Tycoon tony fernandes envisaged an airline with rock-bottom fares when he bought airasia from the malaysian government nearly two decades ago. short-term fuel hedging was one of the ways the malaysian carrier group kept prices low. unfortunately, mr fernandes could not hedge defects in his corporate strategy.

Airasias profits had begun to wither before the pandemic. the long-haul operation airasia x has hit the limits of cost cutting. its depressed shares fell 10 per cent on wednesday after it announced a restructuring. investors were not impressed with the plan to waive most of airasia xs rm63.5bn ($15.3bn) of debt and reduce the units issued share capital by 90 per cent.

For traditional airline groups, long-haul flights usually offer better profits, subsidising short-haul trips. operating expenses are spread across more miles. but airasia x, which flies to 31 destinations including australia and the middle east, is also a low-cost carrier. it had proudly claimed to have the lowest unit cost base of any airline in the world, with fares up to 50 per cent lower than peers.

The airline faced astructural demand problem from the beginning. with a hub in kuala lumpur for long haul, airasia x could not easily compete with stronger rivals in singapore and hong kong. worse, the perennial overcapacity of budget airlines in asia left airasia badly positioned for shorter trips.

Domestic travel alone does not earn enough in malaysia, which has three local airlines dependent on a population a quarter that of japan. mr fernandes will understand this he bet big on japan eight years ago to diversify. but that ploy has gone badly too. airasia shut down operations in japan this week.

Airasia groups unaudited current liabilities of $813m were more than doubleits current assets as of june. operating losses clearly cannot cover its interest payments. it may need another $500m or more just to get through this year. and the group can hardly support its struggling units; no wonder it has turned away its aircraft deliveries from airbus.

Shareholders andcreditors, unhappy as they are with the restructuring terms, will have to accept haircuts. the other option is to lose all their capital. it is moot whether airasia x can recover even after this. coronavirus is adept at turning the marginal into the unsustainable.

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