Fernandes eyes Seair as Philippine affiliate

Paris - World's best low cost airline in the world AirAsia Bhd., based on skytrax standards, a Britain-based consultancy that rates commercial airlines, is bent on establishing its foothold in the Philippines by setting up a local affiliate airline Seair Asia that will have the AirAsia brand access to an air traffic volume of more than 12 million passengers.

AirAsia now has a 49 per cent stake each in affiliate airlines Indonesia AirAsia and Thai AirAsia. It intends to do the same with local Philippine carrier Seair after its deal with Temasek's Tiger Airways lapse without the agreement lifting off.

AirAsia has been wrestling with Tiger Airways for more than 5 years now as to forging a strategic alliance with Philippine operator Seair controlled by German entrepreneur Iren Dornier, due to its landing rights in other Asean countries, a deal which is objected to by Philippine Airlines, Cebu Pacific, and Asian Spirit. The airline just obtained a congressional franchise to operate airline business in the country last year.

"We wants to have new associate units in the Philippines and Vietnam to strengthen its footprint in the Asean region. It will be great to have operations in the Philippines and Vietnam, the two biggest countries in Asean that we have yet to establish a base in," group chief executive officer Datuk Seri Tony Fernandes said in an interview at the Bi-annual Airbus symposium held in Paris recently.

Air Asia has just been awarded by Airbus for Operational Efficiency Award in the use of its A320 aircraft besting Philippines Cebu Pacific.

By setting up affiliate airlines in the two countries, AirAsia will have access to a combined population of roughly 180 million.

"We have been offered a lot of joint ventures around the region and this shows the power of our brand and while we expect a smoother sailing with the Philippines, Vietnam may likely take more time," Fernandes said.

However, he has not set a time frame for the expansion of AirAsia in Vietnam as they are still working with its local partner.

The planned venture with Vietnam's shipbuilding giant Vinashin to form a Vietnamese low-cost carrier was frozen by the Vietnamese government.

AirAsia had signed a letter of intent in 2007 for a 30 per cent stake to set up its third affiliate airline, Vina AirAsia, which was to have been operational by the middle of last year.

According to a Vietnamese daily, its government has since told state-owned companies, such as Vinashin, to focus on their core activities.

Furthermore, the Civil Aviation Administration of Vietnam has proposed to its Transport Ministry not to issue new airline licences in Vietnam until 2011.

Fernandes meanwhile said that in contrast the Philippines Seair already has a license to fly, the problem is just the capitalization and control issues which can be easily remedied and they are working on it with its future partners as fast as they could before Temasek knocks on Seair's window again. He plans to put either 3-4 airbus 320 planes initially with the joint venture airline if the agreements pushes through.

"But we are very patient. After all, we waited seven years to get the Kuala Lumpur-Singapore route. So I'm sure it will happen," Fernandes said.

He added that his ultimate vision was for all the AirAsia affiliates in Asean to become a single entity as an Asean Airline even proposing to the extent of using the Asean logo for its tail.

"My dream, without sounding like Martin Luther King, is that we are one airline in the end. Basically, for us to become one quoted company in Asean."

Air Asia is the largest low cost airline in Asia. It placed an order for 175 Airbus A320 aircraft in 180 seat configurations to which 59 have already been delivered. All of them are powered by CFM 56 engines. It will start servicing Jakarta via its subsidiary to Manila soon.

Tony Davis of Singapore based Tiger Airways is not however ready to hand in the towel just yet. Tiger has 56 A320s on order and has already accelerated some deliveries for next year and 2010. Two of the airline deliveries were supposed to be intended to Seair.

Asked about the airline's unsuccessful move to set up joint ventures in The Philippines and Korea, Mr Davis said the big opportunities were now in new agreements between Singapore and Malaysia and increased liberalisation with Indonesia.

"We're now flying to Jakarta and Kuala Lumpur," he said. "We weren't flying either of those routes 12 months ago."

While not releasing specific figures, Mr Davis said growing an existing business was more cost effective than starting up a new one thats why they are still talking with the Philippine carrier but are not discounting talks with erstwhile Asian Spirit now Zest Air.

"The fact that those opportunities are there for us in our existing businesses probably means we'll get a return on investments quicker than we would on a brand new start-up," he said.

"Brand new start-ups generally lose money in the first couple of years while you build up volume and economies of scale and get the business bedded down."

"And we're saying we're looking to accelerate further deliveries of aircraft as we are looking for double daily between Manila-Clark and Singapore this year as well as hiking frequencies to other destinations particularly in Australia," Mr Davis said.

Seair as Tiger Airways subsidiary would have flown from Manila-Clark to Hong Kong, Singapore, Bangkok, and Macao as well as major domestic points in the Philippines.