B U S I N E S S I N D I A ! November 29, 2009 Overseas Indian
New age airline for a new age Asia
Tony Fernandes acquired a
loss-making carrier in 2001 and
transformed it into Asia's
largest budget airline.
Scurrying air-hostesses in bright red uniforms, young
managers in jeans and sports shoes and informally attired,
busy senior executives crowd the corporate headquarters of
AirAsia in Kuala Lumpur. There are few physical barriers
between the bays, and the entire office sports an open-house
look -- except some meeting and conference rooms named after
AirAsia's destinations, `Bangkok Room' or `Hanoi Hall', and a
`Chamber of Secrets' which houses the company's archives and
memorabilia.
"You know, our group C E O Tony Fernandes is an
unconventional person and what you see here reflects his
personality," an executive explains politely. Indeed,
Fernandes sets the tone. His own office space, situated at
the end of a big hall, lacks any walls, doors and the usual
fanfare -- except a wooden board donning a collection of caps
from important events, stuck on the wall behind his desk.
Anyone can walk up to him or watch him work, trademark red
baseball cap, draped over his shoulders.
AirAsia's office is situated two flights above Kuala
Lumpur's low-cost carrier terminal (L C C T), because
Fernandes believes in being as close to his business as
possible rather than operating out of swanky city-centres. If
he could, he would even own the airport -- which he almost
did.
A few years ago, Fernandes offered to build his own low-cost
terminal, arguing that the existing facility would run out of
capacity and would fail to keep pace with rapidly rising
passenger traffic. The Malaysian authorities turned down the
proposal, promising the much awaited expansion of the L C C T.
While that's yet to be completed, Fernandes' AirAsia has
revolutionised Asian air travel with his lower-than-imagined
fares, luring millions -- who, in the past, would have
travelled by train or bus within or across neighbouring
countries -- to fly. "We had to convince the public to fly --
and to fly with a low-cost airline," says Fernandes.
"Low-cost air travel was a completely new concept in our part
of the world."
Not any more. B. Siddharth, a 24- year-old management
student had never before flown out of the country. But with
AirAsia offering a promo Thiruvananthapuram-Kuala
Lumpur-Singapore-Kuala Lumpur-Thiruvananthapuram fare for a
measly Rs 5,000, he decided to fly to Singapore for the
first time in November.
"I adore AirAsia for making it happen for me," he says.
Rohan Vast, another young traveller waiting for his AirAsia
flight at Kolkata airport, is equally excited. For a less
than Rs 4,000 return ticket, he is heading for Kuala Lumpur's
shopping streets and night life. "Now, I can have many more
weekends like this since AirAsia is conveniently connected to
entire South East Asia," he says.
That's undiluted music to Fernandes' ears, having
spent much of his early life in the business of
music. Born in Malaysia to a Goan father, Stephen
Edward Fernandes and Malacca Portuguese mother, Ena
Dorothy Fernandez, in 1964, he was educated at UK's
Epsom College and then graduated from the London
School of Economics in 1987. Fernandes worked
briefly with Virgin Atlantic as an auditor, as a
financial controller for Richard Branson's Virgin
Communications in London from 1987 to 1989 and a
senior financial analyst at Warner Music
International, London, up to 1992.
Upon his return to Malaysia, this amateur guitarist became
the youngest ever managing director of Warner Music
(Malaysia), bringing ethnic music into the mainstream of
contemporary Malaysian music. Subsequently, he was appointed
regional managing director, ASEAN and vice-president, ASEAN
at Warner Music Southeast Asia.
However, music was beginning to grow out of tune for
Fernandes. Feeling increasingly edgy about cushy corporate
life he was leading, he was looking for an entrepreneurial
breakthrough. So, in 2001 -- armed with key statistics that
only 6 per cent of Malaysians had ever boarded an aircraft --
Fernandes dared to gamble.
Mortgaging his house and sinking his savings, including his
AOL Time Warner stock options, Fernandes, together with few
friends, bought the loss-making AirAsia from its Malaysian
owner D R B-Hicom for a token 1 ringgit (Rs 13.5) and $11
million in debt. The airline took off with one destination,
two ageing Boeing 737-300s, a staff of 250 and above all, the
crippling hangover of 11 September, 2001 attacks.
"It was just a couple of months after 9/11 that we took over
the airline," recalls Fernandes. Everyone thought he was
being misguided, but for him, it was the blessing in
disguise. Aircraft lease rentals had crashed globally and
trained staff was available aplenty. More significantly,
Fernandes knew the people were there, and they were keen to
fly. All they needed was the right airline at the right price.
