Singapore Airlines must calculate Malaysia Airlines partnership in strategic hedge

June 28th 2019

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Singapore Airlines (SIA) and Malaysia Airlines (MAS) have signed a Memorandum of Understanding (MoU) to extend their partnership. A statement said they would explore “significant expansion” of their codeshare that currently covers only Singapore-Malaysia routes. Other areas to be considered include frequent flyer, cargo and MRO sectors. Equity will not be involved.

The two airlines said the agreement would be finalised in coming months and was subject to regulatory approval. It included SIA subsidiaries SilkAir, which is being integrated into SIA, Scoot and MAS’s Firefly.

SIA CEO, Goh Choon Phong, highlighted the respective ASEAN networks of the two carriers and said the aim was to increase connectivity for Singapore and Malaysia. MAS Group CEO, Captain Izham Ismail, paid tribute to his airline’s historical and current links with SIA.

Ismail has been seeking more partnerships for MAS. It has a tentative joint venture with fellow oneworld member, Japan Airlines. But extensive short-haul cooperation is different from medium long-haul cooperation such as between Japan and Malaysia. The Air France-KLM Group illustrates the challenge of running dual hubs, Paris and Amsterdam, in close proximity of each other.

SIA and MAS are emphasising similarities and history. But their differences are far larger. MAS, essentially, is a regional Asian airline with a flight to London. Some argue Australia, which MAS serves, is almost part of the Kuala Lumpur carrier’s backyard. SIA has more capacity out of Australia than Qantas has from Australia to Asia.

Malaysia is one of SIA’s largest markets. This week the Malaysian government said it would consider selling Malaysia Airlines, but the new owner would have to keep the MAS identity as a national carrier. It is unclear what that would entail or restrict.

SIA would be disadvantaged by AirAsia making gains at the expense of a shrinking or collapsed MAS. At press time, AirAsia group boss and co-founder, Tony Fernandes, had not tweeted about the MoU.