Wednesday, August 17, 2011

Effects of cross shareholding of MAS and AirAsia - The real MOTIVE









August 15, 2011
FMT LETTER
From Peter Chee, via e-mail
The cross shareholdings will not benefit MAS and the public in general. Profitable routes of MAS will be taken off, e.g. Fireflyz’s jet operations will be shutdown, causing MAS to suffer more losses.
The objective of this cross holding is not to revive MAS but to enhance the profitability of AirAsia. If the objective is to revive MAS, Fireflyz’s jet operations, which is performing very well, will not be stopped because AirAsia is worried about competition.
In fact Fireflyz should be taken out of MAS and be allowed to merge with another international airline, like SIA, so that it can be free to concentrate on organic growth and not be told to stop its jet operations.There is a large market for reasonably priced air travel. AirAsia’s focus should on  low cost air travel but Fireflyz’s should focus on reasonably priced air travel.
The cross holdings was to bail out AirAsia because it is in a difficult financial situation due to the high level of purchases of Airbus. The debt to capital ratio of AirAsia is projected to go beyond critical level.
The management of AirAsia is gambling and has pulled Khazanah into the gamble. If the air traffic volume doesn’t improve in the coming years AirAsia will be saddle with debts and many surplus planes. However, AirAsia’s management has maneuvered to pull MAS and Khazanah into a trap and will look to Khazanah to bail out AirAsia.
Buying so many Airbuses is a huge gamble for AirAsia and it may not succeed in this venture because it is facing fierce competition, not in Malaysia, but in international routes. In the coming years there will more low cost airlines.(Some are already in the planning stages). AirAsia owes a huge sum of money to the airport authorities. In this respect it is not a principle creditor and does not have the mentality and culture to be a multinational corporation.
That MAS will focus on quality travel is not a correct strategy because the market demand is not for quality travel but reasonably priced travel which Fireflyz got into at the right place and right time. I commend Freflyz’s management for a job well done because you have read customers’ buying pattern and adopted your strategy to their needs.Well done.
If you do not believe what I’ve said thus far, just observe in the next two years, the level of profitability of MAS. By that time it will be too late as MAS will be cannibalised by the vultures. In order to revive MAS, there must be clear cut objectives to return it to profitability in traffic volume even with lower profit margin.
Based on the objectives stated above, short term, medium term and long term operational plans should be formulated. This should include expanding jet operations of Fireflyz to cover more profitable areas. Fireflyz should operate all operations in Malaysia and Asean countries and MAS operate international routes. MAS’ Wings will continue to expand its operations to cover new profitable routes.
Full implementation of process and system automation will ensure cost reduction. MAS’ cost can be lower than AirAsia if is flying at full capacity with volume customers. It can fly with full capacity if MAS allows Fireflyz to expand its jet operations in the coming years.
I project that Fireflyz will capture the Malaysian air travel market if it has enough new jet planes in the coming years. Fireflyz should also consider expanding its operations into Indonesia where there is huge market demand.
MAS should be operated by a professional management team that values integrity and free from political interference. It has to be commited to total quality improvement and management, benefitting MAS employees, customers and shareholders
If MAS focuses mainly on premium air travel, it will slowly sink with greater losses. It must come up with the correct strategy, one based on what the market needs and not what you force the market to absorb. What the market require today is reasonably priced air travel.
MAS can be more profitable than AirAsia with the correct management team and total commitment to long term sustainable profitability. One of  keys to MAS’ revival is Fireflyz jet operations. If fireflyz is allow to expand its jet operations in Malaysia and Indonesia it will be one of the market leaders in the region.
If MAS can focus on reasonably priced air travel and not only on premium air travel (which has limited demand today), it will win the game. By focusing on reasonably priced air travel, MAS will fly with full capacity and with total process and system improvement, MAS will return to profitability.
Reasonably priced air travel is not low cost air travel and is also not premium air travel.

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