Wednesday, September 12, 2012

Malindo Airways: Impact to Airasia

Tony Fernandez says MAS will be affected more. What do you think?

Malindo is a low costs airline operated by NADI (51% - Malaysia) and owners of Lion Air (49% - Indonesia). Hence from this news, what do you gather? Low costs carrier business is opening up. All the better. Will there be overcrowding? For sure there will be. Few or many will "kaput" in the future.

The opening up of the airlines business goes to show that the airline industry is to be shaken up. There will be a change in business model as well as how people travel. However, more often than not, the surviving players will be few.

The airline industry was shaken up in US before. Many airlines have given up or went bankrupt. Names such as American Airlines, PanAM are either no longer around or in trouble.

In the business where the final buyer is the consumer itself, you will see few survives. This is different from the B2B business.

High barrier of entry

The fact that airline business is a high barrier of entry business does not deter quite many to attempt at targeting this business segment. Aircrafts are not cheap. So are the systems that are put together for this business. The trick is not just in the pricing but the traffic pull by the airlines to people who purchases. Airasia, if you notice does this very well.

The high barrier of entry will become lower, actually. Once bankers believe in the business model, they now are more daring to fund. Also, once the skies are more open, it will allow the operators to obtain routes more easily, I hope. This is positive for Airasia, a private operator as it is no longer a Government to government initiative anymore to open up routes. Countries are more willing to open up routes due to competition as travelling becomes a race to pull in visitors - business and pleasure.

All these are positives for Airasia as it is the largest, fastest and most successful Asian low cost airline operator. Usually, the one that has that trait will win as it is the race to be the biggest and most cost competitive. Unless, it becomes too arrogant - things can change. We shall see!

Meantime, you notice Airasia's price has pull back. I am buying!


Justin said...

Almost all IB downgraded AA overnight to "sell" as a result. What is your fair value in mind?
Do you think MAS would fair worse instead?

Justin said...

Almost all IB downgraded AA overnight to "sell" as a result. What is your fair value in mind?
Do you think MAS would fair worse instead?

felicity said...

Look at it this way. The new venture will be a competitor to Airasia. However this is a B2C business. The only thing Airasia is kowtowing to the government is for the routes. Govt would not prevent Airasia from getting new routes as the skies are opening up anyway. A new competitor is great but how much can they do? this is a size game and as far as I can see Airasia is not even poorly run. In fact, it is well managed.

I do not know wht IBs are downgrading stocks based a new entrant.

I do not look at a price per se. i look at the business and how well run the company is.