Qantas Lifts Stakes In Malaysia - Brief Article

Business Asia, August, 2000

LEADING AUSTRALIAN carrier Qantas and its Malaysian counterpart appear likely to form an alliance that aims to turn the new Kuala Lumpur international airport into a regional hub.

As Business Asia went to press, Qantas declined to comment on a new report that it was about to buy 20 per cent of struggling Malaysian Airline Systems (MAS) for about $US260.37 million. But industry insiders had little doubt that the two airlines were about to ink a deal.

The report in the Malaysian Business Times quoted an unnamed source as saying an announcement was imminent.

It was the latest in a series of reports suggesting Qantas would buy a stake in the Malaysian flag carrier and that the pair would use the alliance to develop the new Kuala Lumpur airport as a regional hub.

In comments that seemed to indicate something was on the go, a Qantas spokesman said the airline would maintain its position of not commenting on the reports.

"(The reports) make a lot of claims but at this stage Qantas is not offering any comments on any media reports involving ownership of Malaysia Airlines," he said.

If Qantas buys 20 per cent of MAS, the foreign shareholding in MAS will rise to 36.57 per cent, still below the new equity cap of 45 per cent approved by the government recently.

Foreign equity in MAS to this point has totalled 16.57 per cent, with the Brunei Investment Agency -- the largest foreign shareholder -- holding 9.10 per cent.

The report said it was not immediately known how much Qantas would pay for the stake. However, it is understood that it would be between 6.30 rupiah and 7 rupiah a share. At 7 rupiah, Qantas would pay about US263.16 million.

Analysts believe the alliance between Qantas and MAS would be a good match.

Qantas, the world's second-oldest airline, is renowned as a leading long-distance carrier, and has a network spanning 120 destinations in Australia, Africa, the Americas, Asia, Europe and the Pacific.

British Airways (BA) bought 25 per cent of Qantas in 1993, giving the Australian airline access to a strong European and North Atlantic network and a presence in the US-Europe market.

The deal with MAS would see these airlines develop the Kuala Lumpur International Airport into a hub for their operations.

The Australian carrier would also bring into the partnership its OneWorld alliance, which was established together with BA, American Airlines, Canadian Airlines and Cathay Pacific in 1998. Since then Finnair, Iberia, LanChile and Aer Lingus have joined up.

The OneWorld concept aims to raise the standard of global air travel through a range of customer benefits. These include smoother transfers for passengers travelling across networks, enhanced frequent-flyer benefits, and greater customer support and value through a range of round-the-world products.

Qantas inaugurated its services into Kuala Lumpur in June 1958. It currently flies three times a week into the KLIA via a code share arrangement on BA flights from Sydney to Kuala Lumpur.

It currently uses Singapore as its hub for flights linking Australian cities with the Kangaroo Route services into Europe and to other parts of Asia.

In the case of MAS, its partnership with Qantas would help address a nagging issue posed by the Kuala Lumpur-London operations undertaken through a code share arrangement with Virgin Atlantic.

This arrangement ends in 2005, and the national carrier faces the prospect of having to bargain from a position of weakness when the pact comes up for review.

Virgin Atlantic and its 49 per cent partner, Singapore Airlines, may want to consolidate operations by linking their route networks and frequent-flyer program, combining airport operations and buying space on each other's flights.

The code share agreement, which started on June 1 1995, essentially gives MAS the right to mount joint services on the Kuala Lumpur-London flights up to twice daily, using its own aircraft but with a shared crew and flight number.

A termination of the code share deal would effectively halve the capacity offered by Malaysia Airlines in the sector.