AirAsia-MAS merger: What about Firefly?

In this corporate merger between MAS and Air Asia, Firefly is the victim.

COMMENT

The whole deal involving AirAsia and Malaysia Airlines (MAS) reminds me of the carving out of spheres of influence between the superpowers of the 18th and 19th century.

The English got Malay peninsula and the Dutch got the East Indies. They signed a treaty.

In a very similar way, this government of ours allowed the airline industry to be carved out between what they currently assessed as the poster boys.

Well, at least they see one as a poster boy – AirAsia’s Tony Fernandes.

MAS will be assigned to compete in the premium sector while AirAsia is effectively given the monopoly to handle the low-cost carriers (LCC).

Are we incapacitating MAS? Perhaps.

MAS, being competitive and back on the recovery track, would pose a threat to AirAsia, especially in the domestic market where Firefly operates from both Skypark (Subang) and KLIA.

This could be the motivation for Fernandes to be in MAS so as to “control” its growth.

We all know how Fernades has played out MAS, first with the Sabah and Sarawak routes, then the Singapore route. This could be another game that could finally check-mate MAS.

And what about Firefly?

We haven’t heard a spokesman from this outfit being given a fair airing, have we?

I am sure they will have a thing to say. Why ask Firefly to compete with Silk Air and not offer LCC services?

Fernandes must have asked and demanded for a clear product offering by MAS and AirAsia – in other words: you, MAS, get out from the low-cost carrier market and give us the monopoly.

And you know what must be done next, don’t you? Remove Firefly.

Consolidating grip on industry
Fernandes’ demand for clear product segmentation effectively removes MAS and AirAsia from destructive competition.

Poor Firefly will be realigned as a regional full-service carrier, conceding more yields to AirAsia.

Those who left AirAsia to join Firefly will now find themselves back under the whip-lashing AirAsia supervisors.

The clear mandate given by Khazanah Nasional Bhd for AirAsia to be the only low-cost carrier in Malaysia should allow it space to consolidate its grip on the low-cost market.

In other words, AirAsia has the monopoly.

But how was Khazanah able to persuade Fernandes? I don’t think it’s bully tactics. Fernandes can’t be cowed into accepting something that is not profitable to him.

He has clashed with the government on many issues – ownership over the name of F1 team, aerobridges, moving AirAsia headquarters elsewhere, and other issues.

So what profit can AirAsia extract once Khazanah play ball?

AirAsia management now confident

Well, immediately I think, those problems connected to its airport-related battles such as the use of aerobridges at the new LCCT (low-cost carrier terminal), being forced to move from Kota Kinabalu International Airport or even trying to get the name changed from KLIA2 to LCCT2, will now likely be a significantly less arduous task than before.

AirAsiaX will likely be reapplying for the much-fought-for Sydney route, something that management is more confident now of getting.

With this share swap, where the government owns more of AirAsia, AirAsia acquires an almost new national identity.

Now it can get voting rights on landing and flight routes. Not unlike those “pendatang haram” getting ICs and getting rights to vote.

So for AirAsia, having Khazanah as its substantial shareholder is a strategic move. Overnight political lobbying and fighting for routes and infrastructure have disappeared.

It now frees up AirAsia’s management resources as now its management can focus on other regional joint ventures like Japan instead of having to fight in its own territory.

The writer is a former Umno state assemblyman and a FMT columnist. This excerpt is from his blog sakmongkolak47.

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AirAsia launches Philippine offshoot

AirAsia Philippines will fly out of a former US airbase that has been turned into an industrial zone in Clark.

CLARK (Philippines): Asian budget carrier AirAsia launched a new affiliate in the Philippines today, promising to undercut its rivals on regional and domestic routes.

To minimise costs and avoid Manila’s crowded terminals, AirAsia Philippines will fly out of a former US airbase that has been turned into an industrial zone in Clark about 90 minutes’ drive north of the country’s capital.

“We will be substantially cheaper (than our competitors),” AirAsia Philippines chief executive officer Marianne Hontiveros said at the launch in Clark where she oversaw the arrival of the airline’s first Airbus A320.

Although the launch ceremony was held on Monday, she said the airline was not expected to start commercial operations until October when it received its final flight certification from the government.

