Low-cost innovator Fernandes set to join the establishment

Even for a man who has made a habit of being an industry trend-setter, today’s coming together between Tony Fernandes’ AirAsia and Malaysia Airlines marks something of another first for this industry. The proposed co-operation between AirAsia, its long-haul unit AirAsia X and Malaysia Airlines, including minority cross-shareholdings, could bring network carrier and low-cost rivals together in a way seldom seen in this industry before.

fernandes.jpgExactly how the partnership unfolds between Malaysia’s biggest airlines remains to be seen. It will initially focus on initial synergies between the two with limited impact on each party’s operations, but envisages deeper co-operation once an anti-trust review is completed by the companies. Certainly the aim appears to be to enable Malaysia Airlines to focus on its network business, and the AirAsia units to grow in the low-cost sector – a move evident in the intention to reposition MAS’ low-cost unit Firefly as a full-service regional operation.

Co-operation between network and low-cost carriers within Asia has become increasingly prominent – note for example ANA’s move to work with AirAsia on its Japanese low-cost operation and Thai Airways turning to Tiger Airways to develop a low-fares presence. 

Similarly a dual approach operating model is not new. Indeed the positioning of Malaysia Airlines and AirAsia as partners in some ways mirrors the combination at Qantas with its Jetstar short and long-haul operations (a further twist is provided here as Malaysia Airlines is a new partner of Qantas having recently opted to join it in Oneworld, while AirAsia struck a loose partnership with JetStar last year).

But there are few examples poacher and game-keeper coming together. In Belgium, Brussels Airlines was born out of a merger between SN Brussels and low-fares carrier Virgin Express – though the latter had already moved towards the business middle ground by then – while Brazilian low-cost giant GOL’s acquisition of national icon Varig out of administration was pretty much in name only.

One interesting comparison is with Ireland. Malaysia Airline has, like Aer Lingus, had to grow up with one of the region’s dominant low-cost operators on its doorstep. Both have had to do so with larger than life leaders, Fernandes at AirAsia and Micheal O’Leary at Ryanair, driving their rivals forward. And, once the planned share swap is completed, Malaysia Airlines will like Aer Lingus find itself minority-owned by its low-cost rival.

The similarities though end there. Aer Lingus, the Irish government, Irish unions and European regulators continue to resist a future life as part of Ryanair. But with Tony Fernandes joining the Malaysia Airlines board as non-executive, non-independent director, and part of the team overseeing management of the company, the low-cost innovator is set to be embraced by the establishment.

For more on AirAsia and Tony Fernandes, read the Airline Business cover interview with him from May 2009 here.

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