The recent news that Tony Fernandes has decided to leave the joint venture between AirAsia and ANA – the low-cost airline AirAsia Japan – has given rise to widespread discussions over what will now happen to the company.
The termination will effectively mean an acquisition of AirAsia’s 49 percent stake by ANA for ¥2.45bn ($25.1m). “I have a great respect for ANA as the leading legacy airline in Japan but it is time for us to part ways and focus our attention on what we do best, which is running a true low-cost carrier [LCC],” said Fernandes.
Struggling to launch
The joint project has had more than its fair share of teething problems since its inception in August 2011. Early online customers were frustrated by its booking system which had not been fully translated into Japanese, and it also failed to identify travel agents as the main point of purchase for domestic airline sales in Japan.
ANA has stated that cheap fares were not enough to entice Japanese customers, and blames the poor performance on trying to save money by applying existing AirAsia systems to the Japanese model. “In Japan, people expect attentive care and meticulous service, even from an LCC,” said Shinzo Shimizu, ANA Executive Vice President.
For AirAsia’s shareholders, the breakup of the pact with ANA may well be for the best considering the venture has incurred an operating loss of ¥3.5bn ($35.4m). The decision will also give AirAsia more room to expand the low cost model in other, faster-growing and hopefully more accepting markets.
AirAsia India is one such market. The joint venture consisting of AirAsia, Tata Group and investment firm Telestra Tradeplace is looking to begin a domestic service from Chennai in the fourth quarter of 2013. ANA on the other hand said it will consider various options on how to how to continue operations after the AirAsia Japan brand shuts down late this year. One option may mean integrating operations with Peach Aviation.
Difference in opinion
The lack of decision-making power for AirAsia shareholders may have played a part in the decision to split. AirAsia had 33 percent of the voting shares, while ANA controlled 67 percent. This difference in voting power is likely what caused the “fundamental difference of opinion” as it gave ANA the final say over the majority of the management team and the ultimate decision over the appointment of the CEO and CFO positions.
AirAsia Japan will continue to function under its current banner until the end of October, after which it will be given a new name and operate as ANA’s fully owned subsidiary out of Tokyo’s Narita airport. The airport’s restricted hours, congestion and high landing fees have contributed to the difficulties experienced by the budget airline.
It is not the first time Fernandes has bitten off more than he can chew and left shareholders unhappy. Last year, he unwound a share-swap agreement between one of his privately held companies and Malaysia Airlines after unions at the carrier objected to the deal. The Malaysian national carrier’s main shareholder, state-owned investment fund Khazanah Nasional Bhd concluded that Fernandes’s involvement was too disruptive and undermined its efforts to turn around Malaysia Airlines’ financial problems.
However, it isn’t all doom and gloom for Fernandes, who remains optimistic about the future. “I remain positive on the Japanese market and believe there is tremendous opportunity for an LCC to succeed, as proven by the tremendous success AirAsia X has seen. We have not given up on the dream of changing air travel in Japan and look forward to returning to the market.”