Trouble brewing at AirAsia? It once wanted to take on IndiGo

Malaysia-based airline group AirAsia could be in for some trouble with the Malaysian government, which is in talks with rival carriers Malaysia Airlines and Batik Air Malaysia, as reported by Reuters. This comes amidst news reports of the airline group looking for renegotiation of their debt and has already announced early retirement of planes.The group is yet to recover from the losses it incurred during the pandemic, with its fuel-price hedging strategy becoming one of the core problems on the financial side.

AirAsia recently placed orders for 150 A220s with Airbus, in a remarkable shift from its mainstay of A320 and A321ceo and neo aircraft. AirAsia had challenged IndiGo on its home turf in India, but it did not quite go the way its other affiliates did.

IndiGo vs AirAsia

The AirAsia group tied up with the Tata group in India to start AirAsia India in 2014. The slow start, move from Chennai to Bengaluru and subsequent challenges led to the airline not really taking off in the true sense. It also became the favourite child of controversy on multiple counts, including a court case on effective control, which was subsequently cleared by the regulator, and became part of the tussle between late Cyrus Mistry, the then Chairman of Tata Sons, and group patriarch Ratan Tata.

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When AirAsia India started operations, IndiGo had fewer than 100 planes in its fleet, while the AirAsia group had over 150 aircraft across entities in the region. Twelve years later, IndiGo had over 400 planes, while AirAsia saw its India subsidiary being sold to the Tata group, which subsequently merged it with Air India Express. A few other airlines in the group, such as AirAsia Japan and Indonesia AirAsia X, also shut down. The AirAsia Group has around 250 aircraft across group entities, comprising affiliates in Thailand, Indonesia, the Philippines and Cambodia, in addition to Malaysia, while IndiGo remains an India-only airline.

India operations have already taken a hit

AirAsia was the largest operator between India and Malaysia until last year. Since then, it has shrunk a quarter of its departures and ceded space to Malaysia Airlines as the leader in the market. AirAsia X is slated to stop its only flight to India, to Delhi, this winter. Flights to Ahmedabad, Amritsar, Lucknow, Kozhikode and Jaipur have disappeared, and very few are making a comeback this winter. Group airlines have also vacated multiple routes in the recent past.

Too big to fail

Nearly 50% of domestic and international flights in Malaysia are operated by Malaysia AirAsia (IATA code “AK”) and AirAsia X (IATA code “D7”). An even larger number of flights operated by group airlines such as Thai AirAsia and Indonesia AirAsia operate to Malaysia. Tony Fernandes, the maverick founder of AirAsia, famously bought AirAsia from the government for MYR 1 in September 2001, just days ahead of the deadly attacks on the World Trade Center. Twenty-five years later, the airline is at a crossroads again.

With so much at stake, will the government step in? In the current situation of aircraft shortages, it may not be possible for any other carrier in Malaysia to step up and add capacity in the market. Will it lead to a stake sale or sovereign guarantee? With over 50% share in domestic and international operations, the Malaysian government has a lot at stake, including its reputation and a terminal at Kuala Lumpur airport that is nearly 100% dedicated to the AirAsia group. The repercussions extend beyond Malaysia to Thailand, Indonesia, the Philippines and Cambodia, where a significant number of jobs could be at stake.

Tony Fernandes is known to be a maverick and has navigated the airline group through various headwinds in the past. While he may not be at the helm as the CEO anymore, he remains the head of the group and continues to have the ability to spring a surprise. Part of it could come from a global slowdown if the war in West Asia prolongs and oil prices remain high. This would give the airline the ability to renegotiate contracts and reduce its debt. However, the likelihood of that happening is anybody’s guess, with Western carriers recording profits even amid the West Asia headwinds and higher oil prices. From a September to remember in 2001, twenty-five years later, what will AirAsia do to recast its debt and spring a surprise?