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-   -   Air Asia's end is near? (https://www.pprune.org/south-asia-far-east/234986-air-asias-end-near.html)

DoMePlease 16th Jul 2006 18:08

Air Asia's end is near?
Clouds loom over Malaysian budget carrier AirAsia's future

KUALA LUMPUR, Malaysia (AP): It has been blue skies for Malaysia's no-frills carrier AirAsia since it begun flying five years ago, but dark clouds are looming on the horizon.

AirAsia, a top pick of foreign investors since it was listed in November 2004, is losing its shine as high fuel costs, weaker-than-expected profits, huge capital commitments and increasing competition threaten its growth, analysts say.

Its share price plunged 12.2 percent last week to 1.30 ringgit (US$0.36; euro0.30) on Friday -- the lowest level in 1 1/2 years -- after the government said it would allow rival Malaysia Airlines to offer discounts on domestic routes.

Some brokerages have downgraded the stock to a "sell'' amid concerns the move may trigger a price war and hurt AirAsia's earnings.

Foreign investors hold 45 percent of AirAsia, the region's largest budget carrier in fleet size.

"In the volatile airline industry, it is difficult to maintain a market darling status for too long,'' said Peter Negline, aviation analyst with JPMorgan Securities in Hong Kong.

"We believe AirAsia is about to lose this as its poor earnings track record, high oil prices, lackluster franchises, large capital expenditure program and increasing domestic competition all hit the company,'' he said.

AirAsia has grown phenomenally since it started operations in January 2002.

Profitable from Day 1, it now has more than 1,600 employees and flights to more than 100 destinations in eight Southeast Asian nations, China and Macau.

Signaling Chief Executive Tony Fernandes' big ambitions, the airline signed an agreement last year to buy 60 new Airbus A320s over the next five years for nearly US$4 billion (euro3.3 billion), with the option to buy another 40 of the same aircraft.

It also has two 49 percent-owned subsidiaries in Indonesia and Thailand. But soaring fuel costs have hurt AirAsia's profits. In the 2005 financial year, the carrier posted a net profit of 111.6 million ringgit (US$31 million; euro26 million) in its Malaysian operations, 30 percent below its official target.

In March, AirAsia received a boost after winning rights to take over the bulk of domestic air services from Malaysia Airlines from Aug. 1 under government efforts to help the national carrier cut losses and become profitable again by 2007.

Under the revamp, Malaysia Airlines will serve just 22 out of 118 local routes and was told to charge full fares.

But the joy was short-lived when the government made a U-turn in policy this month, allowing Malaysia Airlines to cut fares and setting the stage for a price war with AirAsia, which has protested the move.

Transport Minister Chan Kong Choy last week said the government made the decision to create fair competition and a "level playing field'' between the two airlines.

Despite dropping many routes, Malaysia Airlines still services the most lucrative markets and can now effectively compete with AirAsia in its economy class segment, analysts say.

"AirAsia has reached a crossroad,'' said Muhamad Khair Mirza, aviation analyst at AmSecurities. "It is operating in an environment that is not conducive to its growth.''

The immediate hurdles for AirAsia are to meet large financial commitments, balance its growth and profit target, and overcome competition from Malaysia Airlines, he said.

"AirAsia is no longer a growth earnings story. It can become a market darling again only if the government, or a local white knight, comes in to revive its fortune,'' he said. "Otherwise, the stock will remain lackluster.''

JPMorgan's Negline said the national carrier had been viewed as a "weak cousin'' of AirAsia but it is becoming a formidable foe thanks to major restructuring that has involved laying off staff, reducing capacity and selling noncore assets.

On the other hand, AirAsia may be growing too fast and faces new pressure, he said. "The low-cost carrier model thrives on simplicity, but AirAsia's business is becoming increasingly complex,'' he said.

AirAsia risks getting "indigestion'' from excessive expansion, new fleet addition and cash-flow burdens as high oil prices hit earnings, Negline said.

AirAsia chief financial officer Raja Mohamad Azmi Raja Razali said investors are disappointed by the government's about-turn but the company is still profitable and its cash-flow remains healthy.

