June 25 (Bloomberg) -- AirAsia Bhd., the region’s biggest budget airline, said it will dissolve a low-cost carrier venture with ANA Holdings Inc. amid disputes over operating the company.
Senior managers appointed by ANA “just didn’t understand the low-cost business,” Tony Fernandes, AirAsia’s group chief executive officer, said in a telephone interview today. ANA will buy out AirAsia’s stake in the airline, the Tokyo-based carrier said today in a statement, without giving a reason.
AirAsia Japan has struggled to fill as many seats as low-cost carriers Peach Aviation Ltd., partly owned by ANA, and Jetstar Japan Co., which also began budget flights in Japan last year. While the Malaysian discount carrier has successfully expanded its low-cost model to countries including Thailand and Indonesia, its strategic partnership with Malaysian Airline System Bhd. was terminated last year after union protests.
AirAsia Japan’s partners couldn’t agree on domestic routes to fly out of Narita, said Fernandes, without providing specifics. Differences between the two companies stemmed from ANA’s background as a full-service carrier versus AirAsia’s experience with budget services, he said. He also said allowing ANA to appoint the chief executive officer and chief financial officer was a mistake.
“We just couldn’t agree on the right people to manage the business and the right way to manage the business,” he said, speaking from Jakarta. “The load factor was very good, if you look going forward. It’s just that we had the wrong cost structure.”
The Malaysian carrier will get a full refund for its investment, including debt, and this may have a “positive” effect on earnings, Fernandes said. ANA will keep operating low-cost carrier services from Tokyo’s Narita airport until the end of October under the AirAsia brand, according to the Japanese airline’s statement.
AirAsia, based in Sepang, Selangor, fell 1 percent to close at 3.03 ringgit in Kuala Lumpur trading. The shares have risen 18 percent this year, outperforming a 2.4 percent gain in the benchmark FTSE Bursa Malaysia KLCI Index. ANA fell 2 percent to 197 yen in Tokyo and is up 8.8 percent this year.
AirAsia Japan, which began operations in August, has five domestic services. It also flies to Seoul and Busan in South Korea. The carrier planned to add flights to Taiwan next month and was considering another overseas flight before the end of March as it more than doubles its fleet to nine planes from four, Yoshinori Odagiri, chief executive officer of the carrier, said earlier this month.
AirAsia will return to the Japanese market and has been approached by three or four potential partners, said Fernandes. Its next partner may not even be an airline, he said.
“It’s shown that legacy airlines cannot run low-cost carriers,” said Fernandes. “A like-minded airline maybe, but not a full-service airline.”
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