Sunday, July 16, 2006

MPs ATTACK Air ASIA in Parliament; CEO TONY Fernandes response to Criticism; TRANSPORT Minister; Datuk CHAN K C defends LIFTING FLOOR Prices for MAS

Fong Po Kuan (MP Batu Gajah)
"I boarded Air Asia flights and between 2-3 times and I saw flies. Stewardesses sprayed perfumes, but still I saw flies. Why is this happening?"

Datuk Badruddin Amiruldin (MP Jerai)
"The Air Asia CEO simply criticized the government and MAS even scolding the government for granting MAS the right to offer discounts. He acts like a gangster and he is a big headed person"

Datuk Mohd Alwi Che Ahmad (MP Kerteh)
"The advertisement is perfect. Whose fault is it? Is it the
people who
advertised or the agencies that allowed such
advertisements?
Whose fault is this?
Should we allow this to continue?"

Datuk Bung Mokhtar Radin (MP Kinabatangan)
"Flights tickets are sold as low as RM10. But when I called
they claimed
the tickets have been sold out. If you make
the booking one year in
advance, you will get tickets.
I think the government and the
people
are duped by Air Asia.
It is a daylight robbery"


MP Sekijang
"The tickets are not cheap actually. That is we don’t want the rakyat to be cheated and victimized. If the matter can be corrected why can’t we do that?"

Air Asia took center stage in Parliament on Wednesday’s afternoon sitting with MPs questioning why the budget carrier received special treatment. MPs also charged that Air Asia fares are actually expensive contrary to the advertised fare. Flights are frequently rescheduled and prices of food sold during flight are exorbitant.

Datuk Tony Fernades, CEO Air Asia response to the criticism

I think people are happy with our product, of course it should be better. We are four year old we don’t received any subsidy. We had to do this all on the back of our own growth. And we get better and better and I think that the general opinion is that if we are not a good product, 20 million people would not have flown with us.

And what did our Tranport Minister said?



"So we take note of all that and convey these to the relevant airlines, Air Asia or MAS so we will take the necessary steps to make sure service levels of all these air lines are up to level"

Support for Government 's descision to abolish the the floor ceiling prices for MAS.

He denied that the government’s original plan to allow MAS to reintroduce domestic air fare discount was helping the national carrier. It was part of the rationalizing plan.

"I don’t want to enter into a public debate with anybody but as I have said yesterday, this is a cabinet decision and made in the interest of the people. He is also prepared to meet Air Asia CEO Tony Fernandez for discussion if he so requested"

The government decision has already impacted the share market. Shares of Air Asia felled to the lowest in 1-1/2 years after the government stuck to its decision to allow MAS to offer discounts on domestic routes.

Air Asia shares fell 4.3 % to RM1.32 noon the lowest since Nov 2004. The shares have declined 10.8% since Monday whilst the MAS shares have gained 0.4% to RM2.86 noon and gained 2.1% since Monday.

AirAsia's shares have taken a beating since Monday after national carrier Malaysia Airlines announced that the government had authorised it to offerdiscounted fares on domestic routes.

The stock extended its losses yesterday, falling to RM1.38 from RM1.41 on Tuesday.

Under an agreement from Aug 1, MAS will give up the bulk of domestic routes to Air Asia . MAS was given 22 routes and told to charge the full fares The decision has now been changed and MAS is set to have a price war to cut fares. The government says the decision will create more level playing field for both air lines. At the end of today’s trading Air Asia was amongst the ten most active stock closing at 1.30.

Report on
AirAsia to protest to Cabinet;By M.KRISHNAMOORTHY

PETALING JAYA: AirAsia will take its grouses to the Cabinet next week on the lifting of the floor price for Malaysia Airlines, which the low-cost carrier deems is unfair competition.

Its chief executive officer Datuk Tony Fernandes said he was shocked at MAS’ announcement of the lifting of the minimum prices and the three new domestic routes it was going to fly after Aug 1.
“At no point was it agreed for MAS to allow discounted fares or supersavers, because the rationalisation process was to keep two different markets,” he told reporters.

“This is shocking and we are surprised that MAS is announcing this and not the Government, as agreed earlier. We hope to seek clarification from the Cabinet on these new routes and the subsidy of RM1bil.

This is being paid by the taxpayers and we are not getting any subsidy when both airlines are listed on the stock exchange.

