The partnership will see both carriers review their network services and seek cooperation on routes and opening “flights to new destinations currently not served” by either.

Photo shows (L-R) AirAsia deputy chief executive Kamarudin Meranun, Khazanah MD Azman Mokhtar, MAS chairman Md Nor Yusof & AirAsia group CEO Tony Fernandes at the signing ceremony – Reuters pic

It will also allow the carriers to work together to cut rising costs by sharing maintenance, and bulk purchases of parts and aircraft.

Khazanah also proposes to buy a 10% stake AirAsia X, AirAsia’s affliate long-haul budget carrier on terms and at a price to be agreed on later.

This deal effectively gives Khazanah a monopoly on the Malaysian aviation scene, with its ownership in MAS, AirAsia, AirAsia X and Malaysia Airports Holdings Bhd (manager of airports in Malaysia).

The agreement also marks the end of years of rivalry between MAS and AirAsia, which have waged their battles openly.

The collaboration has been hailed in the media as “remarkable”, “historic” and “unprecedented”. Another word was “ground-breaking” – especially referring to the fact that AirAsia’s executives would sit on MAS’ board and have a say in the airline’s managment and operations..

The media attention is understandable – it’s the first time in the region that a low-cost carrier is getting into bed with a full service carrier. And beyond that, the speculation that the underdog was being called in to rescue an institution.

Imagine, Tan Sri Tony Fernandes cast as the “white knight” sent in to rescue an ailing old warrior and eventually to rule the kingdom.

Khazanah managing director Tan Sri Azman Mokhtar has however denied the deal was a bailout for MAS, stressing that there was “no extra money” coming, from either the government or AirAsia in the share swap. (MAS recorded a Q1 net loss of RM242.3 million/US$80.6 million against a profit of RM310.6 million in the same period a year ago.)

Some analysts, however, view this cooperation as Khazanah’s move to ward off competition between MAS and AirAsia, as well as to compete with both Singapore Airlines and Qantas given both airlines are planning to launch new low-cost subsidiaries in Asia.

“Crazy talk”

It is the prospect of the forming of a monopoly that has raised the most concern and whether consumers would be the loser in this new scenario. After all AirAsia was created so that everybody could fly. Would a tie-up between AirAsia and MAS mean the end of the kind of competition that’s been seen the last nine years that led to an explosion in air travel in the ASEAN region?

AirAsia’s Fernandes was quick to quash such speculation, calling it “crazy talk” and pointing out that the agreement only involves share swaps between his airline and MAS, and is not a merger.

He reiterated that the agreement, known as Comprehensive Collaboration Framework (CCF), was geared towards growth and improving competitiveness in both the airlines’ respective market segments.

He explained that the CCF would work in favour of MAS and AirAsia and the consumers as it puts the country’s industry players in the same direction in the interest of growing their businesses and the economy, while at the same time providing better services and more job opportunities.

Additonal advanages – improve competitiveness and grow KL International Airport as an aviation hub, attracting more arrivals to the airport.

Fernandes also dismissed fears of higher fares, stating that even on routes where AirAsia is the only operator, the fares are still coming down.

“We can be more productive if we put our energies together rather than working against each other,” adding that “the sky’s the limit” with this collaboration.

Khazanah’s Azman reaffirmed this fact, saying the new framework would emphasise MAS’ and AirAsia’s key strength, which he described as “two distinct and separate companies with two distinct and separate business models” that will leverage on their “core competencies”.

This means MAS will exit the low cost segment and focus on being a premium full service carrier, while AirAsia continues its run as a budget airline. As such, any competition between the two airlines would be removed.

Casualites and changes

No deal of this magnitude can be achieved without some “casualties”.

The first is Tengku Datuk Azmil Zahruddin who quit as MAS chief executive and managing director on the day the deal was signed. He took over MAS’ reins in August 2009 from Datuk Seri Idris Jala, who is now a government minister. He will join Khazanah as its executive director for investments from September 12.

Mohammed Rashdan Mohd Yusof from Khazanah has been appointed MAS executive director. A new managing director is to be appointed soon.

A four-person committee will take over management of the national carrier until such time a new managing director is appointed. Chaired by MAS board member Datuk Azman Yahya, the members include Rashdan, AirAsia’s Fernandes and Datuk Kamarudin Meranun (AirAsia deputy group CEO). It is without doubt Fernandes will have a say in future management of MAS.

Firefly, MAS’ community airline, could become another “casualty”. The carrier, which offers flights out of Kuala Lumpur Subang airport and KLIA to domestic and regional destinations, will be redesignated as a full service regional carrier, not unlike Singapore’s SilkAir.

“Firefly’s resources would be refocused to launch a new regional full service airline operation,” said MAS chairman Tan Sri Mohd Nor Yusof, who replaced long-serving chairman Tan Sri Dr Munir Majid on August 1.

This change in Firefly’s status will be a great disappointment to many travellers who have benefitted from the fare wars between it and AirAsia. Not to mention the airline has been providing the option of “flying a full service carrier at low-cost carrier prices”.

Firefly’s redesignation effectively makes AirAsia Malaysia’s only airline to operate in the budget segment, which is a shame really as Firefly did provide some form of check and balance.

It is also no secret that Firefly, through its aggressive expansion, flying to numerous destinations and hubbing in some of Malaysia’s capital cities, has been giving AirAsia a run for its money in the budget travel segment, although Fernandes has dismissed any such notion.

Big deal?

So is the MAS-AirAsia partnership a “big deal”, someone asked me.

Without a doubt, yes. Certainly it is to AirAsia and MAS. To MAS employees, they will be uncertain of how this new deal and management will affect them. To Firely, it means a change to its original business model. To consumers, perhaps – depends if Fernandes lives up to his statement that competition will remain robust and that air fares will remain competitive.

To Malaysia’s airline scene – with both carriers aligned, and different interests set aside, the biggest question to ask is, could Kuala Lumpur emerge as a serious air hub in the region?

But perhaps the biggest deal is for Fernandes – what a coup for a former music man who started an airline from scratch, who vowed to compete with the big and tested and now he’s not only joined the competition, he’s removed it.