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The continous growth as the premier airline and low-cost carrier, respectively, will be the key outcome of the collaboration between Malaysia Airlines (MAS) and AirAsia, said Tan Sri Tony Fernandes.

“There has been relatively poor returns from the many businesses it ventured into previously.

“Airlines try to do too many things, (have) low cost as well as first, business and economy classes. (They are also into) maintenance, repair and overhaul and catering, which are separate businesses,” said the AirAsia chief in an interview with Bernama yesterday.

Referring to the share-swap proposal between MAS and AirAsia announced some weeks back, Fernandes killed off speculation that it would lead to an eventual merger between the two carriers.

“I don’t believe in a merger. It will be like what we did with AirAsia and AirAsia X, we separated them (and allowed them to focus on their businesses).

“The key is to remain focused on the respective strengths and the similar formula should apply to MAS,” he said.

Many quarters had also voiced their concerns on the benefits of such an agreement when Khazanah Nasional Bhd, the major shareholder of MAS, announced that it would take up a 10% stake in AirAsia while Tune Air Sdn Bhd, the investment vehicle of Fernandes and Datuk Kamarudin Meranun, would own a 20.5% stake in MAS under the share-swap deal.

There were also some who suggested that the arrangement would benefit AirAsia more than MAS.

“(Why) has there to be a winner or loser, why can’t there be two winners?” Fernandes said.

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AirAsia Bhd’s biggest shareholder may agree to exchange a 10 per cent stake in the low-cost carrier for stock of Malaysian Airline System Bhd as soon as tomorrow, according to a person involved in the discussions.

Malaysian Air’s government-controlled parent, Khazanah Nasional Bhd, will give Tune Air Sdn Bhd stock worth as much as the AirAsia stake, said the person who declined to be identified as the discussions are private. Sepang, Malaysia-based AirAsia, the region’s biggest low-carrier, has a market value of US$3.6 billion, about double Malaysian Air’s.

Cooperation between the two airlines, which both halted their shares from trading today, could pare competition as global economic concerns threaten to damp air travel. Malaysian Air could be able to focus on challenging Singapore Airlines Ltd. for premium travelers on long-haul routes, while ceding shorter services to AirAsia, according to AmResearch Sdn Bhd, which upgraded Malaysian Air to “buy” today.

“They should focus on cooperation instead of fighting each other,” said Ang Kok Heng, who oversees US$292 million as chief investment officer at Phillip Capital Management Sdn Bhd. An alliance could give the carriers improved bargaining power in negotiating new routes and plane orders, while Malaysian Air could also get help with fuel-hedging, he said.

Tony Fernandes, the chief executive officer of Sepang, Malaysia-based AirAsia and the biggest shareholder in Tune Air, declined to comment by text message. Khazanah spokesman Mohd Asuki Abas declined to comment when phoned by Bloomberg News.

AirAsia Growth

AirAsia has surpassed Malaysian Air in market value as Fernandes expands its low-cost operations across the region. In June, the carrier ordered 200 Airbus SAS A320neo airplanes. That raised its total orders for A320 aircraft to 375, including 89 that had already been delivered, the planemaker said at the time.

The airline and Malaysian Air both halted their shares pending announcements related to material transactions, according to separate Kuala Lumpur stock exchange statements today. CIMB Investment Bank Bhd. made announcements on behalf of both carriers.

AirAsia has surged 56 per cent this year in Kuala Lumpur trading, making it the only one of the 18 stocks in the Bloomberg Asia Pacific Airlines Index to have risen in the period. It dropped 3.7 per cent to RM3.95 on Aug. 5.

Malaysian Air, based in Subang near Kuala Lumpur, jumped 8.1 per cent last week, closing at RM1.60 on Aug. 5. Khazanah, Malaysia’s state investment company, owns 69 per cent of the carrier.

AirAsia flies to more than 20 countries, according to its website. It has ventures in Thailand and Indonesia, and it’s setting up operations in the Philippines, Vietnam and Japan. It offers long-haul flights through affiliate AirAsia X Sdn Bhd.

Malaysian Air flies to more than 100 destinations worldwide, according to its website. The airline in June announced an agreement to join the Oneworld alliance, led by British Airways and American Airlines.

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Malaysia Airline System Bhd (MAS) recorded a net loss of RM695 million in the first quarter of its financial year ending Dec 31 from a net profit of RM120 million in the corresponding period last year, mainly due to losses from fuel hedging contracts.

It posted an operating loss of RM138 million for the quarter from a profit of RM66 million a year ago.

In a filing with Bursa, MAS said the decline was in line with declining trend in global travel and cargo movements resulting from the current economic downturn.

The company’s revenue dropped to RM2.7 billion in the same quarter from RM3.6bil a year earlier.

MAS said the company reported a net loss for the quarter after including a derivative loss of RM557 million.

The company said its derivative loss consists of RM640.2 million in losses from fuel hedging contracts, RM80.5 million gains from foreign currency hedging contracts and a RM2.7 million gain from interest rate hedging contracts.

“The airline industry is being hit by the global credit crisis and the threat of outbreak of the Influenza A (H1N1) virus,” MAS said.

It added that for the second quarter of 2009, demand is expected to remain soft, being the low travel season period

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