“We understand MAS has made a presentation to the Cabinet and we would like to give our side of the story for the betterment of the aviation industry in Malaysia.”

It was reported yesterday that MAS had been given permission to continue offering discounted fares on domestic routes, and the Government had also decided that the national carrier should also fly the Johor Baru-Kuching, Kuala Lumpur-Tawau and Kuala Lumpur-Sandakan routes which were deemed to have a high volume of business travellers.

Fernandes said MAS was not allowing AirAsia to compete on a level playing field and the unfair competition may force it to tie up with two foreign carriers, which had approached AirAsia for interlining into Malaysia.

“It is unfair to subsidise MAS when we do not get the same rights like the national carrier to fly to Singapore and other international destinations,” he said, adding that AirAsia has only been given five exclusive domestic routes, which it had already started.

They are Johor Baru-Kota Kinabalu, Johor Baru-Kuching, KL-Sandakan, KL-Tawau and Kota Kinabalu-Miri.

“If MAS does not want to work with us, they can have all these five routes,” he said.

“The national carrier also has several advantages over us, like several international routes, a privelege we are not given.”

Fernandes explained that the Transport Ministry, MAS and AirAsia had met for two years and worked out details of a fair plan and it would be unfortunate to see the plan not working out as envisioned by the Government.

“The Government wanted two strong airlines, MAS and AirAsia, to work together for the progress of the aviation industry in the country, regionally and internationally, and the Government had no intention to see wasteful competition,” he added.



and here is the latest AP report carried in the Sunday Star (Jul 16 06)
Clouds loom over Malaysian budget carrier AirAsia's future

KUALA LUMPUR, Malaysia (AP): It has been blue skies for Malaysia's no-frills carrier AirAsia since it begun flying five years ago, but dark clouds are looming on the horizon.

AirAsia, a top pick of foreign investors since it was listed in November 2004, is losing its shine as high fuel costs, weaker-than-expected profits, huge capital commitments and increasing competition threaten its growth, analysts say.

Its share price plunged 12.2 percent last week to 1.30 ringgit (US$0.36; euro0.30) on Friday -- the lowest level in 1 1/2 years -- after the government said it would allow rival Malaysia Airlines to offer discounts on domestic routes.

Some brokerages have downgraded the stock to a "sell'' amid concerns the move may trigger a price war and hurt AirAsia's earnings.

Foreign investors hold 45 percent of AirAsia, the region's largest budget carrier in fleet size.

"In the volatile airline industry, it is difficult to maintain a market darling status for too long,'' said Peter Negline, aviation analyst with JPMorgan Securities in Hong Kong.

"We believe AirAsia is about to lose this as its poor earnings track record, high oil prices, lackluster franchises, large capital expenditure program and increasing domestic competition all hit the company,'' he said.

AirAsia has grown phenomenally since it started operations in January 2002.

Profitable from Day 1, it now has more than 1,600 employees and flights to more than 100 destinations in eight Southeast Asian nations, China and Macau.

Signaling Chief Executive Tony Fernandes' big ambitions, the airline signed an agreement last year to buy 60 new Airbus A320s over the next five years for nearly US$4 billion (euro3.3 billion), with the option to buy another 40 of the same aircraft.

It also has two 49 percent-owned subsidiaries in Indonesia and Thailand. But soaring fuel costs have hurt AirAsia's profits. In the 2005 financial year, the carrier posted a net profit of 111.6 million ringgit (US$31 million; euro26 million) in its Malaysian operations, 30 percent below its official target.

In March, AirAsia received a boost after winning rights to take over the bulk of domestic air services from Malaysia Airlines from Aug. 1 under government efforts to help the national carrier cut losses and become profitable again by 2007.

Under the revamp, Malaysia Airlines will serve just 22 out of 118 local routes and was told to charge full fares.

But the joy was short-lived when the government made a U-turn in policy this month, allowing Malaysia Airlines to cut fares and setting the stage for a price war with AirAsia, which has protested the move.

Transport Minister Chan Kong Choy last week said the government made the decision to create fair competition and a "level playing field'' between the two airlines.

Despite dropping many routes, Malaysia Airlines still services the most lucrative markets and can now effectively compete with AirAsia in its economy class segment, analysts say.

"AirAsia has reached a crossroad,'' said Muhamad Khair Mirza, aviation analyst at AmSecurities. "It is operating in an environment that is not conducive to its growth.''

