Malaysia Air stocks rocket 18%

Malaysian Airline System surged the most in 12 years in Kuala Lumpur trading and AirAsia tumbled after investors in the country's two biggest carriers agreed to a share swap. Malaysian Air rose as much as 18 per cent, the biggest intraday gain since August 1999, after AirAsia chief executive officer Tony Fernandes and partners agreed to take a 20.5 per cent stake. In return, they will give Malaysian Air's state-controlled parent Khazanah Nasional ten per cent of the budget airline. The two carriers also will look to cooperate in areas including plane purchasing and opening new routes. "Teaming up with AirAsia is a good thing," for Malaysian Air, said Scott Lim, who manages the equivalent of $470 million (Dh1.7 billion) as chief executive officer of Kuala Lumpur-based MIDF Amanah Asset Management. "It has a lot more mileage to go in terms of its revival." Sepang-based AirAsia declined as much as 14 per cent, its biggest intraday drop since October 2008. The deal may detract from the ‘hip upstart' image that has helped AirAsia win passengers, said UOB-Kay Hian Research, which downgraded the budget airline to ‘sell.' "We fail to see how an alliance would benefit AirAsia," the broker said. "There could be some risk of brand dilution." Article continues below Opportunity AirAsia fell 11 per cent to 3.50 ringgit as of the 12.30pm trading break, while Malaysian Air was 9.4 per cent higher at 1.75 ringgit. Both stocks resumed trading yesterday after being suspended ahead of Monday's announcement. There is a ‘tremendous' opportunity for AirAsia to grow quickly after forming the alliance, Fernandes told Bloomberg Television in Kuala Lumpur yesterday. "It removes a lot of regulatory hurdles." The share exchange meant that Khazanah, a government-owned investment agency, is now a common shareholder in both airlines as well as Malaysian Airports Holdings, the country's airports operator. "Routes rights was always an issue," Fernandes said. Malaysian Air and AirAsia will continue to expand and neither will cut services, Fernandes told reporters on Monday. The deal will aid AirAsia by allowing it to focus on developing new markets rather than on competition at home, he said.