As Malaysia Air Retreats, Rival AirAsia Keeps Growingby
As Malaysia Airlines struggles to survive, the country’s other big international airline, AirAsia, is growing quickly. The discount carrier has ordered more planes and is moving into such new markets as India and Japan. Last month, AirAsia said it was teaming with Japanese e-commerce giant Rakuten and several other partners to launch a low-cost airline for Japan, with AirAsia taking a 49 percent stake in the new joint venture. That announcement came just a few weeks after an additional joint venture with local partners began flying in India.
Speculators are having a field day. Today a struggling Japanese airline enjoyed a sudden burst of investor interest following reports that AirAsia boss Tony Fernandes may not be finished expanding. The Nikkei Asian Review reported that the Malaysian company is considering a bid for Skymark Airlines, the third-largest carrier in Japan, citing people familiar with the situation.
Fernandes quickly dismissed the reports.
A Skymark spokeswoman also told Bloomberg News that Skymark is not in talks with AirAsia, but AirAsia and financial institutions are discussing the possibility of providing the struggling carrier with support. Even so, the Japanese airline’s shares didn’t surrender their gains and ended the day up nearly 28 percent. Skymark certainly needs help: It lost ¥5.8 billion ($57 million) in the second quarter and on July 31 said there was “material uncertainty” it would survive. Even after today’s surge, the company’s shares are down 40 percent this year.
Either way, an expanding AirAsia will need many more planes. After the company said at the Farnborough Air Show on July 15 that it plans to buy 50 A330-900neo planes, Airbus put the list-price value of the AirAsia deal at $13.75 billion. No wonder Airbus Chief Executive Officer Fabrice Bregier gave Fernandes a big kiss on the cheek at their press conference announcing the deal.
As the problems at Malaysia Airlines have gone from bad to worse, the competitive climate for Fernandes has shifted. Its old rival may emerge a stronger competitor. As Malaysian Airlines restructures, it will “concentrate on shorter regional and domestic networks, as well as downsize the aircraft fleet and staff number,” Hong Leong Investment Bank analyst Daniel Wong argued in a report published on August 11. If a leaner Malaysia Airlines were to focus on shorter flights, according to Wong, one “loser” would be AirAsia.
On the other hand, AirAsia X, the affiliate that flies Airbus A330-300 jets on flights longer than four hours, could eventually get a lift as Malaysia Airlines cuts some long-haul routes. For now, that business is suffering collateral damage. The long-haul market “is soft and overcapacity is at its peak,” Maybank IB Research analyst Mohshin Aziz wrote in a report published on Thursday. The mysterious disappearance of MH370 “has led to a drop in consumer sentiment.” (Read: No one wants to get on a plane.)
AirAsia X announced on Tuesday that it lost 128.8 million ringgit ($40.8 million) in the second quarter, about four times its loss in the same quarter a year earlier. “Our capacity expansion has put short-term pressure on earnings performance,” CEO Azran Osman-Rani said in a statement.
Still, Fernandes said, via Twitter, that AirAsia X had delivered “fantastic performance despite so much turmoil” in the most recent quarter. The second half of the year “looks excellent,” he added, and 2015 will be “a superb year.”