MAS-Qantas Alliance should be supported

The name of the game in the airlines industry is now mergers. The latest to join the bandwagon is British Airways (BA) and Australia's Qantas Airways Ltd. Apart from Qantas, BA is also talking to American Airlines and Spain's Iberia Airlines. Delta Airlines has taken over Northwest Airlines while RyanAir is making a second attempt for Aer Lingus.

Mergers in the airline industry were rare some four years ago because such exercises were plagued with failures. Early mergers such as Ozark Airlines with Trans World Airlines Inc in the 1980s and Continental Airlines with United Airlines lately, failed because a bigger entity did not translate to a better bottom line.

That's because the merging entities had to overcome mine-fields ranging from unions and pilots to regulators and politicians. Governments, in particular, are sensitive over ownership issues, particularly if it involved foreign airlines. This is why mergers amongst airlines normally happen when the entities are within the same continent.

Even mergers of airlines within the same continent are plagued with cost issues because cutting capacity and manpower layoffs are tough decisions to make.

But the merger between KLM Royal Dutch Airlines and Air France that was completed in 2004 proved that a merger may not necessarily be bad. The merger was structured in such a way that both airlines kept their identity and listing status. In terms of shareholders, Air France has the upper hand but KLM has veto rights.

The Air France-KLM merger proved to be an eye-opener to the sceptics. Its profitability increased and the merged entity increased its workforce instead of shedding staff and it has also expanded its network.

That has been the strongest point which Qantas has put forward in its bid to drive mergers between airlines in the region. It's understandable as the unions in Australia are among the strongest.

But the biggest problem for mergers between airlines in this part of the world is governments, especially if it involves national airlines. Governments erect a fence of protectionism when the mere mention of merger or takeover crops up. Ownership is a sensitive issue, which is why national carriers such as Singapore Airlines have failed in their attempt to take over the likes of Ansett Australia and China Eastern.

Even developed nations such as Australia have regulations whereby Qantas has to be majority-owned by Australians.

The get out of this obstacle, the head honchos of airlines and merchant bankers are piecing together a structure that involves an arrangement that is close to a merger but not a full-fledged merger.

A full-fledged merger would mean amalgamation of shareholders and operations. Also, a single listed entity and new a new identity. But that is not what the Air France-KLM model was about. The identities of the two airlines and their listing status were maintained.

What is being looked at in the Qantas-BA merger - termed as a merger of equals - are share swaps and overlapping boards of directors. Both entities are also to keep their listing status. By having overlapping boards, it means some directors of BA will be on the Qantas board and vice versa.

What Malaysia Airlines System Bhd (MAS) and Qantas are talking about is a collaboration that is almost close to a merger but does not involve equity. They are talking about overlapping boards that would enable the operations of both entities to head in the same direction. They are talking about juggling with a bigger seat inventory, cross-selling tickets and enlarging networks and reach. The identity and social obligations of both airlines remain distinct. There is no threat of either losing its identity or rights to fulfil the aspirations set by the respective airlines. It's hard to believe that such a model can be worked out but work is underway to make it work. Many would be surprised by an arrangement that falls short of merger between MAS and Qantas. After all, Qantas is a much bigger entity and is in talks with big boys such as BA.

But the reason Qantas wants to do a deal with an Asian carrier is to increase market share and profitablity. And this is not at the expense if its partner, which is MAS in this case.

What's telling in this collaboration is that there are no causes pushing both parties to the table. Both Qantas and MAS are profitable even in this intense period for the airline industry. They are both talking not about their survival today but for tomorrow and the future. Don't forget-competitors are also out there to pounce on the opportunity.

The least the shareholders and regulators could and should do is to assist in whatever way they can.

In the case of MAS, Khazanah Nasional Bhd and the Ministry of Finance should do all they can to facilitate the collaboration. There should not be any feet dragging over the matter. A decision should be made quickly. The last thing we want is a repeat of the fiasco involving the Proton-Volkswagen deal. Delays and delays finally landed Proton nowhere.