The immediate hurdles for AirAsia are to meet large financial commitments, balance its growth and profit target, and overcome competition from Malaysia Airlines, he said.

"AirAsia is no longer a growth earnings story. It can become a market darling again only if the government, or a local white knight, comes in to revive its fortune,'' he said. "Otherwise, the stock will remain lackluster.''

JPMorgan's Negline said the national carrier had been viewed as a "weak cousin'' of AirAsia but it is becoming a formidable foe thanks to major restructuring that has involved laying off staff, reducing capacity and selling noncore assets.

On the other hand, AirAsia may be growing too fast and faces new pressure, he said. "The low-cost carrier model thrives on simplicity, but AirAsia's business is becoming increasingly complex,'' he said.

AirAsia risks getting "indigestion'' from excessive expansion, new fleet addition and cash-flow burdens as high oil prices hit earnings, Negline said.

AirAsia chief financial officer Raja Mohamad Azmi Raja Razali said
investors are disappointed by the government's about-turn but the company is still profitable and its cash-flow remains healthy.

"
Perception has turned negative because investors fear the domestic air rationalization will hurt our business but fundamentally, nothing has changed,'' he told The Associated Press.

"There are growing pains from time to time but we will manage it in our stride. We are not slowing down in our growth, it's business as usual.''

Rising oil prices pose a big challenge but the airline could further raise its fuel surcharge and hedge its fuel requirements to cope with it, he added.

Update: 17th Jul 2006,
UUUUUUUUUUUUUUUUUUUUUUUUUUUUUU

AirAsia May Get Easier Access to Fly Overseas Routes(Update 2)

Updated : 17-07-2006 Media : Bloomberg; tory By : Chan Tien Hin

(Adds share price in the fifth paragraph.)

July 17 (Bloomberg) -- Malaysia's government will include AirAsia Bhd. in its bilateral talks for easier access to overseas routes, a move that will hasten plans of Southeast Asia's largest budget carrier to fly to India and China.

The Malaysian government will also sent up a committee to monitor the domestic aviation industry to prevent ``predatory'' pricing after state-owned Malaysian Airline System Bhd. was allowed to offer cheaper fares on some domestic routes, AirAsia, based outside Kuala Lumpur, said in a statement today.

Malaysia gave these concessions to AirAsia after the government earlier this month removed the floor prices for Malaysian Airline on some domestic routes, a move opposed by the discount carrier. The government's decision to include AirAsia in bilateral air talks will allow the airline to soon gain access to India and China where negotiations for rights tend to take long, the carrier said.

``The government has reaffirmed its commitment to AirAsia's future and we anticipate some very positive developments in terms of domestic airports and foreign route access,'' AirAsia said in an e-mailed statement today.

AirAsia shares tumbled 12 percent to a 20-month low since July 10 when the government allowed Malaysian Airline to offer cheaper fares on some domestic routes. AirAsia shares fell 1 sen, or 0.8 percent, to 1.29 ringgit, at 9:11 a.m. local time on Malaysia's stock exchange.

Malaysian Airline will hand over more than 90 of 118 mostly unprofitable domestic routes to AirAsia from Aug. 1, part of a three-year business plan aimed at helping cut its losses this year and return to profit next year.

Shares of AirAsia were downgraded to ``sell'' from ``neutral'' by OSK
Research Sdn. analyst Christopher Eng on July 10, saying the reintroduction
of competitive pricing on domestic routes has ``direct bearing'' on earnings
of AirAsia.

Malaysian Airline's Boeing Co. 737-400 aircraft leases will also be
readjusted to market rates, removing ``the final traces of subsidies''
enjoyed by Malaysian Airline, said AirAsia. The move ``showcases the
government's serious drive for a level playing field to all parties,'' the
company said.

Other concessions include allowing AirAsia unrestricted freedom to access
any domestic routes, the discount carrier said.


MALAYSIA TO SET UP COMMITTEE TO MONITOR PREDATORY AIR
FARE PRICING - UPDATE
17-Jul-2006 08:35:00

KUALA LUMPUR (XFN-ASIA) - The government will set up a committee to monitor instances of predatory pricing in the domestic aviation market, AirAsia Bhd said in a statement.

It said that after recent discussions with the government, it was decided that the planned rationalization of the domestic air market will guarantee a level playing field for all parties involved.