Fernandes proved everyone wrong.
Within a couple of years of its operations, AirAsia managed
to clear its debts and launched a successful IPO in 2004,
raising nearly $200 million for future expansion. "We started
with two aircraft but we managed to grow AirAsia into the
largest low-cost airline in Asia," asserts Fernandes. "And we
achieved it through hard work, innovation, marketing and a
determination to make the dream of air travel a reality for
millions who had never thought of flying before."
Today, AirAsia is the region's largest low-cost
operator, with a network of 113 routes covering
almost 60 destinations across all 10 ASEAN
countries, Australia, India, China, Bangladesh and
Sri Lanka. It has flown more than 75 million
passengers since its inception and grown its fleet
to almost 80 aircraft and 6,500 employees.
AirAsia believes in opportunities for everyone -- there are
pilots who used to be purchasing assistants, department heads
who started off as baggage handlers and cabin crew members
who were administrative assistants! It has ordered 174
Airbus A320 aircraft, with an additional 50 on option, to be
delivered through 2014. In 2008, AirAsia and AirAsia
associates ferried more than 18 million passengers.
Fernandes expects to reach 22 million passengers in 2009
despite an uncertain and slow global recovery. (For records,
Indian domestic airlines between themselves carried less than
40 million passengers in 2008-09).
"We are bucking the trend. We are expanding, while most other
airlines are retrenching staff, cancelling flights and
grounding aircraft," reveals Fernandes. "The current economic
climate is well-suited for a low-cost airline like AirAsia as
consumers have become more price-conscious and look for the
best value. With our lowest unit cost base, we have the
flexibility to reduce our already low fares without hurting
our bottom line."
A cost cutter
True, since Fernandes is a relentless cost cutter.
Apart from keeping the costs lower on short-haul
flights, he ensures a high rate of aircraft
utilisation, implements a faster turnaround time at
only 25 minutes, and trains his pilots to land at
slower speeds to save fuel and reduce pressure on
plane's tyres. Most of AirAsia's tickets are sold
online, eliminating travel agent fees and the
printing of fancy ticket booklets. Fernandes has
gone a step further -- AirAsia uses a portion of
the tag on the check-in baggage as the boarding
pass!
The efforts have paid off. During the first half of 2009,
AirAsia's net profit surged on the back of higher passenger
numbers, lower costs and better margins. The budget carrier
doubled its profit after tax at $100 million during
January-June 2009 on revenues of $401 million, against $50
million earned on revenue of $334 million in the
corresponding period of 2008.
The rising profitability margins also reflect the growing
importance of ancillary income to the company's bottom-line.
Though AirAsia charges rock-bottom fares, these could be 80
per cent cheaper than those of legacy carriers -- it makes
money on selling food and beverage and merchandise on its
flights besides a lucrative, low-cost courier service.
"Ancillary income now represents 14.5 per cent of the total
revenue, a 6 percentage-point increase from the same period
last year," says Fernandes, adding that "there are six more
ancillary income initiatives in the pipeline waiting to be
launched."
Meanwhile, Fernandes has expanded his domain by launching
the world's first long-haul, low-cost airline AirAsia X,
designed to serve destinations four to eight hours away in
flight time from Kuala Lumpur. AirAsia's first route was
launched in November 2007 with a maiden flight to Gold Coast,
Australia.
Currently, it connects to Australia, northern China, Taiwan,
UK and Abu Dhabi. "Guests of our airline don't necessarily
make Kuala Lumpur their final destination," he reveals. "In
fact, guests on AirAsia X, only 20 per cent stay in Kuala
Lumpur, while the rest fly on to other AirAsia as well as
other AirAsia X destinations."
Fernandes is also looking to expand aggressively in India. It
currently flies to four cities, Kolkata, Kochi,
Tiruchirappalli and Thiruvananthapuram, but has plans to add
more routes.
"India is a huge market and AirAsia's potential for
tremendous growth there, in terms of passenger volume and
route network, is truly exciting," feels Fernandes.
"Capturing a big portion of the Indian air travellers' market
and getting them to fly with us to Kuala Lumpur and on to our
other destinations would be a boost to travel in Asia."
That hardly sounds misplaced for this poster boy of the
low-cost aviation in Asia, who has freed air travel from the
exclusivity of elite and made it accessible to the teeming
millions. "We have democratised travel," quips Fernandes .
By ANOOP BABANI
anoo...@gmail.com
in BUSINESS INDIA, November 29, 2009 p 130
