Globalization Of Low-Cost Air Giant?

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Jan 01 2007
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Running into the New-Year-Eve, three of the world’s main low-cost airline share their dreams and initiative to start a long-haul budget airline company based in Malaysia that will offer airfares as low as RM100 for flights between China and Malaysia. “The government and the carriers concerned are expected to make an official announcement soon after the New Year,” the source familiar with the ambitious program told AFP.

Sir Richard Branson of the Virgin Group, Sir Stelios Haji-loannou of EasyGroup, the parent of EasyJet (LON : EZJ), and Datuk Tony Fernandes of AirAsia (KLSE : AIRASIA, stock-code 5099) are in discussions to form an alliance to realize a deal that will see the formation of the world’s first low-cost global network.

The joint venture, according to industry sources, will first fly between Kuala Lumpur and destinations like Manchester in Britain, Sharjah in the United Arab Emirates and Amritsar in India. As for China, the new team will aim for Hangzhou, near Shanghai, and Tianjin, near Beijing.

For flights between the low-cost carrier terminal (LCCT) and London, the partners are thinking of fares between RM300 and RM2,500 while for destinations in China the tag is as low as RM100. Malaysia national carrier Malaysia Airline System Berhad (KLSE : MAS, stock-code 3786) currently operates 18 times weekly to London and charges up to 5,000 ringgit (1,420 dollars) for economy class and 18,000 ringgit for business class.

Branson’s Virgin group includes budget carriers Virgin Express and Virgin Blue. Stelios founded EasyJet, one of the world’s most successful budget carriers. Fernandes is the brains behind AirAsia, the first no-frills airline and easily the most successful in Asia. Industry sources said the combination of the three personalities; their companies and contacts would be “lethal.”

The link-up with Virgin and Easyjet will give AirAsia access to London’s Stanstead airport. Gatwick, which has become a hub for several European low-cost carriers might be an option to AirAsia as the hub but AirAsia is said to prefer Manchester as it has build the brand there.

For Virgin and EasyJet, the link-up will grant access to KLIA’s LCCT, a dream Asian hub for their Europe to Australia via Asia routes.

If this teaming succeed (most likely to, considering Tony Fernandes’ way of managing AirAsia in a humble but continue to increase the value of the company working hard to achieve his dream), it would likely give Malaysia Airline System a run for the money in the long-haul market considering the national carrier was highly in-efficient with multiple quarters of red till the new CEO took over recently.
# TIP: Would you pay a mountain if you have the option of flying to Britain for a fraction of the cost? I wouldn’t buy MAS stocks for the time being – I never invest it previously anyway due to its’ management in-efficiency. But AirAsia stocks is a different story altogether – it’s getting more attractive.

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