Hontiveros said AirAsia Philippines’ first routes would be between Clark and Hong Kong, Macau, Singapore and Bangkok, with its fleet expected to expand to four Airbus A320s by June next year.

She said the carrier would then branch out to the rest of Asia, while also looking to fly domestic routes in the Philippines.

Hontiveros said there were also plans to make Clark a hub for the entire AirAsia network’s routes to and from the United States.

Like the rest of Asia, the Philippines has seen a boom in low-cost air travel in recent years with home-grown budget carrier Cebu Pacific rising to overtake Philippine Airlines as the nation’s dominant airline.

But Hontiveros said AirAsia’s reputation should ensure the local affiliate succeeded amid the rising competition.

“We’re banking on the very strong brand of AirAsia. We might be low-cost but we are not cheap (in quality)… we plan to be a substantial player,” she said.

Philippine investors including Antonio Cojuangco, a cousin of President Benigno Aquino, have a 60% share in AirAsia Philippines, with the Malaysian parent company led by Tony Fernandes holding the other 40%.

AirAsia has similar affiliates in Indonesia, Thailand and Vietnam, with another to start in Japan, which are independent companies but work together as one network.

AirAsia already has routes from Clark to Kuala Lumpur and Kota Kinabalu daily. Hontiveros said the parent firm would continue with its flights even after AirAsia Philippines started.

- AFP

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AirAsia moves HQ to Jakarta: A serious blow to Najib administration

With all the troubles he has had over the last two months, the confirmation Friday that AirAsia, arguably Malaysia’s most vibrant private company, is moving its headquarters out of the country to Indonesia is one more blow.

Tony Fernandes, AirAsia’s group chief executive, confirmed the decision in Tokyo Thursday, saying the move is an effort to upgrade his company’s image as a regional Southeast Asian airline rather than just a Malaysian carrier.

“I don't know whether Najib has been told or not,” said a business associate of Fernandes in Kuala Lumpur. “But why should Tony care? There are solid business reasons for moving to Jakarta.”

Najib has been on a whirlwind trip to foreign capitals to try and mend the country’s image in the wake of a violent police crackdown on peaceful marchers seeking to present a petition to the country’s king on July 9, asking for election reform. In a throwback to the 1980s, Malaysian censors blacked out details of a report about the march carried in The Economist.

Serious blow to Najib administration

That was followed on July 23 with the results of a royal commission of inquiry that concluded that a young aide to an opposition politician had been hounded so badly during a marathon interrogation over office spending that he threw himself out of a window and killed himself.

Then on Friday, immigration officials took William Bourdon, the leader of a team seeking to ferret out the details of a massive scandal involving defense procurement, off a plane in Kuala Lumpur, held him for several hours and ordered him deported via a flight back to Paris.

Fernandes characterized the move of the headquarters as a simple business decision to take advantage of Indonesia’s vastly larger economy and population, which is nearly 10 times that of Malaysia’s, although Malaysian annual per-capita gross domestic product of US$14,700 by purchasing power parity is much higher currently than Indonesia’s at US$4,200. The size of the country, however, meant that the Indonesian economy was estimated by the CIA Factbook for 2010 at US$1.03 trillion against Malaysia’s US$414.4 billion.

AirAsia’s decision to move the headquarters is a serious negative propaganda blow for Najib’s 1Malaysia Plan, an intensive effort to lure foreign direct investment to Malaysia. In September 2010, the Malaysian government announced ambitious plans to mobilize hundreds of billions of dollars in private investment in an effort to move the country out of the so-called middle income trap, and double per capita income to push Malaysia into the ranks of developed nations by 2020.

Capital flight

AirAsia may well be the only Malaysian company besides the state-owned energy giant Petronas to have made an international impact – and Petronas does it by advertising intensively during Formula 1 races and by sponsoring a car – which Fernandes does as well. Launched in 2002 as a regional no-frills carrier with just two planes, AirAsia now flies 93 planes all over Asia. In addition, a long-haul service, AirAsia X, flies to Europe, Japan and Korea. The company earlier ordered 300 Airbus A320neos.to expand its routes across Asia and beyond.

