasia may benefit more by moving to Indonesia

Tony, it seems this time is quite real moving to helm Airasia from Indonesia while appointing a new CEO for its Malaysian operations. While he may not called it on paper, but his move to the bigger country could be just equivalent to having another base operating off Indonesia.

I wrote an article on why Airasia may benefit more by moving to Indonesia.

Here's why:
  1. Airasia, while has been given quite a number of landing rights by the Malaysian government, its relationship with them has never been smooth. From buying the company at RM2 from DRB-Hicom about 10 years ago, it has grown its operations into a very respectable one - or probably one of the most respected airline globally. Currently, the company is valued at RM10 billion or more by investors. Despite that, its growth has always been hindered with the government not allowing them to operate off Subang airport and having been too slow to build a new low cost terminal to handle the volume that is ever growing. Note that, for several times Airasia has postponed the delivery of aircrafts from Airbus most probably due to current airport not allowing it to grow fast enough. Hence the very government that allowed the sale to Tony the airline has now hindered its growth.
  2. Tony Fernandez has always been on the lookout to grow its business from anywhere that can provide them opportunities to even growing further. My last check, Airasia is flying to 68 destinations from Kuala Lumpur while it is only flying to 22 destinations from Jakarta. To obtain the route rights, it needs the assistance from the government in countries where it intends to fly from and land into. Hence, this is probably why Tony is willing to move - i.e. to grow Airasia even further.
  3. Furthermore, just look at Indonesia alone, other competing airlines such as Merpati Air and Garuda have much more routes. Airasia if provided the route rights will benefit much more from there. I do not know what are the arrangements that the Indonesian government has provided to Airasia for the latter to move the HQ to Jakarta but looking at the moves that Tony has made before, it could be substantial. Tony is a negotiator and he is good at it. He is not afraid to make drastic decisions and the latest is another example to prove a point as well as showing who's the boss. At Airasia's size currently, he thinks he can be the boss, even to the Malaysian government. (I like that)
  4. Operationally, while it may not be a smooth one to move from KL to Jakarta but an airline business is one which can be managed from anywhere in the region, what more from an airline which thrives through online booking, not so much via agencies. If it is implemented well, in fact it may save Airasia costs and to Tony saving costs is what it matters while it still manages to execute. After all, Airasia is never popular for its services. It is just there to provide the best bang for your buck to its users - that is what makes it successful. Hey! Ryanair is one of the most hated brand in Europe but look at them grow.
  5. For a while, Indonesian airlines have always been viewed negatively until at one point of time, no Indonesian airline is allowed to fly to Europe. On safety, Airasia is viewed positively. Airasia by growing big in Indonesia will bring something to the country what the current bigger airlines in Indonesia are not able to bring immediately. Hence, to Indonesia besides creating jobs will be a win-win situation for the country.
  6. Look at all the benefits - tourism, airport tax, jobs, country's airline perceptions, business travel etc. Indonesia sees it and Malaysia does not see it - this goes to both the government of Malaysia and its opposition who sometimes say things that does not make sense.
  7. Since the share swap with Khazanah for MAS is called off, what the heck.
In the end this move I think is positive for Airasia but a loss to Malaysia - yet again.

Other related article

Why I do not like the MAS-Airasia deal. (This article has its relevance on why Airasia should just go out and do deal overseas.)

Read article below on why Tony Fernandez feels the collapse in tie-up with MAS is a good thing.


KUALA LUMPUR: AirAsia boss Tony Fernandes has called the collapse of a tie-up with struggling flag carrier Malaysia Airlines a relief that will free him up to focus on his fast-growing budget carrier.

In his most extensive comments to date on the failed deal, Fernandes said in interviews published Friday that "massive" Malaysia Airlines union resistance was to blame and implied that the carrier had deep problems to resolve.

"I was off blood pressure pills as soon as the swap was off. I'm serious," he told The Edge business daily.

"Sometimes you need a bit of a kick up your backside. When we have built fantastic operations at AirAsia, we didn't appreciate it until we (saw) something else," he said.

His comments appear two days after AirAsia announced it is setting up a strategic planning centre in Indonesia, away from its Malaysian headquarters, with Fernandes expected to lead expansion of regional operations from there.

AirAsia had agreed in August last year to buy 20.5 per cent of Malaysia Airlines under a strategic tie-up aimed at turning around the national carrier.

But the share swap deal was pulled early last month after pressure from Malaysia Airlines' powerful employees union, who feared job cuts and other cost-reducing moves.

Fernandes said Malaysia Airlines' problems could have been fixed under the tie-up.

"Yes, there will be short-term pain but you have to make the business successful as you cannot be on life-support," he told The Star newspaper..

"(But) you reach a point of why waste time talking? ... I'm glad it's over," he added.

With Fernandes moving to Indonesia the airline will announce on Monday a replacement to head its Malaysia operations.

Fernandes said he would "still be heavily involved in the day-to-day running of the airline" and "not leaving anytime soon" but was keen on a succession plan.

The former music executive took over the airline a decade ago and turned it from an ailing outfit with two planes into one of the region's biggest success stories.

Last month, AirAsia posted a 4.0 per cent increase in first-quarter net profit with the company citing a solid business model as the reason. It also posted a record quarter revenue of 1.17 billion ringgit (US$367 million).

Malaysia Airlines, on the other hand, reported its fifth consecutive loss, amounting to 171.8 million ringgit for the quarter ended March 31.

- AFP/ck


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khengsiong said...

hmm... I don't quite understand what you write...

AirAsia already has a associate in Indonesia. It doesn't need to move to Jakarta in order to do business there.

Of course, AA holds minority stake in its Indonesia unit. Perhaps it can have majority interest if it moves to Jakarta.

Unknown said...

Hi Kheng Siong

Thanks. Perhaps I should rephrase (you are right). But when I said move, literally it means moving its base to Indonesia. I do not think AA will take a majority stake as in any other countries until the day where countries regulations are more open.