AirAsia Says It Doesn't Need a Rescue. Malaysia Is Helping It Raise Money Anyway

Is AirAsia going bankrupt? The airline's co-founder, Tony Fernandes, has been clear that it isn't: "We do not need a rescue, bailout or whatever," he said in September. But Asia's biggest budget airline is losing money, trying to raise up to $1 billion, and has reportedly been getting help from Malaysia's government to find lenders, even as the government says it hasn't committed to bailing it out. Like JetBlue in the US, AirAsia is getting squeezed by a jump in fuel prices, and travelers are starting to feel it.

Why AirAsia Is Struggling

The short version is fuel. Jet fuel prices have soared since the Iran war began, and AirAsia paid an average of $183 a barrel from April through June, up 66% from the quarter before. Fuel ended up costing it more than half of everything it earned in those three months, and it lost more than $125 million. It also has relatively little cash compared with what it owes in the short term, including payments on the planes it leases, and its shares have lost about 70% of their value this year.

AirAsia's answer is a big fundraising push. It's trying to raise up to $1 billion from international lenders, plus more from Malaysian banks, and says the money is mostly to refinance existing debt rather than to stay afloat. Fernandes expects the deal to close between December and February.

What Malaysia's Government Is Doing

This is where the two stories don't quite line up. Malaysia's Finance Ministry hired an aviation consulting firm, Alton, to look at how much money AirAsia needs, and according to Malaysian business paper The Edge, citing sources, the ministry is backing the fundraising and has given lenders some form of undertaking or guarantee. Reuters has also reported that the government asked Malaysia Airlines and Batik Air whether they could take over AirAsia's domestic flights if needed.

Officially, though, the Finance Ministry told Parliament this month that it has "not made any commitment to provide financial assistance to AirAsia," whether through guarantees, loans or public money. Fernandes, for his part, says his meetings with the government were about costs like airport fees and fuel. "There have been no discussions on financial assistance with the government," he said, while adding that if help were offered, "We will never say no to it. We would be foolish to do so."

Why would the government care so much? AirAsia carried about 41% of all passengers at Malaysia's main airports last year, and roughly three-quarters at klia2, Kuala Lumpur's budget terminal. In parts of the country like Sabah and Sarawak on the island of Borneo, it's the main way many people fly at all.

What It Means If You're Booked

For now, AirAsia is flying, and tickets work as normal. But it has already cut back: it suspended 81 routes earlier this year (it plans to bring 17 of them back), is returning 25 older planes and has been flying 20% to 25% fewer seats than a year ago. Fares are up too, by about 21% on average in the spring and around 40% on domestic Malaysian routes compared with before the war, and AirAsia expects prices to keep rising through the end of the year.

A few simple steps take most of the risk off the table. Pay with a credit card, which gives you a way to get your money back if a flight you paid for doesn't operate. If you're booking far ahead, check that your route is still on the schedule closer to departure, since cuts have come with little notice. And if you're buying travel insurance anyway, look for a policy that covers an airline going out of business, sometimes listed as "scheduled airline failure" cover. It's cheap peace of mind on any airline under this much pressure.

None of this means AirAsia is about to stop flying. It still has a plan to raise money, a government that clearly doesn't want it to fail and planes full of passengers, with seats about 82% full in August. But until that fundraising closes, it's worth booking a little more carefully.