Air Asia X launched KL-London flight

Tiger ready to pounce in freer skies

The Kuala Lumpur-Singapore traffic could increase to the extent of challenging the likes of Sydney-Melbourne and Barcelona-Madrid routes

THE liberalisation of the Kuala Lumpur-Singapore sector could see it becoming one of the world's busiest air routes alongside Sydney-Melbourne and Barcelona-Madrid. Tiger Aviation Pte Ltd group chief executive officer and president Tony Davis said the entry of more players could see the Kuala Lumpur-Singapore traffic increasing to the extent that it rivals the likes of trunk routes like Sydney-Melbourne. "Its development was restricted before due to the monopoly by Singapore Airlines (SIA) and Malaysia Airlines, but now it could enter the top 10 ranking of global markets," he said.
In September last year, Barcelona-Madrid was cited the world's busiest air passenger route with 971 flights a week. Other high-density routes include Sydney-Melbourne. Davis said the Kuala Lumpur-Singapore route was important for Tiger Airways as it expected travel between the two countries to accelerate. "The route will remain profitable (to Tiger Airways)," he said. Tiger Airways, a budget carrier 49 per cent owned by SIA, is increasing its daily frequencies to five times a day from this month. It will mount flights next to Kota Kinabalu from Singapore in March next year, after launching its Singapore-Kuching flights last month. "We are getting more and more requests to fly to Peninsular Malaysia, in particular Penang, and we definitely see potential there (in Malaysia)," Davis said.
He added that Malaysia stood to benefit from the current problems in Thailand as travellers, put off by the situation in that country, might well opt to holiday in neighbouring destinations instead. On Tiger Airways' network expansion, Davis said it would push ahead with plans to increase capacity. It is eyeing 40-60 per cent capacity growth next year. Tiger Aviation announced last week group profit of S$9.9 million (RM24 million) for the financial year ended March 31 2008. As an unlisted entity, Tiger Aviation does not need to reveal its profit numbers. Tiger Aviation posted 59 per cent gross revenue growth in the quarter ended September 30 2008. The number of passengers it carried was 58.8 per cent higher, while capacity rose 61.8 per cent. Other Tiger Aviation Group shareholders include Indigo Partners LLC (24 per cent stake), the investment firm founded by Bill Franke; Irelandia Investments Ltd (16 per cent), the private investment arm of Tony Ryan and family; and Temasek Holdings Pte Ltd (11 per cent).

Daily KL-S’pore flights soar

From yesterday, air travellers on the Kuala Lumpur-Singapore route can choose 14 daily flights from low-cost carriers and more than 15 from full-service carriers.
This is a huge jump in choices from a year ago, which saw only Malaysia Airlines and Singapore Airlines plying the route. In February, low-cost carriers had begun launching limited flights. But from Dec 1, all airlines in Malaysia and Singapore can launch flights between the two capital cities. The change has come a month ahead of the liberalisation of the Asean Open Skies for capital cities.
Both AirAsia and Tiger Airways, which are flying seven and three to four flights respectively on the route, are eager to increase the frequencies. AirAsia Bhd group chief executive officer Datuk Tony Fernandes said yesterday that he wanted to add an additional flight by next month when the airline took delivery of more aircraft. “My target is to have 12 daily flights for stage one. Eventually we would like to have 24 flights daily or every half-hourly flight,’’ he said. The response had been “fantastic’’ for the KL-Singapore route even though it was just day one of the sector’s full liberalisation, he said. The budget airline sees its load factor averaging 75% on the route.
Tiger Airways chief executive Tony Davis said from Singapore that the carrier had seen huge demand for its flights and would increase its frequency to five daily flights from three or four now on weekdays. “Our loads are very good and we see strong consumer demand. We just saw our 3.30pm flight took off from Singapore to KL and there were only two empty seats out of the 180 seats in the aircraft,’’ Davis said.
National carrier MAS commercial director Datuk Abdul Rashid Khan, believes the Singapore-KL route has always been a springboard for connecting flights from KL International Airport (KLIA) to its global destinations such as outbound traffic from Singapore and likewise, for the return via KLIA. “We will continue to leverage on (our) partnerships to remain competitive as well as profitable on this route,’’ he said in an e-mail response.
An SIA spokesman, in an e-mail reply said the opening of the sector was good for consumers and the airlines. Competition would force airlines to be more cost effective and innovative in the product and service offerings, he added. “We offer competitive fares. The Singapore-KL route will now function like most other markets in the region. There will be price competition and fares will vary in line with demand,’’ the spokesman said.
MAS and AirAsia mount seven daily flights each on the route, SIA and SilkAir, four flights each, Tiger, three or four flights and JetStar, three. Malaysia’s Firefly is still hoping to ply the route from Subang and is still awaiting the Government’s response, according to managing director Eddy Leong.