Monday, August 08, 2011

The Little Giant

I was surprised with the announcement last Saturday that Air Asia will swap its shares with MAS to own 20% of the latter. Today, in THIS report I read that MAS CEO is likely to be replaced which is the usual recourse when the body is unwell the head is changed. In fact MAS chairman was recently replaced so more reorganization will take place to rescue the ailing national airline which have not have a profitable business record ever since it was privatized and later brought back under the government's majority control. Running to Tony Fenandes, CEO of Air Asia, to help the transformation of MAS (at a cost, no less a face too) is the right way to salvage the broken pieces. Hopefully through cross holding Tony will see his 20% vested interest significant enough to raise up the aging airline to health, but not at the expense of his own in the long haul sector. Some shareholders of Air Asia may balk at this scheme, which I believe was initiated by the government and Tony had to play to its tune (call it national service if you will) since MAS cannot be a national embarrassment. Today I read in the papers that MAS market capitalization at RM5.347 billion is just about half that of Air Asia's RM10.967 billion which is shocking since Air Asia is a relatively new airline. What make the difference is the head and the business model and culture.

Malaysia Airlines commenced operations in 1987 after the airline changed its name from Malaysian Airline System. The airline began in 1947 as Malayan Airways, being renamed Malaysian Airways after Malaysia gained independence. After that, it changed its name once more to Malaysia-Singapore Airlines and thereafter ceased its operation. It was then divided into Malaysia Airlines and Singapore Airlines. (Source: Wikipedia)

AirAsia was established in 1993 and commenced operations on 18 November 1996. It was originally founded by a government-owned conglomerate DRB-Hicom. On 2 December 2001, the heavily-indebted airline was purchased by former Time Warner executive Tony Fernandes's company Tune Air Sdn Bhd for the token sum of one ringgit (about $USD0.40 at the time). This was after great deliberation as the initial offer was fifty sen. Fernandes proceeded to engineer a remarkable turnaround, turning a profit in 2002 and launching new routes from its hub in Kuala Lumpur International Airport at breakneck speed, undercutting former monopoly operator Malaysia Airlines with promotional fares as low as RM1 (US$0.27). AirAsia is Asia's largest low-fare, no-frills airline and a pioneer of low-cost travel in Asia. (Source: Wikipedia)

Tony Fenandes is a successful business turnaround artiste and his penetration in MAS should be viewed positively although you may call it simply a rescue mission. But that's what a Malaysian ought to do to another Malaysian, right? I am sure Tony has given his wish list to the government and in the coming years Air Asia will no longer be treated like a stepchild anymore.

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