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Airlines: Kuala Lumpur Collaboration Between Malaysia Airlines and Airasia

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The impending collaboration between Malaysia Airlines (MAS) and AirAsia Bhd (AirAsia) is a positive move as it would eliminate irrational competitive pricing, allow economies of scale, higher bargaining power and synergies. Hong Leong Investment Bank Bhd (HLIB) said AirAsia, as Malaysia’s only low-cost carrier player, would have better control over supply and yields without competition from FireFly, MAs-owned low-cost unit. “There are higher chances of AirAsia plying for routes, which were previously exclusive to MAS. “Hence, AirAsia will be able to increase its route and enhance its network connections,” it said in a research note yesterday. HLIB also raised AirAsia and MAS’s earnings on potentially higher yields and lower costs. The company forecasted AirAsia’s earnings to increase 5.9 per cent and 13.5 per cent, respectively, for financial years 2012 and 2013 while that for MAS was projected to increase 50.4 per cent and 24.9 per cent, respectively. HLIB, however, maintained both airlines’ earnings for the financial year 2011 as the deal would only be completed by November.

It also maintained a ‘buy’ on AirAsia and raised the target price to RM4.50, from RM4.24, previously besides upgrading MAS to a ‘hold’ from ‘sell’ and raised the target price to RM1.55, from RM1.27, made earlier. Meanwhile, HwangDBS Vickers Research Sdn Bhd said MAS could be back in the black as the deal was expected to allow the various airlines to collaborate in different areas, leveraging on each other’s strengths and optimise efficiency. “We believe these initiatives will benefit MAS especially in achieving cost synergies in view of its high cost per available seat kilometre (ASK). The impact could be immediate and significant which could potentially result in MAS turning profitable,” it said.

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