It isn’t just the publicity damage. In the past 10 years, according to a report by the news agency Reuters, private companies invested just RM535 billion (US$172.4 billion), according to official data. Malaysia’s private investment rate of about 10 percent of GDP is among the lowest in Asia and a third of what it was before the 1998 Asian financial crisis. The government, according to Reuters, contributes around half the investment in Malaysia.

In addition, Malaysia has long been plagued by capital flight, which has been generally regarded as an indication of lack of faith in the country on the part of its businessmen, although in Malaysia’s case the bulk may well be from stolen timber leaving the country from Sarawak and Sabah.

Nonetheless, the US-based financial watchdog Global Financial Integrity estimated in a 2010 report that as much as RM888 billion (US$298.3 billion at current exchange rates) had left the country between 2000 and 2008. Illicit financial flows generally involve the transfer of money earned through illegal activities such as corruption, transactions involving contraband goods, criminal activities and efforts to shelter wealth from tax authorities.

Resurgent Jakarta

AirAsia said the move is a bid to take advantage of access to the Asean secretariat, which is based in Jakarta, in advance of an open skies agreement expected to go into effect in 2015 and which is designed to lower barriers for air travel between the region’s capitals.

Asked why he chose to move the fast-growing airline’s principal corporate base to Jakarta from Kuala Lumpur, Fernandes said: “Asean is based in Jakarta, and Indonesia will be the largest economy in Asean in times to come … And I like it there” – enough, he said, to have impelled him to have already bought a home in Jakarta.

The Indonesia National Air Carriers Association forecasts passenger growth at 10 percent to 15 percent this year. Indonesia’s Central Statistics Agency reported that domestic air traffic grew 22 percent to 53.4 million passengers in 2010 on growing demand from the middle class for domestic flights. That is higher than the 9 percent average increase recorded by Asia-Pacific carriers, according to data from the International Air Transport Association.

“Indonesia is among very few countries that managed to record strong growth in air traffic last year,” said an analyst quoted by the Jakarta Globe. “The lack of available airlines compared to population and geographic conditions is only a sign that there’s a lot of opportunity here.”

Taken from Malaysian Chronicle

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AirAsia wake-up call for crony-infested BN business model

UDPDATED In what many see as a blow to Prime Minister Najib Razak’s grandoise economic plans to create a high-income nation, AirAsia’s decision to expand its headquarters to Jakarta may spell the acceleration of an exodus of businesses out of Malaysia, though not many will be as big or as shiny a jewel in the crown as the homespun low-cost air carrier.

When interviewed by the media last week, Tony Fernandes was rather guarded in his comments as to why Jakarta was picked to house its regional offices. The AirAsia group chief executive had said the move was an effort to upgrade his company’s image as a Southeast Asian airline rather than just a Malaysian carrier.

However, Tony denied AirAsia would leave Malaysia.

"AirAsia headquarters always in Malaysia. We were born in Malaysia. My home is Malaysia.  Our stock listing is in Malaysia. Hope this clears this up. Silly how some press turn things around,” he said in a tweet posted at around 5pm on Monday.

The clarification may be a sign of what many financial analysts have long suspected other businesses in Malaysia have faced - unnecessary and inappropriate pressure from the BN government and exactly reflective of the malaise and corruption dogging corporate Malaysia.

Expansion not new news

Since the news broke over the weekend, politicians linked to Najib's UMNO had begun lobbying for a retraction from the airline. But as far back as June, AirAsia regional commercial head Kathleen Tan had told the same to theJakarta Post.

“We have chosen Jakarta to be home to our ASEAN office. We will move our regional office operations to Jakarta,” Tan had told The Jakarta Post. “The new office is now under construction and it will be up by August or September this year,”

Fernandes himself had characterized the Jakarta move as a simple business decision to take advantage of Indonesia’s vastly larger economy and population. This is nearly 10 times that of Malaysia’s, although Malaysian annual per-capita gross domestic product of US$14,700 by purchasing power parity is much higher than Indonesia’s US$4,200.

However, the sheer size of the country's populace means that the Indonesian economy is at towering US$1.03 trillion versus Malaysia's US$414.4 billion, based on estimates in the CIA Factbook for 2010.

