Air Asia: PM ‘Flip-Flop’ Abdullah’s bail out in the making?

In the world of commercial aviation, the model that many have known by now, Ryanair, the airlines that Air Asia is based on, is not in the best financial status despite making profits for the last fiscal year. The escalation of fuel prices at the global level will be eating into the profits of low cost carriers.

Sources from the airline industry has made known privately that Air Asia is the next budget carrier to go Ryanair’s way. The promoters and directors of Air Asia have amassed huge wealth from the capiltalization and listing exercise of the fledgling whilst the airline is facing acute financial problems with big orders of aircrafts that it cannot fulfill (To date, Air Asia made a commitment of 100 A 320s from Airbus with another 50 more as options).

When AirAsia was listed a few years back, they issued 880 million shares of 10 sen each and they did not really have assets except probably a couple of tables and chairs. They did not own any aircraft as all of these B737s then were just leased. They probably used their over glorified ‘travel agency business model’ to illustrate ability to make money on other peoples’ money, to qualify for listing. In the past, Air Asia have had several mini mishaps, that were not reported in mainstream media. Even though Malaysia Airlines operate the same B737s (probably older), they did not get as many as Air Asia’s tire blow-outs or skidded on runaways during take offs or landings.

So now, when the chips are down, what will happen to the low cost airline? Even when Air Asia were reaping good money from their gimmicky pre-sales, they did not bother to invest in maintenance, repair and overhaul (MRO) facility; a must for an airliner of that operations size. They reason is simple: It is a high investment and the owners of Air Asia probably don’t plan to stick out that long.

Malaysiakini has the story:

Airlines must merge or go bust: Fernandes

Malaysiakini – Jun 16, 08 2:07pm

Budget carrier AirAsia said today that surging fuel prices will force carriers worldwide to merge or face bankruptcy.

AirAsia’s founder Tony Fernandes insisted he will continue with an ambitious expansion plan despite the industry turmoil which he said had sent 27 carriers out of business in the past four months.

“We are seeing a consolidation in the aviation industry. Some will merge while others will go bankrupt. A lot of people are not going to survive this (fuel hike) including Asian budget carriers,” he told reporters.

Fernandes said AirAsia had been approached by other airlines about tie-ups and operating deals, but did not elaborate.

He insisted the carrier would stick to its plan to expand routes, increase flight frequency and accelerate the delivery of the remainder of its 175 new Airbus A320 aircraft.

“There are two ways to deal with the oil prices. You can put your head in the sand and kill yourself. But we believe we need to go out and market,” he said.

“I’m not going to give up now because of high oil prices – we have 6,000 staff.”

He’s optimistic oil prices will come down

Fernandes said AirAsia will mount additional flights to Hong Kong and Guangzhou and open new routes to Ujang Padang and Balik Papan in Indonesia.

“We are still bullish. Ticket sales have been very good in the last few months. A lot of Singaporeans are flying to Kuala Lumpur to use AirAsia. We do not see any slowdown. There is still a big untapped market potential,” he said.

“There is no change in our growth plan,” he said, adding the carrier would not simply increase ticket prices as a means to offset rising costs.

Fernandes said he was optimistic that oil prices would come down but said: “My job is to survive even if the oil price is 200 dollars a barrel.”

Due to the economic slowdown and the introduction of new aircraft, as well as increased connectivity between regional destinations, the corporate sector has been starting to use the budget carrier.

“The corporate passenger segment grew 300 percent in the last three months,” Fernandes said.

In May, AirAsia said its net profits defied escalating fuel prices to leap 86 percent in the first quarter.

AirAsia, launched in December 2001 with just two aircraft, has become the region’s biggest low-cost carrier and been imitated by national carriers and other low-fare start-ups.

So this attached statement by Air Asia “Mr. Wonderman” leaves me wondering if another bailout is on the cards where Malaysia Airlines (MAS) could be asked by PM ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi and his corrupt cronies to bail out Air Asia by taking it over and hence absorb all the costs of the aircrafts order. All this under the pretext of “merging” to ensure survival.

MAS, credit to Idris Jala, did better than Air Asia with less fanfare but more credibility in the airline industry. His oil & gas experience and knowledge of the petroleum market has enabled him to hedge on petroleum hence putting MAS on firm grounds despite the spiralling costs of oil.

Kudos Idris Jala!

