Since almost everyone in the country is speculating on a Qantas deal with Malaysia Airlines it is my turn to have a shot.

Maybe it’s looking at a Malaysian airline, not Malaysia Airlines. Maybe the play involves AirAsia, based in Kuala Lumpur, and involves AirAsia pursuing a reciprocal consolidation agenda by taking significant equity in Jetstar Asia and Jetstar Pacific, both partly owned by Qantas.

The significant hurdles to Qantas merging into a dual listed entity that includes Malaysia Airlines are obvious. The Australian government will say no to any merger that doesn’t result in the entity being headquartered and controlled in Australia. It is impossible to imagine Kuala Lumpur agreeing to such an outcome.

But is Qantas looking past Malaysia Airlines at AirAsia for something it badly needs, which is a way out of the downsides of two investments in offshore Jetstar franchises that are under-performing.

Jetstar Asia, based in Singapore and about 40% Qantas owned, and Jetstar Pacific, based in Vietnam, where the Qantas investment is set to rise to 30%, are the foundations of a grand vision of a trans border low cost carrier franchise throughout the Asia Pacific hemisphere under the Jetstar brand. That vision has dimmed. Neither are performing to plan, and were struggling before the global economic crisis came into sharp focus late last September.

Does Malaysia’s AirAsia trans border low cost airline franchise hold a possible answer? AirAsia isn’t a subsidiary of that country’s equivalent to Qantas in Malaysia Airlines. It has at least until recently been reporting far better results than either of the offshore Jetstars or Singapore’s similar but rather less robust Tiger franchise.

Is a merging of AirAsia with the Singapore and Vietnam based Jetstars a way for Qantas to lessen its exposure to their under performance and future capital needs? Perhaps. The Qantas Sale Act doesn’t circumscribe Qantas’s options when it comes to disposing of overseas investments. It could even accelerate any success by the original vision, although it is hard to see AirAsia replacing its brand with Jetstar, since it is much stronger. Would Jetstar Air Asia work? Where would its long haul brand AirAsia X fit into this? Could it run all three brands in parallel despite the other wide-body international division of Jetstar (Australia) which has similar ambitions for low cost flights to Europe as AirAsia X? How costly would it be to persuade Richard Branson to give up his privately held 20% equity in AirAsia X?

The answers to those questions, if they are actually being asked, depend on Tony Fernandes, the founder and chief executive officer of the AirAsia group. But there is little reason to doubt that Qantas would consider very carefully any attractive opportunity to sell the downsides of its Asian Jetstars into AirAsia, while keeping equity in a future upside in a merged low cost trans border franchise in the Asia-Pacific hemisphere.

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