AirAsia to Stay in Kuala Lumpur

AirAsia, the fast-growing Malaysia-based low-cost airline, has put on an intensive damage control campaign to back away from a statement by the airline’s boss that implied that its regional headquarters would be based in Jakarta.

Tony Fernandes, the airline’s boss, told the Jakarta Globe in Tokyo on July 22 that the headquarters would be in Jakarta as part of an effort to be regarded as a regional Southeast Asian airline rather than as a Malaysian one. Fernandes was in effect confirming a story that had appeared in the Kuala Lumpur-based Malaysian Insider on May 19.

Asia Sentinel, quoting the Globe story, said the airline was to open its base in the Equity Building in South Jakarta in October. Fernandes told the newspaper he had already bought a home in Jakarta within walking distance of the headquarters and that “Asean is based in Jakarta, and Indonesia will be the largest economy in Asean in times to come … And I like it there.”

The story kicked off a storm in Malaysia. In a prepared statement, AirAsia said “there are absolutely no plans, nor the inclination, to move the headquarters of this Malaysian-incorporated company out of the country. And our Malaysian-registered fleet of aircraft will continue to operate from the LCCT,” the Low-Cost Carrier Terminal at Kuala Lumpur International Airport in Sepang.

AirAsia is listed on the Kuala Lumpur Stock Exchange. Its headquarters are in Petaling Jaya, a Kuala Lumpur suburb.

“Tony never said, or implied, that we’re moving away from Kuala Lumpur,” said Azman Osman Rani, the chief executive of AirAsia X, the airline’s long-haul carrier, in an email to Asia Sentinel. “Irrespective of however he described the Asean office to be set up in Jakarta, he very clearly never gave any impression that we are packing our bags and closing shop in KL.”

Asia Sentinel did seek to imply that the airline was leaving Malaysia behind, pulling out its planes and equipment.

However, the story that the airline intended to open a regional office in Jakarta was confirmed independently with sources in Kuala Lumpur, who described it as a business decision to rebrand the airline as one with a wider footprint than just Malaysia, and to seek to take advantage of Indonesia’s vastly larger population and economy. Senior executives had been recruited to staff the Jakarta office, the source said, calling it a regional office.

But, Azran said, the office’s primary mission is to deal with Asean. “We have built a relationship with the Asean Secretary-General and want to have a team based there to work on Asean-issues. (An executive who moved to Jakarta) never even had core airline responsibility (Operations or Commercial). He was in charge of communications. To equate (his) move, some execs being hired in Jakarta and space (it’s a small space!) as a move of headquarters is just grasping for straws.”

AirAsia executives in Kuala Lumpur say they have always planned to move the regional headquarters instead to the long-delayed Kuala Lumpur International Airport terminal 2, which is due to be built at Sepang , 50 km. south of Kuala Lumpur.

Some of the reaction could have more to do with outrage in the Malaysian government, which has backed the airline heavily. It is arguably the country’s biggest success story and losing it would be a public relations disaster for Prime Minister Najib Tun Razak, who has been trying intensively to lure foreign investment.

“If they do that, they are going to lose government support,” said an aide to a top UMNO politician. “Because AirAsia is backed by the gomen (government). Let’s see. My feeling is, yeah, you can make billions and then tell Malaysia f… off. But wait what happens next. They’d better get their planes out of here quick.”

AirAsia sources say relations with the Malaysian government have never been a problem.

The airline has succeeded through a combination of joint ventures in Thailand, Vietnam and Indonesia, where it remains a minority partner with a 49 percent stake in each country. It will own 35 percent of its new joint venture in the Philippines, which is due to go into operation soon. Last Friday Fernandes announced a joint venture with ANA Group, Japan’s largest carrier, to launch AirAsia Japan.

Malaysia still delivers the bulk of the airline’s business, with 5.1 million revenue passenger kilometers (RPK) in the first quarter of 2011, followed by Thailand with 1.9 million RPK and Indonesia with 1.4 million. However, the Malaysia figures appear to include Air Asia X, the long-haul arm now serving the UK, Australia, France and Korea, which is partly owned by Richard Branson, the UK-based owner of Virgin Airlines, and by Air Canada.

The growth potential, however, is clearly outside Malaysia and in long haul – though acquiring long-haul traffic rights could be difficult. All Air Asia X flights are from Kuala Lumpur currently, however, so KLIA will remain the hub at least till they can get long haul rights elsewhere.