Stick to their knitting?

Four years later many analysts consider the deal is even more idiotic now than it was back then, particularly when the sting has gone out of the oil price in such a big way.

Today’s reality is that many carriers focus on their core business – flying people from A to B – with the majority of services, from maintenance to catering, IT to cleaning, ground handling and a host of other needs being contracted out to third parties. Not only is it more efficient, according to the bean counters, it’s cheaper.

And talking about beans – coffee beans – Malaysia-based budget carrier AirAsia thinks the beverage it dishes out on board its flights is so important it has just bought a controlling 80 per cent stake in a local supplier, T&Co Coffee, for a bargain-basement price of A$305,000. And it’s not even handing over that sort of hard cash. Under the deal, it will only pay $271,500, with the remainder being settled by way of free flights on all the carriers within the AirAsia group for the shareholders coughing up their stake.

Now this may seem a trifle strange to afficionados of the airline business, let alone caffeine, but AirAsia group chief executive Tony Fernandes is well known for thinking outside the square. After all, he did launch what is now the region’s largest no-frills operation at a time everyone said the low-cost carrier model simply wouldn’t work in Asia. Now, he is obviously convinced good coffee (and tea) is a gastronomic path to the air traveller’s heart.

What’s the thinking? Well, AirAsia says the acquisition will allow the airline to be more focused on product development. Coffee and tea are an important part of the inflight experience, it says.

“A good coffee and tea offering would help AirAsia differentiate its brand in an increasingly competitive market. It would also allow AirAsia to raise premiums on beverages as well as improve the margin. ” In other words, beverages being sold on board at a slightly higher price as part of the ancillary revenue stream will add to the bottom line.

There’s even an Australian connection in all of this. AirAsia says that T&Co has an existing relationship with green coffee bean suppliers and a master roaster Down Under, as well as tea traders. Their expertise can be tapped by the carrier to develop new coffee and tea products, such as a proposed “Asean blend” that will use all of the best coffee beans grown in the Asean (Association of Southeast Asian Nations) region.

Now, this innovative move raises all sorts of possibilities for airline investment. Qantas could buy a dairy farm, or a beef property. Virgin Australia (once it makes a bit more money) might delve into a bakery business, or even a brewery. There is, however, a major issue. The world’s airlines haven’t exactly been model commercial enterprises over the years. Their margins are among the worst in global industry. At times their sin has even been to sell their product, the airline seat, for less than it costs to provide. Besides, it is difficult to imagine the arrival of a new major shareholder or owner in the shape of an airline resulting in a higher quality cup of coffee, bread roll or prime steak.

AirAsia has presumably conducted a serious study into what benefits its new investment will bring. It makes sense if it results in additional profits but it is hard to come to the conclusion that returns will be anywhere near significant, unless there is a wider plan such as starting up a new chain of coffee outlets. AirAsiabucks perhaps.

Or maybe airlines should stick to what they are best at… moving people by air.

Many analysts consider the deal is even more idiotic now than it was back then.