Battle For Survival: Air Asia Could Merge With Malaysia Airlines

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Struggling airline Malaysia Airlines has been looking for a route to survival for some time. Even before the outbreak of coronavirus, the carrier was struggling to survive. Now, it seems that a potential merger with Malaysian-based AirAsia could be just the ticket to ensuring both emerge from the pandemic in good shape.

AirAsia and Malaysia Airlines could be looking at a merger. Photo: AirAsia/Malaysia Airlines/Simple Flying

Could Malaysia’s two biggest airlines merge?

With the current downturn in travel demand taking chunks out of airlines’ profitability, carriers are doing everything they can to stay in business. While some have turned to their governments for support, others are finding it more challenging to secure the finances they need.

Today, it has been revealed that two of Malaysia’s largest airlines are contemplating a merger, in a bid to ensure both parties survive. In a Reuters exclusive, a senior minister of Malaysia’s government confirmed that a merge between loss-making Malaysia Airlines and budget carrier AirAsia was being considered as an option.

Malaysia Airlines grounded
With most of its planes parked up, struggling MAS is being pushed to the limit. Photo: Getty Images

Mohamed Azmin Ali, Malaysia’s minister of international trade and industry and the government’s designated second-in-command, told the publication that conversations were due to take place soon regarding how to help the country’s struggling airlines. He said that even last year, long before the pandemic hit, a merger between Malaysia Airlines and AirAsia had been considered a possibility. He said,

“That discussion took place even last year, even before this pandemic came. But we need to continue the discussion. We need to see how best we can save those airlines, and it’s not going to be a very simple answer. Things are very bad, the aircraft are not flying. We need to sit down and discuss how to address these issues.”

Simple Flying has reached out to both airlines for comment on the situation and will update as soon as we have a response.

Could this be what MAS needs?

If AirAsia and MAS did join forces, it would make them by far the largest airline in the nation, and a strong competitor regionally too. MAS currently has 81 aircraft in its fleet, with a large number of 737-800s accompanied by a range of Airbus widebodies.

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AirAsia, on the other hand, is an Airbus A320 only operator. It has 66 A320ceo in operation, along with 29 A320neo and two A321neo. It has a staggering outstanding order in place for 362 additional A320neo family aircraft, mostly the larger A321neo.

AirAsiaA320
The A320 forms the backbone of AirAsia’s short-haul operations. Photo: Airbus

AirAsia has seen continuous growth in its operations since its launch in 1993. In 2019, its full-year profits were at RM12.4 bn ($2.8bn), with a 16% passenger growth and a 31% increase in ancillary revenue. MAS, on the other hand, hasn’t turned a profit for years and has experienced only 1% of growth since 2016. It was reported in January that the airline required a cash injection of $5bn in order to remain solvent.

Clearly, AirAsia has both the knowledge and bankroll to make a success of MAS. However, the details of any merger could require some serious thought. If it did merge with Malaysia Airlines, it’s likely it would be on condition of very little state involvement, and would probably involve a fleet reshuffle too. It could even see the cancellation of MAS’ outstanding 737 MAX order to streamline the future combined fleet.

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Malaysia Airlines 737 MAX
Malaysia Airlines could end up canceling its MAX order. Photo: Boeing

Coming out of lockdown

Malaysia is in the midst of a partial lockdown, which has been in place since March 18th. Although Malaysia Airlines did resume some flying on the April 1st, these were seen mainly as means of getting people home and not the usual commercial services. No foreign nationals are allowed to enter the country, and Malaysians returning home need to self-isolate for 14 days.

While the lockdown is forecast to be lifted on the 28th, there is still a possibility it could be extended. Even when it is lifted, the resumption of passenger flights will likely take some time to ramp up, particularly when other nations’ borders remain closed.

Airasia
AirAsia is looking with hope towards the resumption of services. Photo: Getty Images

AirAsia has been making plans to resume domestic service after the 28th, beginning with Malaysia. It will add domestic flights in Thailand and the Philippines on May 1st and will move on to India on May 4th and Indonesia on May 7th. Of course, this is all dependent on the necessary government approvals being in place.

What do you think? Should Air Asia and Malaysia Airlines merge? Let us know in the comments.

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