Malaysian airline tie-up hailed as a win-win

The surprise alliance between loss-making flag carrier Malaysia Airlines and no-frills AirAsia will turn a costly rivalry into a partnership likely to boost their revenues, analysts said Wednesday. Industry experts hailed the strategic tie-up as clearing the way for each side to focus on and grow their core markets -- Malaysia Airlines as a premium long-haul carrier and AirAsia as an aggressively low-cost budget option. The refocusing of the two Malaysian rivals is expected to better enable them to meet tough competition from the likes of regional giants such as Singapore Airlines and Thai Airways. "Their partnership will result in the consolidation of the domestic aviation industry," Shukor Yusof, an aviation analyst with Standard & Poor's Equities Research, told AFP. "More importantly for ailing Malaysia Airlines... it will help boost their revenue, with AirAsia providing the expertise," he added. At the heart of the deal is AirAsia's colourful CEO Tony Fernandes. The former music industry executive quickly steered the once loss-making budget carrier into the black after acquiring it a decade ago, and the government clearly hopes he can do the same for Malaysia Airlines. The tie-up announced Tuesday involves a share swap and a new management team for state-linked MAS that brings Fernandes into the boardroom of his erstwhile foe. "The concrete efforts to revive MAS, and a revitalised board member and management team will provide fresh impetus to MAS's turnaround," securities firm AmResearch said in a research note on the deal. Fast-growing AirAsia now already flies to 78 destinations, while its long-haul budget arm AirAsia X -- launched in 2007 -- covers another 11. Meanwhile, state-controlled Malaysia Airlines, launched 64 years ago, has more than 110 airports on its route map. Currently, they compete head-to-head on a number of key routes, hitting their bottom lines. But the deal is seen leading to a mutually profitable route rationalisation and other cost savings such as shared aircraft maintenance and joint purchases of planes. "This is especially related to the optimisation of routes and in the sense of avoiding cannibalisation" -- in which carriers hurt each other by competing for the same routes -- Malaysian firm TA Research said in an analysis of the deal. It added AirAsia could see quick gains if Fernandes succeeds in reining in competition from MAS's domestic budget carrier Firefly, while MAS will benefit from the infusion of "new blood". The deal will give AirAsia an extra edge in the region's fast growing budget air-travel sector, which has seen a number of new airlines set up as firms try to make the most of Asia's rising middle class. As AirAsia has steadily expanded, MAS has struggled. In recent years it has been forced to sell off its headquarters, slash unprofitable routes and fire thousands of staff to avoid bankruptcy. Hurt by rising fuel costs, in May it posted a first-quarter net loss of 242.3 million ringgit ($79.9 million) compared with a profit a year earlier. However, Shukor said it remained to be seen whether the pair will gel. A key point is whether Fernandes is given free enough rein to "weave his magic" for MAS, he said, noting the flag carrier has a 19,000-strong workforce that will be politically difficult to trim. "All in all, it looks reasonable. But I won't say it is workable because the devil is in the details," he said. The deal also has raised anti-trust concerns -- it is subject to a monopoly review -- and may not necessarily lead to lower prices for travellers. "It will be logical for the new alliance to control prices. Airfares probably will not be reduced," Shukor said.