Malaysia’s Sovereign Wealth Fund Says AirAsia And Malaysia Airlines Merger Is Unlikely

Malaysia’s Khazanah Nasional Bhd revealed on Saturday that a merger between the state’s flag carrier and AirAsia would be challenging to carry out. The sovereign wealth fund believes a coalition between Malaysia Airlines and budget airline AirAsia will reduce customer segmentation.

Getty Malaysia Airlines AirAsia Merger Unlikely
Malaysia’s largest airlines are unlikely to merge following Khazanah’s statement. Photo: Getty Images

Since April, Reuters reported that there had been discussions to potentially merge Malaysia Airlines and AirAsia – as both are severely affected by the global pandemic. Simple Flying published that merging had been an option even before the pandemic.

However, now the merger may not happen at all.

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Hitting more customer segments

According to Bernama, the managing director of Khazanah cited differing work culture and business models as a reason why the merger would be tough. Instead, Datuk Shahril Ridza Ridzuan believes there should be various airlines helmed by Malaysia.

Malaysia Airlines
Since 2014, Malaysia Airlines became a fully state-owned carrier. Photo: Channelsking via Wikimedia

Considering AirAsia is a budget airline, and Malaysia Airlines is the national carrier – they can hit multiple segments of the customer market. He adds,

“Malaysia requires both low-cost operators as well as a higher-value operator like Malaysia Airlines to co-exist, because you need to address multiple segments of the market.”

Further, speaking from the consumer perspective, Datuk Shahril says the choice is essential. Providing multiple airlines will allow customers to opt for an airline dependent on budget and needs.

For the long-term strategy of Malaysia, it is important to provide enough choice, not only for Malaysians to fly but for international travelers to come to the country,” explains Datuk Shahril on TV3’s Money Matters program on Saturday.

To merge or not to merge?

At the same time, previous news reports show that it is possible Malaysia’s sovereign wealth fund is in itself unsure if the merger should happen. Datuk Shahril has expressed contradicting statements regarding the matter.

Shahril mentioned on Saturday that it would be tough to see a successful merger. However, two weeks earlier, Shahril teased the alliance in an interview on Bloomberg TV.

“In life, never say never to anything,” Datuk Shahril said in the interview on July 10th, as reported by The Edge Markets. He further mentioned the importance for airlines to cooperate to survive the pandemic.

It seems that only time will tell if a coalition between the national airline and low-cost carrier will occur.

Carriers struggling financially

Malaysia Airlines, which has been owned wholly by Khazanah for six years, has been experiencing significant financial issues for years on end. Currently, the airline needs to formulate a recovery plan to be submitted to the sovereign wealth fund.

AirAsia A320
Low-cost carrier AirAsia had to resort to canceling orders on six Airbus aircraft. Photo: Air Asia

“Malaysia Airlines is working on a plan. We are waiting to see what that plan is. Then we’ll provide input and see what assistance we can do (offer) to help them with the plan. But it will take some time to work out,” says Datuk Shahril, in The Edge Markets.

To date, the airline has not presented its recovery plan.

AirAsia is also suffering significantly, with a $188m in net loss for the three months ended March 2020. To protect its employees from layoffs, the low-cost airline opted to halt deliveries of new Airbus A320neos and A321neos. Airbus now plans to sell these aircraft initially intended for AirAsia.

What do you think about Khazanah’s statements? Do you think there should be a merger between MAB and AirAsia? Let us know in the comments.