Earlier the government announced that it would allow Malaysian Airline System(MAS) to offer discounted fares on domestic routes. The news pressured AirAsia's stock price.

Apart from the government undertaking to set up the committee, AirAsia said it will now have unrestricted freedom to access any domestic routes and the budget airline is now equally incorporated into the governments bilateral negotiations for access to other countries.

"We are happy and extremely comfortable with the outcome of this discussion with the government," chief executive officer Tony Fernandes said in the statement.

Under the new arrangement, Fernandes said AirAsia will soon have access to fly to India and China, among other routes.

"Previously, AirAsia was in the waiting list for this scarce commodity and negotiations tend to take forever. With this newly attained equal status for bilateralnegotiations, we are confident that we will be able to penetrate
into India and China smoothly," Tony Fernandes said in the statement.

It said that the government has also promised to monitor the usage of 650 mln rgt payout MAS receives from its parent company, Pernerbangan Malaysia Bhd, which is intended to be used for staff severance.

Boeing 737-400 aircraft leases entered into by MAS will be readjusted to market rates, according to the statement.

These items represent the last subsidies previously enjoyed by MAS. Their removal shows the government's determination to provide a level playing field, it added.

"With all of the above, AirAsia is in a far better position post August 1 than ever in its entire history. We are thrilled with the prospects and benefits that this arrangement brings us... AirAsia enters 2007 in its best shape ever," Fernandes said in the statement.

The company said it will hold a news conference tomorrow to announce further details of the government's plans for the budget air industry.
____


Taking AirAsia higher
July 17 2006

QUESTION: You labelled the decision to allow MAS to reintroduce discounts as unfair and as not giving AirAsia a level playing field to compete in. Last week, the Government said the decision was final and fair. Can you live with this?

Fernandes: Of course we can. You know, the Malaysian Government has been great to us. Let's be real about it. We can live with whatever. We are blessed with an opportunity. There are not many countries where two non-entities ... we were just two guys (he and Kamarudin) in the music business and banking who got an opportunity to own a national airline and go
to where we are.

We are lucky to be in this country that does promote entrepreneurs. Not everything is perfect of course. But on our side of the camp, we want everything because we are in a global marketplace competing with top competition like Singapore and we want to have the most resources so we can show the Singaporeans that we are the best.

I've always believed that Malaysia is better than Singapore, and so that's what drives us. We want to have as much opportunity and as much cash to be able to drive and become the best low-cost carrier in Asia, and not be distracted by domestic squabbles.

Kamarudin: The key issue here is this, we believe that we will be able to grow on merit. Over the years we have worked on our own to try to build up the company.

The current issue, it's not about flaws. What we were trying to avoid is predatory pricing, which we faced over the last five years, because it (MAS) was fully subsidised. Going forward, there's always that concern.


Q: What was the outcome of your meeting to clarify issues with the Government?

Fernandes: The Government said in no way does it condone predatory pricing, and will be keeping a very close eye on that. That was what we have always wanted. As long as that mechanism is in place, we are thrilled.

Also, the Government will give us access to routes we can't get and there will be a fair sharing of those routes. China and India access will be given to us and that will be mammoth to our bottom line. We are very thankful to the Government for closing up that gap in route allocations. Coupled with allowing us to operate in internal East Malaysia and the opening up of two new hubs in Kuching and Kota Kinabalu.

The story on route allocation is also coming to an end and that is tremendous to us.


Q: Don't you think that AirAsia has come a long way from its humble beginnings? Come August 1 it will be able to fly domestic routes alongside MAS.

Fernandes: Well, we have our views. The first thing I want to say is that we are in a much better position than we ever were. This (being allowed to fly certain domestic routes previously monopolised by MAS) is a huge victory for AirAsia. But the market hasn't fully digested the announcement (to allow MAS to reintroduce discounts on domestic routes). Prior to this, AirAsia was competing against a fully-subsidised domestic airline. Whatever losses that were made were picked up by Penerbangan Malaysia Bhd (PMB). There was no
real financial drive to make it profitable.

We still feel there are areas that can be levelled out. But we will be patient, and whatever transpires in the next few days, it will be a good start for us.

Aviation is a phenomenally-regulated industry and there are many ways the balance is being tipped. I suppose we went for the jugular. In some ways we wanted everything to be settled from day one.

You can understand having gone through four years of this. We saw an opportunity for the first time ... everything could be settled. But we are not guys who will cry over spilt milk. The last shock to us was Subang airport. We fought very hard and lost. The next day we bounced back.