Business is business

Business is business, and Fernandes' decision seems timely. For years, analysts have pointed out that one of AirAsia's biggest problems was having to battle for more rights to fly in the Malaysian air-space with the government-backed MAS a frequent obstacle in its way. But again, in business, this is to be expected. Nevertheless, every decision to fly within Malaysia has to be scrutinized by the government, and often-times the decisions are made in MAS' favour.

Launched in 2002 as a regional no-frills carrier with just two planes, AirAsia now flies 93 planes all over Asia. In addition, a long-haul service, AirAsia X, flies to Europe, Japan and Korea. The company earlier ordered 300 Airbus A320 to expand its routes across Asia and beyond. Given that the phenomenal growth is mostly its own efforts, the airline is one of Malaysia's more respected firms.

Malaysia's business circles are largely controlled by the UMNO-led government. The playing of favourites can be irritating, degrading and most of all makes Malaysia uncompetitive. It can only hinder firms from becoming the best in the region or even the world.

Asked why he chose to expand the fast-growing airline’s principal corporate base to Jakarta from Kuala Lumpur, Fernandes had told Asia Sentinel : “Asean is based in Jakarta, and Indonesia will be the largest economy in ASEAN in time to come. And I like it there."

There was also Genting

Another Malaysian start-up and successfull business entity is Genting Berhad, which has a market capitalisation of US$13.6 billion as of 31 May 2011, making it the leading Malaysian corporation to date. Fearing a shift to Islamic puritanism in the 1990s and it’s affects on his Genting Highland’s operations, Lim Goh Tong, the late company founder, diversified Genting Berhad’s business ventures.

From its initial leisure and hospitality activities, the Genting Group has since expanded and diversified into other activities including plantations, properties, power generation, oil and gas, e-commerce and the development of information technology.

Genting Group is the founder of Star Cruises the third largest cruise liner company in the world and largest cruise liner in Asia and its headquarter is based in Hong Kong. As of December 31, 2010 Genting Malaysia now owns the the largest number of casinos in the UK with 46 casinos. Lim’s business empire have interests in Singapore, United Kingdom, Philippines, USA and Australia.

The feared curbs on the Genting Highlands' expansion never came to pass, but Lim's relationship with the government was odd. He was forced to renew his business licence every three months, while the sin of gambling was constantly denounced in the run-up to every election.

In other words, Lim had to live in fear his business empire could be closed down any day and any time the religious extremists in UMNO decided to do so. His son, Kok Thay is now in charge and has diversified the Genting franchise beyond recognition into Singapore, Europe and US.

Before Genting, there was sugar-King Robert Kuok who reinvested his money in Hong Kong and China in the 1980s. Even the YTL group has diversified the eggs in its baskets by acquiring stakes in utilities in the UK, Singapore and other parts of the world.

Not that AirAsia, Genting, Robert Kuok or YTL have not benefited from the BN model. For example, Robert Kuok and YTL's Francis Yeoh are frequently reported as being close to former premier Mahathir Mohamad and Genting got its first break from Tunku Andul Rahman, the first prime minister. But in the case of Genting and Kuok, their overseas success is very much their own effort and overshadow their Malaysian assets.

Ineffective GTP, ETP

Najib, for all his grand-sounding Economic Transformation Programmes, would do well to study what makes true businesses work. It is not the wild pie-in-the sky figures that scare potential investors away with just the mere mention of the zeroes involved in his grandoise plans, but sheer savvy and enormous hard work.

There is also such a thing called level-playing-field and rewards based on merit, rather than, "I help you, you help me". If Najib wants to spout such philosophies, he would do better to the treasurer of a community hall in a remote village collecting rents for the badminton court and ping-pong tables, rather than be the Finance minister of Malaysia.

In big business - without corruption that is - recognition must be given to the best talent, to best bid and to the most productive venture. As the Robert Kuoks, Gentings and AirAsias fly off for greener and fairer pastures, the BN's Government Transformation Programme is still stuck and left to languish amid regret for not being able to retain Malaysian start-ups destined for global glory because of its fatal mistake of over-politicising business.

Taken from Malaysian Chronicle

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