On the same note, Malaysia Airlines decided to withdraw all ‘interline’ perks accorded to Fernandes, for inter-industry professional courtesy (despite that Malaysia Airlines do not have interline and reciprocity arrangements with Air Asia). This is a reaction for Fernandes ‘unprofessional conduct’ shown in their over-zealous “greediness” statements in the guise of ‘industry competition’, especially after MAS succesful zero-fare promotions. MAS as a ‘five star value carrier’ airliner has managed to compete against Air Asia’s low cost carrier segment, but with full 5 star airlines services.

The Star has the story:

Tuesday June 17, 2008

MAS terminates travel privileges for AirAsia CEO


PETALING JAYA: The war of words between AirAsia and Malaysia Airlines seems to have moved to a personal level with the latter terminating discount benefits for the former’s group chief executive officer Datuk Seri Tony Fernandes.

In a letter dated May 28, MAS managing director Datuk Seri Idris Jala said the MAS management team had decided it was “best to withdraw” Fernandes’ travel privileges following protest letters from many MAS staff.

“I thought I should let you know that there have been numerous complaints from MAS staffers questioning the special privileges granted to you since 2006.

“Many of them feel hurt and frustrated with what they read in the news … in the wake of your various negative statements about Malaysia Airlines,” he said in the letter.

Fernandes said he had been enjoying 50% discounts for first/business class and 75% for economy class. He said he never used the 75% discount as it was only for domestic routes which he flew on AirAsia.

When contacted, Fernandes said he felt surprised when he received the letter “about three weeks ago”.

He explained that discounted or free seats were a courtesy offered to fellow airline chief executive officers and this was practised even between the “bitterest of enemies”.

“We also offer free seats to Idris, but he’s never taken up the offer,” he said. That offer to Idris, he said, would not be withdrawn.

Asked if he was offended by MAS’ withdrawal, he replied: “No, just a little disappointed.”

“I never complained when MAS launched its free fares promotion. It is nothing personal and I will continue to ask for a level playing field.”

“I’d like to say that MAS has the best crew and I’ve always been treated warmly by MAS staff. They have always paid me utmost compliments on what we’ve done with AirAsia.

“I’ve always preferred to fly with MAS but I guess all good things must come to an end,” he said.

He said he received 75% discounts from Cathay Pacific and Qantas Airlines, and flew free with Virgin Airlines.

MAS confirmed this move.

“We’ve provided the travel privilege out of goodwill since 2006 in response to Tony’s request for interline facility for his own travel on our international routes although AirAsia does not have an interline agreement with Malaysia Airlines,” Idris said.

The statement added that according to industry practice, “only airlines with interlining agreements will consider granting such travel privileges for airline employees”.

Even though the company has good cash position (from the ‘pay first, use later’ schemes that their business model is completely based on), the volatility of escalating operations cost will kill them, probably in the medium term. Not having their own MRO means they have to farm out these services, to third parties abroad, something they cannot control entirely.

Probably when Air Asia start to run into difficulty, they would use their ‘Level Four’ connection (as always) and make the Government bail them out; i.e. nationalised their operations by Malaysia Airlines – ‘in the interest of public transportation, communications and national integrity’.

So please Malaysians, beware the potential of another bailout to save another crony of PM ‘Flip-Flop’ Abdullah’s family!

Please do not forget the speed the LCCT was built and the contract handed out to PM ‘Flip-Flop’ Abdullah’s “Biras”. Air Asia has had its fair share of assistance way more than that given to MAS but in the end, truth will prevail: Air Asia is just pure hot air!

Just hope that all of these will be proven wrong so that no more of the Rakyat’s money is robbed by these robbers in government clothing!

Published in: on June 17, 2008 at 21:04  Comments (14)  

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14 CommentsLeave a comment

  1. Bigdoggy,

    I need reading glasses:
    I can’t seem to see

    where is the crime?

  2. another bail-out? hmmm.. PKFZ bailed out at 4.1 bil. AirASia and MAS bailout… not a surprise

    So far here are some conspiracy theories of where the oil price hike went to
    1. post office (of course, pak lah dulu la)
    2. sabah (goodies)
    3. sarawak (goodies)
    4. terengganu (oil royalties)
    5. Air Asia?
    the paymaster would be me…sob..sob..