We fought, we lost; no point crying over spilt milk. We will come back. As my CFO always says, nothing comes easy for AirAsia. But that is also the special thing about AirAsia.

I think that by struggling, we have become smarter and have found ways around our problems.


Q: Do you fear that MAS may be able to sell tickets cheaper than you now that they can offer discounts on domestic airfares?

Fernandes: From the cost perspective, I don't think so. But the issue here, we don't know. They may not call it subsidy; they may call it compensation under the Widespread Asset Unbundling (WAU) exercise. And then you talk about the leasing of the aircraft from PMB, there're so many things that are not known to us.

So some of these factors could be used to lower the cost. These are our concerns. It's not that we object. The Government has been supportive in the past, and continues to be very supportive. However, in this situation we have had to voice our concern. The objective is to seek more clarification from the Government.


Q: What is unclear to you about the Government's move?

Kamarudin: From what we gather from the Transport Minister's report is that the Government wants basically free competition and all that. So now we have asked the Government whether for this free competition that they want, whether everything is in place to ensure this free competition.

Fernandes: We're a market-driven company. We have always believed in the market, otherwise we wouldn't be here. We have never objected to new airlines. We have never objected to anything that is market- driven.

If you see in our press statements over the last five years, we have never once had a complaint against MAS on international (routes). Even there, it is not a level playing field, but life's too short. We are a market- driven company. We don't believe that anyone should be given subsidies.

We believe that market should stand on its own and decide whether we are good or not.

We've struggled all the way, from two planes. Nobody believes that someone
is not behind us, that two guys could pull this off.

We've had to put up with a lot of that kind of questioning. I think we have done Malaysia proud and we've done it on our own two feet, and we've inspired hundreds of young people who are thinking that if those two guys can do it so can we.

We can't fail. There's no bailout for us. If we fail, we're history. So we fight. We are responsible for 4,000 employees now. I take that very seriously.

Isn't Malaysia better with AirAsia? Where was MAS' low fares before us. We have liberated air travel and made it more competitive.

We have to be aggressive. We don't have anybody else. If we fail, that's it. We don't have a Khazanah to turn to and so we have to fight, and we have been fighting for five years.

If we fail, it's gone, while a state enterprise has a recourse. It is the same in any country. Malaysia is not unique in that.


Q: So where is AirAsia heading after this?

Fernandes: The company has never been as strong. We've just taken delivery of our eighth Airbus, our load factors are at a record level, our Thai and Indonesian affiliates are doing great, it's going to be a record month for us.

The new Airbus has been introduced fantastically, we've moved into the low-cost terminal. Of course it's not perfect, but we're pretty happy with it.

So operationally, it's business as normal.

I think we need to do a little bit of work to let the market understand that this (subsidy issue) is nothing. The mass market supported us when MAS was fully subsidised. Business is as normal as far as we are concerned. We've got great staff and we musn't be distracted by a lot of outside noises.


Q: How are your new aircraft orders looking as business expands?

Kamarudin: As far as the aircraft is concerned, that is one of our major concerns. We have made massive aircraft acquisitions because we believe that we will be able to grow with the domestic routes. We are talking about tourism, but we have also promoted small businesses. Our country with a population of 25 million will now be exposed to a 500-million market. So
small businesses will be able to do their business not only in Malaysia, but also be able to promote their products elsewhere in the region with the liberty of cheap fares.

Because of all these things and the future growth potential, we embarked on massive aircraft acquisitions. We have taken delivery of eight Airbus planes and getting another one almost every month, and certain months we will have two.

The financing has been structured in such a way that we'll get the most efficient way of financing, in terms of the hedging of the interest rates, etc.

What concerns us now is that because of this perception (that subsidies for MAS to discount fares may hurt AirAsia), the financier may be looking at whether we will be able to sustain the growth. We are confident that we will be able to, but all these unnecessary concerns give additional headaches.


Q: AirAsia has come in for some strong criticism in Parliament, from everything to misleading advertising to flight delays. What is your response?

Kamarudin: We don't mind criticism, but we hope it's fair and substantiated. Not baseless. We hope that the Parliament acknowledges the huge contributions we have made to the country. We have carried 20 million people and many of them never dreamt of flying and many of them are their constituents.

We are a common man's airline and when we walk the streets we are thanked.