"Perception has turned negative because investors fear the domestic air rationalization will hurt our business but fundamentally, nothing has changed,'' he told The Associated Press.

"There are growing pains from time to time but we will manage it in our stride. We are not slowing down in our growth, it's business as usual.''

Rising oil prices pose a big challenge but the airline could further raise its fuel surcharge and hedge its fuel requirements to cope with it, he added.

Left Wing 17th Jul 2006 01:10

They have made huge investments in their training center, 2 A320 sim and a full TRTO...how did a LCC get to afford that ! They should be out sourcing training just like other LCC's.....

Doom is close for sure.

Garfs 17th Jul 2006 06:41

Hmmm Thought the apparent good opportunity to become an arline pilot in Malaysia was too god to be true

flyr_flyer 17th Jul 2006 07:03

True enough. Maybe plan was TOO BIG and TOO Ambitious for AA and maybe too LATE to realise. Hope they would do well.

DoMePlease 17th Jul 2006 08:05

Well what really bites me was that all along AirAsia said the sold cheap fares to benefit the people... but now that MAS can lower its fare to anything, Air Asia is saying its not fair. What happened to benefitting the people???

ZFT 17th Jul 2006 08:54

Originally Posted by Left Wing
They have made huge investments in their training center, 2 A320 sim and a full TRTO...how did a LCC get to afford that ! They should be out sourcing training just like other LCC's.....
Doom is close for sure.

Interesting view- Why do you think outsourcing would be cheaper? 2 of the largest LCCs (Ryanair and SWA) both operate their own training centres.

Left Wing 17th Jul 2006 10:37

Compare the size of Ryan & SWA fleet with AA...it does not make sence.

babyboeing400 17th Jul 2006 13:10

hmmmm.....point for discussion..if AK REALLY does go bankrupt,what will be the effect for MH?I'd very much like to think that it's only gonna benefit MH because of the removal of a strong competition in the ailing domestic routes..

Chrome 17th Jul 2006 13:11

Originally Posted by DoMePlease
Well what really bites me was that all along AirAsia said the sold cheap fares to benefit the people... but now that MAS can lower its fare to anything, Air Asia is saying its not fair. What happened to benefitting the people???

It has become unfair because MAS has the resources (most of it not earned themselves) to take losses by offering discounts just to take traffic away from AirAsia and eventually kill AirAsia. I don't see anything wrong with the discounts to students or senior citizens but they should concentrate on being a full service airline. Why are they not concentrating on competing with other full service airlines, but attacking the smaller, weaker little brother?

Yes people will benefit but why create an unfair competition to another company who have made profits from 'day one' when they achieved that by just being hardworking, thrifty and revolutionary. AirAsia never took money from the Government. MAS takes losses using money obtained from the Government which was collected from the tax-payers just to kill another Malaysian company? Why can't both be helped to prosper with each concentrating in their own niche?

I am a Malaysian tax payer and it saddens me that MAS has lost billions of tax-payers money and after decades of operation, they still require government help and intervention to survive. While I am looking forward to MAS getting their act right in the near future for it is a national asset, AirAsia should be encouraged and helped, not killed.

Benefitting the people or not is not the issue here.

ETOP 17th Jul 2006 14:42

No wonder
No wonder.thats why AK and FAX is selling our f/o job to the Xpats!!USD 70G from B737,USD 40K from F-50 f/o position.:eek: Use these money to cover up the loss:= ???

Garfs 17th Jul 2006 15:12

Originally Posted by ETOP
No wonder.thats why AK and FAX is selling our f/o job to the Xpats!!USD 70G from B737,USD 40K from F-50 f/o position.:eek: Use these money to cover up the loss:= ???

How does one go about "paying" in return for one of these jobs then?

ZFT 17th Jul 2006 20:38

Originally Posted by Left Wing
Compare the size of Ryan & SWA fleet with AA...it does not make sence.

With 100 aircraft on order Ė 500+ crews. Thatís a lot of initial and recurrent training.

Even assuming only 15% attrition annually, thatís still going to fill up those simulators.

No hotac, per diems, loss of productivity etc.

