AirAsia won’t be missed, says ex-aviation chief
In this article (4)
Low-cost air travel will remain largely unaffected if AirAsia were to cease operations because of lost revenue caused by the Covid-19 pandemic, says an aviation expert.
Malaysia’s former head of civil aviation, Azharuddin Abdul Rahman, said the impact on air travel and tourism would only be felt initially. Low-cost air travel would soar again after other airlines take up AirAsia’s flight slots. Aviation specialist and researcher Roger Teoh agrees, saying new airlines would be created to take the place of insolvent airlines in a survival of the fittest. Azaruddin said AirAsia’s flight slots would be a precious aviation commodity. The carrier had hundreds of slots every day.
He could not imagine AirAsia closing shop after the airline had “changed the landscape of air travel, not only in this region but in Asia Pacific as well”. Azharuddin said there was a place for both low-cost carriers like AirAsia and legacy full-service carriers such as Malaysia Airlines.
The two airlines have been at the center of recent speculation about a merger, with Malaysia Airlines suffering the impact of its long-standing financial problems.
AirAsia recently announced that 96% of its 255-strong fleet had been grounded because of the Covid-19 pandemic. Its staff has been required to take pay cuts of between 15% and 75%, and aircraft manufacturer Airbus recently announced it would sell six aircraft on order by AirAsia.
Azharuddin said the two airlines should form a partnership but remain as separate entities in order to stay competitive.
The partnership could capitalize on the large 600 million population of Southeast Asia, with the Asia Pacific area as another catchment area, he said.
Azharuddin said a MAS-AirAsia partnership could compete with Singapore Airlines (SIA).
SIA recently merged with its low-cost spinoff airline SilkAir in February, before the height of the pandemic.
‘Root of AirAsia’s problems’
Teoh, a researcher with Imperial College London specializing in aviation, said a merger between AirAsia and MAS would raise airfares over the long term from lack of competition.
“changed the landscape of air travel, not only in this region but in Asia Pacific as well”
He said while it was not certain if AirAsia would cease operations, any potential exit of low-cost carriers would only affect the tourism industry temporarily.
New airlines would be created to take the place of insolvent airlines, in a “survival of the fittest” with potential consolidation among existing airlines.
Teoh said AirAsia management decisions were partly to blame for the airline’s problems. A sale and leaseback policy (in which aircraft was sold and leased back from the buyer) had resulted in higher operating expenses.
He claimed that since this model was adopted in 2019, “AirAsia has not made an annualized profit”.
RM5 billion raised from the sale of aircraft was then redistributed to shareholders as special dividends from December 2018 to August 2019, a move which cost AirAsia’s long-term financial health and resilience.
Hedging on fuel prices at the end of 2019 had caused the airline to lock in its fuel costs, Teoh added.
“They are not able to benefit from the cheap oil prices that we see today,” he said.
“This is expected to result in a very large derivative loss in their coming financial statement.”
Questions & Answers
Q.Why does Azharuddin Abdul Rahman believe AirAsia would not be greatly missed if it stopped operating?
Why does Azharuddin Abdul Rahman believe AirAsia would not be greatly missed if it stopped operating?
He thinks other airlines would quickly take up AirAsia’s flight slots, allowing low-cost air travel to soar again soon. The initial impact on travel and tourism would only be temporary.
Q.What issues does Roger Teoh attribute to AirAsia's current financial difficulties?
What issues does Roger Teoh attribute to AirAsia's current financial difficulties?
Teoh points to AirAsia's sale and leaseback policy, which increased operating expenses and prevented annualized profits since 2019. He also mentioned hedging on fuel prices, locking in high costs before oil prices fell.
Q.What is the expert opinion on a potential merger between AirAsia and Malaysia Airlines?
What is the expert opinion on a potential merger between AirAsia and Malaysia Airlines?
Azharuddin suggests a partnership to use Southeast Asia's population and compete with Singapore Airlines. However, Teoh warns a merger could raise airfares long-term due to reduced competition.
Reader pulse
Will AirAsia survive current challenges?
17,848 votes so far