  3. In times of economic mayhem like at present, I would expect the Government to use its best efforts to assist strategic entities in trouble, not only those vested interests directly connected to PM, the 1st Family and his closest goons. Air Asia is expected to be in acute financial crisis soon enough and Big Dog is crying out “foul” should bail out by the Government arises..
    Compare against the NUR (Northern Utility Resources Sdn Bhd) case, the IPP for the Kulim High Tech Park, where “two NURs {major} shareholders have obtained documents showing that E&Y (Enest & Young)’s agents at NUR deliberately didn’t inform the stakeholders of an offer by TNB for an independent power purchase agreement. NUR is under receivership, with E&Y as the receiver manager”. ( “Riong Kali has been linked in trying to take over the company, via back door moves”.
    I have the hunch that the two NUR shareholders are Bumi but not at all friendly with Riong Kali and associates. Thus Riong Kali vis-à-vis SIL had already creamed Air Asia and expects the Government to soon bail out their investments in Air Asia while they want to make a kill on NUR or any other Bumi entities not associated with them but perhaps indirectly connected to Tun’s friends under the pretext of bail outs. If my assumption is correct, then the stakes in their war with Tun has been raised significant. Such are the type of corporate irresponsibility and greedy citizens we have in Riong Kali/ SIL – most despicable when all the big deals must be connected and lucrative to PM and his goons.

  4. I wonder what will happen to the money spent on LCCT

  5. Turn lcct into parking garage for all the tun,tan sri etc private jets.

  6. Air Asia is making money from the surcharges.
    Why are their surcharges always higher than other airlines flying the same route ? The traveling Malaysian are their real suckers.

  7. Lagi-lagi PM & SIL kroni.. i am sick of this bail-out was way back then in 1998 during TDM.
    Now AAB is copy-cat the same model of TDM.
    Can’t goverment put strick clause that”:
    “Any PFI project, that having financial problem must bear their owned cost and the goverment or it’s agent should not intervened and be for bailing-out”

  8. few things to ponder on : of course the escalation of fuel prices at the global level will be eating into the profits of low cost carriers, it’s pointless to say it will affect almost all industries, but maybe it is precisely the flexibility and cretivity by which such low cost carriers operate, their no-frills policy, that will give them an edge in implementing measures that are not feasible nor acceptable by their more luxurious counterparts. after-all, if it is trite fact that the indirect chain-effect of surge of fuel price that bites maybe as hard as the direct effect, then the low-cost carriers have the edge in that they can streamline even more operations (and bring down their operations cost) and come thru beautifully.

    and speaking of their operations cost, I assume u were talking about AirAsia not having their own MRO facility and contracts them out instead, but their move to bring MRO back in Malaysia from Singapore since May last year does show his commitment to keep providing low-fare flying, instead of the lack-thereof to “stick out that long”.

    let’s wait it out and see, Tony Fernandes has shown his agility of mind and business prowess in such short time, that I think that nobody can deny. let’s not jump the gun now to say the only way out for his baby is to be bought over by its arch-enemy! at the end of the day, I care about flying cheaply (=P) so maybe there’s a glimmer of hope in the midst of all this still.

  9. C’mmon guys! where is the “malaysia boleh” spirit!!! So called “rakyat’s money” is already all over the place…. whether its sitting in the swiss bank accounts, diamonds or private jets purchased by…..(u dont need to be a harvard grad to guess)

    With regards to Air Asia, one cant deny their success as millions use their carriage regardless of their high surcharges.Ask those who can finally afford to sit on a plane? Ask companies who can finally take their whole office for an off site meeting? Unless you are trying to say that the public is stupid!!

    As for MAS, its the national carrier and they can still afford to get intimidated by a low cost airline. what does that say? instead of competing in the international arena, they are fighting and competing with a low cost carrier by bringing down fares to 0 and 9 ringgit. you call that 5 star value carrier??

    If only they were smart, instead of fighting, both the carriers should sit down and figure out how to tackle the impact of rising fuel charges without biting at each other. Afterall both the carriers belong to MALAYSIA and maybe its time they wake up and get their priorities right and think of the impact on MALAYSIANS when making a decision!!!!!!!!

  10. […] despite making profits for the last fiscal year. The escalation of fuel prices at the global l service ends Joplin looks to new carrier w/ link to earn …But an announcement about a […]

  11. wat r the political impact on airasia?

  12. […] itu) secara mudah diberikan lesen universal stock broking dan dinaik taraf kepada bank pelaburan. Khairy juga dikatakan berperanan besar dalam pengembangan strategik AirAsia, terutama dalam tempoh yang amat singkat. Kontroversi paling […]

  13. […] industrty. He has rub so many people on the wrong side, too many times. Few years ago, Malaysia Airlines MD Dato’ Idris Jala decided to revoke the privileges on flying First Class a…and their immediate families at a faction of the published price based on inter-airline […]

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