Seems a very sound business case.

reawold 17th Jul 2006 22:59

news out in the past 2 days newspapers:
1) AA to go to Hanoi,
2)Gomen to help AA secure landing rights toChina India.
sounds hardly like an airline that is dying.

but the airline that could, should but did not ,that GLC thingy, still feeling its way around, right sizing (nice biz buzzword but means nothing) still wasting gomen :sad: money.(latest was 650 million) now suddenly realises that the domestic market is important.

thought that they want to be an international player. always saying that the domestic market is too small, unprofitable blah blah blah.

nothing has change. the socalled smart managers are all still around doing damage. and thay are still spending money that they have not earned(MSS money), money that they are PROJECTING to earn(50 mil for 2007) in 2006.:ok:

Chrome 18th Jul 2006 00:34

MH is too proud and will never admit that their past management were weak. They tried to close down AK and they failed, making business conditions worse for themselves. The ones now are 'smarter' with just trying to limit AK's growth while they try to catch up and at the same time roping in partners to help contain the dynamic setup that is AirAsia.

Idris Jala likes to use the word 'going forward'. He has uses this buzz word dozens of times in his speecehes and interviews. But you can't possibly go forward when you go back on issues that were discussed and agreed on weeks/months ago. Here's a tip Idris. You talk about something with someone, get a decision then move forward. If you back out of it, that's ungentlemanly. Wasting precious times discussing it the first time, wasting time when it is deliberated a second time and waste more time debating about it in between that.

Here's a worry for me. Instead of both airlines working together with each taking advantage of the other's strength FAST for the benefit of a lot of people, the neighbours make more and more inroads in this field, have more time to work on the challenges what with the high fuel prices, high competition etc. The time wasted in talking, lobbying and bickering should end.

CAT IIIB 18th Jul 2006 02:11

Future Prospect
So...the geez of all these;Which airline is better for a pilot?AA or MH?

ikan_terbang 18th Jul 2006 05:45

Management is the key to survival here.
MAS is still reeling in from its MSS exercise and cant seem to get a grips with the work culture within.
AK is doing well but the creeping in of ex-MAS work culture is spoiling the airline.

flyr_flyer 18th Jul 2006 05:49

A low cost is still a Low Cost . Both have been trying to kill each other . Good luck to AA . No matter how MH is still gov. owned

Brianigham 18th Jul 2006 08:07

My little 2 cents:

We have to look at history to understand the present and to formulate plans for the future.

MAS, to be fair to the "bungling management" has never had a chance to actually go out there as a business entity and chart its own course.

They have always carried the flag. Which is not a bad thing!

If profits alone was the agenda, then it would have been run different.

Now the situation is a little different. The world of aviation has become more "down to earth" and many businessmen are in the business of low cost carriers.

Low cost, lending the benefit of choice to the customer at lower fares. The structure of these companies as well would have to reflect "low cost".

MAS on the other hand, has led the way in this industry not only in the country but also internationally. Structurally it was not wrong to assume that this was also an "employment creator". It was also the training ground for many people who are now with AA.

Don't hit on MAS:= without understanding the genesis of aviation in Malaysia, on the same note, I am not saying that this company has not rested too long on its laurels.

reawold 18th Jul 2006 08:41

we are all entitled to our opinions based on our own understanding and analysis of the situation and the facts at hand. and the internet is where alternative views are aired. what we can say or cannot say will be decided by the moderators.

PROTON was also an employment agency but only after destroying the many car assemblers in existence then.

mas deserves to be hit if the many priviledges and advantages allocated to it were squandered by incompetent self serving management.

remember the statement made by idris at the international conference that a world jet fuel buying agency be set up? what was he thinking? monopoly?

Chrome 18th Jul 2006 09:13

I don't see why MAS should plead 'social obligations' as its main reason for not doing well in the past. It is still a 'company' and any company should look into their costs so the revenue earned means something. A company that size should target for profits, unlike SMEs which targets breaking even. It was public knowledge that they have not managed their resources well. That's why it's not doing too good.

Come on, all GLCs have social obligations but their number one obligation is to turn a profit and not eat up more and more money that could have gone to better roads and schools.

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