ANALYSIS: AirAsia and MAS get a quick divorce

Singapore
Source:
This story is sourced from Pro
See more Pro news »

On 12 May, AirAsia's social media-savvy chief executive Tony Fernandes sent out a cryptic tweet: "AirAsia will announce its results at the same time as Malaysia Airlines in a few weeks time."

AirAsia is likely to report a first-quarter profit and MAS a loss. What Fernandes did not say - and many would infer - is that the numbers will prove why the low-cost carrier continues to do well and the full-service flag carrier struggles, and why MAS employees may eventually regret their recent divorce.

Last August, the Malaysian government tried to stop almost 10 years of acrimonious competition. AirAsia had taken away much of its rival's short-haul traffic and moved into its long-haul turf via affiliate AirAsia X. In 2011, MAS then converted its subsidiary Firefly into a proper budget carrier, setting the scene for a bloodbath.

That was to end with a share-swap agreement, with national investment agency Khazanah agreeing to buy a stake in AirAsia and AirAsia X and Fernandes and his business partners taking a 20% stake in MAS via Tune Air, AirAsia's parent. The AirAsia team would bring their business acumen, which focused on keeping costs low, to MAS, which would open up its engineering, ground handling and training divisions to the budget carrier. On paper, it was a win-win situation.

The marriage was short-lived and the share-swap called off at the start of May. The airlines agreed to continue to work on areas such as procurement, aircraft component repairs, training, technical and operational efficiency, but it was a divorce nonetheless.

For MAS, the future remains gloomy. In February, it said it was in a crisis after reporting a full-year net loss of M$2.5 billion ($800 million). Its managing director Ahmad Jauhari says the focus will remain improving the bottom line.

"Recovery of the business is our main focus, along with initiatives to strengthen the balance sheet and operations through improved productivity, increasing revenue and lowering costs," he says.

There was opposition to the collaboration at MAS from day one, say sources. Fernandes joined the MAS board, but his "abrasive" work style did not go down well. There was also unhappiness that several ex-AirAsia executives were "parachuted in" to senior management positions. The unions also opposed proposals that could have led to job losses and a change in their work arrangements. National politics, ultimately, killed the arrangement.

"It became a political issue once the unions began to voice their opposition," says one source. "The elections are around the corner, and the opposition parties are taking this up. The government can't afford to let this become a sore point. Many of the new guys did not appear to take on the views of those who report to them but have been with MAS for a long time. That led to resentment as well."

Fernandes did not respond to requests for interviews, but said in a tweet on 3 May that MAS, AirAsia and AirAsia X are in a "much better position" after 10 "years of fighting while our regional neighbours" got stronger.

"I leave MAS with mixed emotions. A job not completed. Want to wish all in MAS best of luck and to thank the majority for the kind treatment I got while here," he added.

Fernandes alluded to the opposition to his work style in a blog post a few days later, when he said: "Whatever your feelings about me, it's better to use this collaboration to stay as friends." Pointing out that around half of the AirAsia staff originally came from MAS, he added: "This proves the flag carrier can succeed with the right direction and management."

The only difference now is that that will no longer be his problem. As he said in one tweet: "Now, 100% focus on AirAsia." His baby may be the better for it.