Airlines will merge or go bust as costs surge: AirAsia

Budget carrier AirAsia said Monday that surging fuel prices will force carriers worldwide to merge or face bankruptcy.

AirAsia's founder Tony Fernandes insisted he will continue with an ambitious expansion plan despite the industry turmoil which he said had sent 27 carriers out of business in the past four months.

"We are seeing a consolidation in the aviation industry. Some will merge while others will go bankrupt. A lot of people are not going to survive this (fuel hike) including Asian budget carriers," he told reporters.

Fernandes said AirAsia had been approached by other airlines about tie-ups and operating deals, but did not elaborate.

He insisted the carrier would stick to its plan to expand routes, increase flight frequency and accelerate the delivery of the remainder of its 175 new Airbus A320 aircraft.

"There are two ways to deal with the oil prices. You can put your head in the sand and kill yourself. But we believe we need to go out and market," he said.

"I'm not going to give up now because of high oil prices -- we have 6,000 staff."

Fernandes said AirAsia will mount additional flights to Hong Kong and Guangzhou and open new routes to Ujang Padang and Balik Papan in Indonesia.

"We are still bullish. Ticket sales have been very good in the last few months. A lot of Singaporeans are flying to Kuala Lumpur to use AirAsia. We do not see any slowdown. There is still a big untapped market potential," he said.

"There is no change in our growth plan," he said, adding the carrier would not simply increase ticket prices as a means to offset rising costs.

Fernandes said he was optimistic that oil prices would come down but said: "My job is to survive even if the oil price is 200 dollars a barrel."

Due to the economic slowdown and the introduction of new aircraft, as well as increased connectivity between regional destinations, the corporate sector has been starting to use the budget carrier.

"The corporate passenger segment grew 300 percent in the last three months," Fernandes said.
In May, AirAsia said its net profits defied escalating fuel prices to leap 86 percent in the first quarter.

AirAsia, launched in December 2001 with just two aircraft, has become the region's biggest low-cost carrier and been imitated by national carriers and other low-fare start-ups.


Agence France-Presse - 6/16/2008 6:06 AM GMT