AirAsia looks to win back trust after supporting ousted Malaysian leader

By Jamie Freed

SINGAPORE (Reuters) - AirAsia Group Bhd will be looking to mend relations with customers and a new government after its boss Tony Fernandes backed ousted Malaysian leader Najib Razak, analysts and experts said.

Veteran Mahathir Mohamad, 92, came out of retirement to lead the opposition Pakatan Harapan (Alliance of Hope) to a stunning victory last week over a ruling party he once led, defeating Najib, a former protege he accused of corruption.

That spooked some investors in the budget carrier, one of Malaysia's best-known international brands, even as Fernandes on Sunday apologised for endorsing Najib.

Shares in AirAsia tumbled nearly 10 percent on Monday before closing down 5.4 percent in the first trading session since Wednesday's election, as investors fretted over its relationship with a new government in Malaysia where it has the biggest domestic market share.

However, Corrine Png, head of Singapore-based transport research firm Crucial Perspective, said she did not see any lasting demand to AirAsia's brand from its links to Najib's Barisan Nasional (BN) party.

"There are simply too many BN-linked companies and consumers have long understood that businesses need political affiliations in Malaysia," she said.

Malaysia was second only to Russia on a "crony capitalism" index published two years ago by the Economist magazine, showing how closely business fortunes have relied on political connections in the Southeast Asian economy.

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Fernandes said on Sunday a video praising Najib was an effort to appease the government after he came under "intense" pressure in the lead-up to elections for adding extra flights on polling day and refusing to fire the chairman of long-haul arm AirAsia X Bhd, who had expressed support for Mahathir.

The video apology on Facebook has been viewed more than 1.5 million times and attracted more than 8,000 comments, in a sign of the attention Fernandes' political stance has attracted in its home market.

Digimind Social, which monitors social media data, said its analysis had shown reactions to Fernandes' apology were mixed, with emojis ranging from hearts in posts calling him an "unsung hero" to snakes in those asking him to step down.

Pakatan Harapan (PH) officials have not commented on whether AirAsia could be punished for Fernandes' support of Najib during the election campaign. On Friday, Syed Saddiq Syed Abdul Rahman, a PH lawmaker, said on Facebook that Fernandes was an "unspoken hero," and had helped them from the start but couldn't disclose it to the public due to fear of repression.

AirAsia has several airlines in various Asian countries but Malaysia is its largest contributor to earnings and it is the country's largest domestic carrier by market share.

In a highly regulated industry where its main rival is state-owned Malaysia Airlines, AirAsia relies on government approvals to support its growth plans.

Png at Crucial Perspective said it was possible AirAsia would launch extra promotions to entice consumers after Fernandes' apology which could place pressure on the airline's revenue in the short term at a time when fuel prices have risen.

But others disagree, saying running a special promotion could backfire.

"It would look like they are trying to buy back trust - and trust is something that needs to be earned instead," said Lars Voedisch, managing director of Singapore-based communications consultancy PRecious Communications.

"You can't advertise or buy yourself out of a reputational crisis."

An AirAsia spokeswoman declined to comment.

(Reporting by Jamie Freed in Singapore; additional reporting by A. Ananthalakshmi in Kuala Lumpur; Editing by Miyoung Kim and Mark Potter)