AirAsia Buys Zest Air Stake to Boost Philippines Travel Bet

AirAsia Bhd. (AIRA), Southeast Asia’s biggest budget carrier, bought a 49 percent stake in Philippine rival Zest Airways Inc., increasing its bet on a surge in travel in the country.

The Sepang, Malaysia-based carrier’s Philippines venture AirAsia Inc. agreed to acquire the holding and all of Zest’s affiliate Asiawide Airways from Alfredo Yao, vice chairman of Export & Industry Bank Inc., according to a joint statement from the carriers today. Yao will get a 15 percent stake in closely held AirAsia Inc., Chief Executive Officer Marianne Hontiveros said in a briefing today in Manila.

“The Philippine market is very small compared to what it should be,” Tony Fernandes, the group chief executive of AirAsia, told reporters today in Manila. “This strategic partnership is about growing the market.”

AirAsia’s expansion in the Philippines comes a week after it won approval to form a unit in India. The Malaysian carrier formed the Philippine venture in December 2010 to gain access to routes within the country as rivals Cebu Air Inc. (CEB) and Philippine Airlines Inc. expand their fleets and boost flights in the region.

The AirAsia Philippines unit is a venture with former Philippine Long Distance Telephone Co. (TEL) Chairman Antonio Cojuangco and two investors. Cojuangco and the two other investors will now own 15 percent each of the company, matching Yao’s 15 percent stake.

AirAsia Inc. shareholders will also add funds for working capital, according to the statement, which didn’t elaborate.

The Philippine operations will get a share of the 100 Airbus SAS A320s AirAsia ordered last year, Fernandes said at the briefing today.

The Philippines is targeting 5.5 million international visitors this year from 4.3 million in 2012, Tourism Secretary Ramon Jimenez said Feb. 12. President Benigno Aquino has raised the domestic tourism target to 56.1 million annually by 2016, after the original goal of 35.5 million was breached last year, when the number of local tourists climbed to 40.7 million.

Zest Air operates out of the Ninoy Aquino International Airport in Manila, which comprises the bulk of the inbound traffic to the Philippines. AirAsia has the Clark economic zone in Pampanga province as its hub.

The “potential is huge” in terms of flying to Japan, Korea and China, once the Philippines’ safety standards improve, Fernandes said. The Southeast Asian nation’s Category 2 rating from the Federal Aviation Administration, which means it doesn’t meet international regulations, has limited the carrier’s expansion, he said.

AirAsia fell 0.4 percent to 2.81 ringgit as of 4:35 p.m. in Kuala Lumpur trading, paring its gain this year to 2.9 percent.

To contact the reporter on this story: Cecilia Yap in Manila at cyap19@bloomberg.net

To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net; Colin Keatinge at ckeatinge@bloomberg.net

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