Malaysia

AirAsia to start Singapore hub soon, widening its network

By Jahabar Sadiq
Editor

May 08, 2012

KUALA LUMPUR, May 8 — AirAsia has received Singapore’s approval to start a hub in the island republic soon, say sources, allowing the Malaysian airline to expand its network in the growing regional low-cost market segment just a week after Putrajaya aborted its share swap with loss-making Malaysia Airlines (MAS).

The Malaysian Insider understands that Singapore has informed AirAsia it will get an air operator’s certificate (AOC) as soon as possible, ending years of lobbying by Asia’s biggest low-cost carrier to set up operations in the city-state, a leading Asian financial centre.

“Singapore has agreed in principle to issue the AOC. It will be issued soon,” an industry source told The Malaysian Insider.

File photo of an AirAsia aircraft departing Kuala Lumpur International Airport in Sepang. The airline has received the nod to start a hub in Singapore.File photo of an AirAsia aircraft departing Kuala Lumpur International Airport in Sepang. The airline has received the nod to start a hub in Singapore.AirAsia chief executive Tan Sri Tony Fernandes was quoted last February as saying he aims to get clearance this year from the Singapore aviation authorities to fly to more destinations from Singapore.

Fernandes told Channel NewsAsia he proposed to make the country a regional hub for his low-cost airline, alongside Malaysia, Indonesia, the Philippines and Japan, naming India and China as key countries to which AirAsia is seeking approval to fly to.

AirAsia will focus on creating an ASEAN brand with an operational hub in all Association of Southeast Asian Nations countries within the next five years, he said. It currently has local joint-venture units in Indonesia, Japan, the Philippines and Thailand, apart from long-distance low-cost carrier AirAsia X.

The budget carrier began flying two flights a day into the city-state from Kuala Lumpur in 2007, seven years after it began operations as a low-cost airline. It now flies 12 times a day from Kuala Lumpur apart from other direct flights to cities in Indonesia, Malaysia and Thailand.

“This is a good boost for AirAsia as the current economic climate means more people will fly low-cost airlines for leisure and even business from Changi, which is an international hub,” another source said, adding AirAsia can compete with Singapore Airlines’ budget carrier unit Scoot.

The Singapore budget airline’s first route will be a daily Singapore-Sydney service from June using a Boeing 777-200, said company officials, with a Singapore-Gold Coast route to follow. The airline said future international destinations will include China.

AirAsia’s biggest market remains Malaysia but it has seen growth in Indonesia and Thailand, which have large domestic operations. It has just started its operations in Japan and the Philippines and is said to be eyeing Myanmar, which has opened up its economy in the past year.

Fernandes, who took over AirAsia for RM1 and debts in 2001 when it was a two-plane operation, has turned it into Asia’s biggest low-cost carrier within a decade. His success prompted Malaysian sovereign wealth fund Khazanah Nasional Berhad to finally agree to work with him to turn around MAS, which lost RM2.52 billion last year.

But the share swap signed last August faced fierce opposition from some politicians and the flag carrier’s unions, who represent the majority of the 20,000 airline staff, pushing the government to abort the deal on May 2.

The unwinding of the share swap saw Khazanah transfer its 10 per cent or 277,650,600 ordinary shares in AirAsia back to Fernandes’ Tune Air Sdn Bhd, while Tune Air transferred its 20.5 per cent or 685,142,000 ordinary shares in MAS back to Khazanah. It was a cashless transaction and based on the same swap ratio of 2.05 based on the prices when the share swap was announced in August 2011, where MAS was valued at RM1.60 per share and AirAsia’s share at RM3.95.

OSK Research had pointed out that AirAsia was to benefit more with the unbundling of the deal, saying “as Malaysia is predominantly a low-cost passenger market with a penetration rate of over 57 per cent, this gives AirAsia the upper advantage given its low-cost structure and vast route network, hence limiting the pressure from MAS in view of its ailing financial condition.”