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AirAsia looks to consolidate despite regulatory hurdles

  • Malaysian budget airline AirAsia plans to unify its Southeast Asian units under a single holding company, CEO Tony Fernandes said
  • But it must first overcome regulatory hurdles in order to be publicly listed

Malaysia's AirAsia is planning to unify its Southeast Asian businesses while growth appears to be on the horizon, but regulatory hurdles remain.

The budget airline is looking to park its business in Malaysia under one umbrella, according to a report from Malaysian bank CIMB. Currently, AirAsia has units in Malaysia, Indonesia, the Philippines and Thailand, as well as other non-Southeast Asian countries.

The ultimate goal is to go public with the new holding company.

AirAsia CEO Tony Fernandes announced these consolidation plans at a time when the company's metrics appear strong.

"We're in a fantastic position," he told CNBC. "Growth factors are very high at the moment ... Business is good and we're going to take 29 planes this year, which is a record number of planes for us."

And with over 400 planes on its order book, analysts are saying that AirAsia seems positioned for growth.

"We now have Indonesia and the Philippines kicking some great doors for us, and India is doing surprisingly much better than we anticipated — so early," Fernandes said. He said he expects AirAsia India to become profitable in the next six months.

An AirAsia plane takes off at Don Mueang International Airport on January 15, 2017 in Bangkok, Thailand.
Anusak Laowilas | NurPhoto | Getty Images
An AirAsia plane takes off at Don Mueang International Airport on January 15, 2017 in Bangkok, Thailand.

Conditions in the oil and currency markets are also helping to boost the business, according to the CEO.

"Oil has been in the best position it's ever been in," Fernandes said. I'm not saying it's the lowest it's ever been, but it's range-bound now... we've reached stability in oil price."

"And I think it's going to stay that way because of shale, because of the sharing economy with Uber and Grabcar... And renewables are here to stay," he added.

Oil was priced at about $52.60 a barrel on Monday.

The weak Malaysian currency has also boosted the country's inbound tourism, which is a boon for AirAsia, according to Fernandes.

"In some ways, we benefited from the ringgit devaluation as well, though the cost side went up. I think Malaysia became a much cheaper country to come to," he said.

For all those positives, however, key challenges stand in AirAsia's way of becoming a publicly-listed holding company. AirAsia must first negotiate with several governments to completely own each of its airlines "by swapping partners' stakes into shares in the main holding company," CIMB said.

If those negotiations fall through, an AirAsia group initial public offering may not be in the cards anytime soon.

Fernandes nonetheless said he believes in taking things one step at a time. "Let's get that consolidation done. Let's get the benefits of operating as one company together, to get cost out. And three, if we can persuade the governments to allow us to do that, then we do [a public listing]," he said.