Since all this press, we have received 22,000 letters of support from all over Malaysia thanking us and saying they support us.


..and the latest UPDATE from AWSJ

Budget Airlines Hit Rough Patch As Costs and Competition Climb
By CRIS PRYSTAY, July 24 06

SINGAPORE -- Stiff competition and high fuel costs are creating turbulence for Asia's fledgling budget airlines -- and their shares.

Five years ago, Asia's first budget carrier, Malaysia-based AirAsia, took to the skies, followed by a slew of similar airlines in India,Singapore, Thailand and Indonesia. The new airlines broke up de facto monopolies in some countries and enticed many first-time flyers with fares that often cost little more than a bus ticket.

But now, those new players are feeling growing pains.

Kuala Lumpur-listed AirAsia's profit for the quarter ended March 31 fell 44% because of high fuel costs and steep fare cuts after a pricewar with Malaysia's state-controlled full-service carrier, Malaysia Airlines. India's two listed budget carriers -- Air Deccan and Spicejet -- are competing with other new low-cost airlines in a price war that, combined with high fuel costs and aviation-infrastructure weaknesses -- including a shortage of landing bays -- has left most in the red. The shares of all three listed budget operators have taken a beating.

"The sector has run into some head winds," says Peter Harbison, director of Sydney-based Centre for Asia Pacific Aviation, a consulting company. Part of the problem is that regional routes are still doled out by governments, which often favor national airlines. Meanwhile, leasing costs have doubled in the past four years, and fuel costs have tripled.

"Liberalization hasn't happened that fast, and a whole array of costs have gone up -- fuel, pilots and leasing costs. I think 2007 could be a tough year," Mr. Harbison said.

That hasn't kept new competitors from piling into markets like India, where passenger numbers are growing 25% a year as the economy booms. India now has three low-cost carriers operating -- Air Deccan, GoAirlines (India) and Spicejet -- and another, IndiGo, has ordered
100 planes and will start flying in August. Two more companies say they will start up low-cost carriers within the next year.

The competition means it is hard to get landing spots at India's airports, and expensive to find staff: 30% of Air Deccan's pilots were hired outside India.

All this has hammered the stock prices of Spicejet and Air Deccan, which is the brand-name for parent company Deccan Aviation Ltd.

Deccan Aviation, which listed on the Bombay stock market in June, had to extend its initial-public-offering period and ratchet down its IPO price to attract investors. Even so, its shares fell 33% from their IPO price of 148 rupees ($3.17) a share on the first day of trading,
and are now trading at 66.70 rupees. A slump in India's stock market was part of the problem, but the uncertain outlook for the budget-airline sector -- and the fact that Deccan Aviation is still unprofitable -- contributed to the weak debut, analysts say.

Spicejet only recently inched into profitability. In April, the company announced its first-ever quarterly profit, of 43 million rupees, for the December-to-February period. Still, Spicejet's shares have dived 43% in the past six months, and closed at 41 rupees Friday.

Investors should steer clear of India's budget carriers, even at their current low prices, many analysts warn. "We're going to see consolidation over the next three to five years," predicts Arun Kejriwal, director of Kejriwal Research and Investment Services in Mumbai. "There's no point in buying these shares at this point in time. Clients should wait until these airlines start reporting profits -- and see where the industry is headed."

Asia's largest low-cost carrier, AirAsia, serves domestic and regional routes from Malaysia, and operates separate joint-venture low-cost airlines in Thailand and Indonesia. It is the only listed low-cost airline in Southeast Asia, and the only one with a profitable track record. But analysts are divided on whether investors should buy AirAsia's shares.

AirAsia's shares got a boost in March, when the Malaysian government announced it would restructure the country's ailing state-controlled flag-carrier, Malaysia Airlines, and handed AirAsia over 90 of Malaysia Airlines' domestic routes -- many of them loss-making.

The company's stock has slumped 24% since May 1 on news of slower earnings growth. The fall accelerated after July 10, when the government announced that it would allow Malaysia Airlines to offer discounted fares on core domestic routes it still retains. Investors
worry that AirAsia will face future price wars against a revamped and revitalized local competitor. AirAsia shares ended Friday at 1.33 ringgit (36 U.S. cents).

"The business is growing, but [AirAsia's] stock has been something of a market darling and I don't see the fundamentals to justify that," says Peter Negline, a Hong Kong-based analyst at J.P. Morgan. He has had a "sell" rating on the stock for more than a year.

