MAS-AIRASIA COLLABORATION WILL ELIMINATE IRRATIONAL COMPETITIVE PRICING

KUALA LUMPUR, Aug 10 (Bernama) -- The impending collaboration between
Malaysia Airlines (MAS) and AirAsia is a positive move as it would eliminate
irrational competitive pricing, allow economies of scale, higher bargaining
power and synergies.

Hong Leong Investment Bank Bhd (HLIB) said AirAsia, as Malaysia's only
low-cost carrier player, would have better control over supply and yields
without competition from Firefly.

"There are higher chances of AirAsia plying for routes, which were
previously exclusive to MAS. Hence, AirAsia will be able to increase its route
and enhance its network connections," it said in a research note Tuesday.

HLIB also raised AirAsia and MAS's earnings on potentially higher yields and
lower costs.

The company forecast AirAsia's earnings to increase 5.9 per cent and 13.5
per cent, respectively, for financial years 2012 and 2013 while that for MAS was
projected to increase 50.4 per cent and 24.9 per cent, respectively.

HLIB, however, maintained both airlines' earnings for the financial year
2011 as the deal would only be completed by November.

It also maintained a "buy" on AirAsia and raised the target price to RM4.50,
from RM4.24, previously besides upgrading MAS to a "hold" from "sell" and raised
the target price to RM1.55, from RM1.27, made earlier.

Meanwhile, HwangDBS Vickers Research Sdn Bhd said MAS could be back in the
black as the deal was expected to allow the various airlines to collaborate in
different areas, leveraging on each other's strengths and optimise efficiency.

"We believe these initiatives will benefit MAS especially in achieving cost
synergies in view of its high cost/available seat kilometre (ASK). The impact
could be immediate and significant which could potentially result in MAS turning
profitable," it said.

HwangDBS said on the other hand, AirAsia could see smaller cost synergies
given its already low cost/ASK.

"But topline growth could be given a boost as the airline will be in a
better position to obtain more routes and gain market share as it was the only
Malaysian low-cost carrier," it added.

For MIDF Research, it believed the tie-up would create cost saving
opportunities as both airlines would create strong bargaining power for future
aircraft orders, getting aircraft financing as well as limiting duplication of
resources such as maintenance and repair and overhaul.

MIDF Research said the tie-up was taking place at a time when crude oil
prices were falling to boost the Malaysian aviation industry, as such, it
maintained a neutral stance on the industry. (USD1=RM3.00)