Mr. Negline says AirAsia's past success in Malaysia had been aided by ineffective competition from Malaysia Airlines, but that has changed. The Malaysian government -- which effectively took over ownership of Malaysia Airlines' domestic operations in a prior restructuring in
2002 -- has soaked up the airline's losses for years. But under a new restructuring plan, which kicks in Aug. 1, Malaysia Airlines will take responsibility for its own financial performance on both international and domestic routes.

"I think we're going to see a much more tense environment between AirAsia and Malaysia Airlines than we've seen in the past," Mr Negline says. "[Malaysia Airlines] has been very much the weaker party, but I think the competitive environment has shifted dramatically," now that the flag carrier has been restructured and it has shed its loss-making routes. AirAsia, meanwhile, could be stuck with Malaysia's least profitable domestic routes.

AirAsia executives argue that Malaysia Airlines' new mandate is good news. "MAS now has to be run commercially," Tony Fernandes, AirAsia's founder and chief executive, said in an interview. "As long as there's no free money coming into MAS -- and I'm confident in that -- MAS will have to price fares so they're profitable." He contends that AirAsia can turn a profit on routes that Malaysia Airlines couldn't, because if its lower-cost model -- and will counter high fuel prices by raising fuel surcharges, which are currently much lower than other
regional airlines.

Some analysts still like AirAsia. "My philosophy is the same: The lowest-cost contenders are going to win at this game," says Chin Lim, an analyst at Morgan Stanley in Singapore. He likes the fact that AirAsia has stuck to a true low-cost model with no frill services.

Malaysia has also recently agreed to grant AirAsia routes to China and India. "That's a good trade-off" for taking on domestic routes that might be tough to wring a huge profit from, Mr. Lim says. He has a "neutral" call on the stock. "But I think the price has come down to a
point where it's looking very attractive," he says.

Mr. Negline thinks otherwise. The entire budget airline sector in Asia, he argues, has still to prove itself to investors. "The low-cost carrier sector [in Asia] still hasn't shown it deserves a seat at the table," he says.

Read the latest posting (Aug 05 06) on AirAsia:

AIR ASIA Soars HIGHER; EXPECTED 67% PASSENGER Rise 2007; NEW Flights to CHINA, INDIA , PELAMBANG, PEKANBARU; MAS Fares Hike Irks TRAVELLERS

2 Comments:

Blogger lubok melayu said...

Multimid! Terimakasih. Reporting yang lebih kemas dan baik dari mainstream media. Anda editor material.

Saya simpati jugak dengan Tony Fernandes. Dia entrepreneur yang patut dicontohi. Air Asia dari abu jadi syarikat penerbangan yang maju. Tak ada sabsidi dan pada mula2nya saya dengar tak dapat bank loan pun. Dah tentu backer nya hebat (orang kata Ananda Krishnan is the financier), tapi tu cerita lain. Pengusahawan Melayu tak ramai yang macam Tony; yang ada pun tak jadi besar macam dia.

Tapi bab besar kepala tu betul jugak. Ini berlaku sejak dia berkawan dengan sikeparat Kalimooolah, organ penting Takpe Lah Badawi. Diorang dah rapat akrab macam bercium di mulut dah. Latest project, to build a hotel chain together (mungkin KJ pun will have shares). That's how LCC Terminal boleh dapat tanpa banyak hal.

Saya rasa Air Asia should grow, tapi not at the expanse of MAS or the country (the people of the country).

Kita harus hati2 juga jangan sampai krisis ini digunakan setengah pihak yang dipercayai oleh Takpelah Badawi untuk menjual saham2 Tony kepada Singapura.

Jadi pulak Air aSIA nanti, anak syarikat SIA atau SIngapore AIrlines!

11:24 AM  
Anonymous rocky said...

I've flown air asia and mas many times. There are flies on both airlines. So does TG.

Now for the low fares. I got low fares many times on Air Asia. KL/BKK/KL RM143. That is low fare. Unfortunately this MPs don't use internet to book. Even today I got a low fare to BKK for travel in Sept,06 for RM172.98. But if they expect Air Asia to sell all the tickets at lowest fare, well the MPs must be dreaming. Well they are no businessmen but just lawyer buruk and now trying to be business consultant.

Give them a licence to run an airline and see how they do. See if they can run it as well as they talk.

10:56 PM  

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