Asian air travel soars to new heights

Colette Steckel travels to Kuala Lumpur to meet ACCA member Tony Fernandes, the bringer of a no-frills airline to Asia

You couldn't miss it. In Malaysia's New Straits Times was a full-page advertisement heralding AirAsia's maiden flight to Phuket in Thailand, and the budget airline's first regional service from its Kuala Lumpur hub, at a fare of RM89.99 one way (US$25). Talk about a cheap ticket. But then I suppose you'd expect nothing less of an airline that has the catchphrase 'now everyone can fly' stamped on the rears of its aircraft.

Phuket is the latest addition to AirAsia's growing list of destinations, which have, until now, been firmly focused on Malaysian cities. Venturing outside Malaysia is a sign of how confident the young airline has become, but the fact that the maiden flight was virtually full also proves that the notion of a no-frills airline in Asia, which was unheard of two years ago, is catching on. And fast. 'The response to the Phuket flight has been great,' enthuses co-founder and CEO, Tony Fernandes, leaning back into his chair and tucking his mop of dark hair under the airline's signature red baseball cap. 'We had 140 guests on the outbound flight from Kuala Lumpur but there were fewer guests on the way home because we've been unable to advertise in Thailand just yet. We expect that to change soon,' he adds. The media-savvy CEO and AirAsia chairman, Datuk Pahamin Rajab, were out on the tarmac earlier in the morning to greet guests (as AirAsia calls its passengers) boarding the 10.40am flight to Phuket amid the racket of a band and a troupe of costume-clad performers.

It isn't the first time the airline has made a song and dance about its developments in the aviation sector. A few days earlier, AirAsia launched its second hub to similar fanfare at Senai airport in Johro Bahru, serving Kota Kinabalu, Kuching, Langkawi and Miri. Although the airport is on Malaysian soil, it is very close to the Singapore border. And with fares a fraction of those offered by Singapore International Airlines, Fernandes reckons that many of the guests taking an AirAsia flight aren't even Malaysians. 'Singaporeans are travelling across the border to fly with us,' he notes. 'And that's driving SIA crazy.' In fact, SIA is so rattled by the bold airline that the Singapore Ministry of Transport has refused AirAsia's transfer coaches into Singapore. Not that Fernandes is the least bit concerned. 'We're not giving up,' he vows. And to prove his point, he has come up with some tongue-in-cheek advertisements that give a neat swipe at SIA's traditional publicity campaign. 'We put three of our stewardesses looking up at an AirAsia plane with the strapline 'There's a new girl in town. Half the price and twice the fun',' says Fernandes, bursting into fits of laughter.

In a classic twist in the tale, SIA has retaliated by announcing that it is to launch a budget carrier, enlisting the support of the founder and current chairman of European no-frills airline Ryanair. If this news is likely to deter Fernandes from pursuing his aim of bringing AirAsia to Singapore in the future, then it hasn't succeeded. Although he has balked at the cost of flying out of Changi airport, Fernandes continues to look into other ways of making his mark in Singapore territory. The Malaysian press is awash with rumour about a possible joint venture with a Singapore partner, but Fernandes remains tight-lipped on the subject. 'When the time is right and the opportunity is right, then yes, I would like to see AirAsia in Singapore and beyond,' says Fernandes. 'I like the idea of creating an Asean brand.'

Partnership

He has already taken AirAsia a step towards that goal by recently forming a partnership with Thailand's Shin Corporation, to invest in a low-fare airline business. The newly formed AirAsia Aviation Co Ltd will start flying its guests on routes including Bangkok, Chiang Mai and Phuket from the beginning of 2004. 'I think we surprised a lot of people by doing the deal in Thailand,' says Fernandes. 'I read in the papers that the Thai Government was interested in a low-fares airline, so I asked our merchant bankers to look around for partners. Of course, people would say it's too early, you're not ready. But I thought to myself, what a great opportunity. We met with Shin Corporation, which is a fantastic company, and decided to go for it. It's a significant step for AirAsia,' remarks Fernandes. 'And it's about doing something that no-one else has done.'

Do I sense something of the maverick in Fernandes? 'I suppose I get an idea and then just go with it. I don't think too much about it,' he replies. 'If you start a business, there are about a million reasons why you shouldn't do it and, generally, people convince themselves that they shouldn't go ahead. But if there's an opportunity, I'll go for it.' Fernandes' fast-paced career is testimony to his dogged pursuit of a challenge. In his 20s, he was persuaded by his father to study ACCA in the UK. He joined an audit firm on qualifying but, despite being groomed as a future partner, he quit, preferring the glamour and excitement of the music industry. Hired as a financial analyst at Virgin Records, he quickly scaled the corporate ladder before moving to Warner Music UK. His talent in the industry led to a fast-track promotion and, at the age of 27, he became managing director of Warner Music Malaysia. By the time he left to launch AirAsia, he was Vice President of the Asean region. Fernandes admits that it wasn't difficult for him to ditch his prestigious job, even though he was considered crazy for doing so. 'I'm passionate about music. It's in my blood. But I felt that, at the time, there were a lot of things wrong in the industry. I have to believe in what I do and I felt it was time to move on. I had reached my sell-by date at Warner Music,' he explains.

Aware of the success of European no-frills airlines easyJet and Ryanair, Fernandes started researching the possibility of launching his own budget airline in Malaysia. 'My wife said to me that there are easier businesses to start, why pick an airline? But I just thought it was the right thing to do,' says Fernandes. Without any experience of the aviation industry, he called on former Ryanair director, Conor McCarthy, to teach him everything he needed to know about airline operations. Then, together with a small team of friends from his music past, Fernandes approached the Malaysian Government with his vision of a low-fares airline serving Malaysia. Former Prime Minister Dr Mahathir gave the go-ahead, provided Fernandes and his team took over an existing airline. On 8 December 2001, they purchased the ailing AirAsia, an airline with the most salvageable balance sheet according to Fernandes, for a token RM1.

A fantastic start

Applying the tried-and-tested formula of dispensing with the frills associated with premium-fare airlines and shaving costs by, say, using staircases rather than the more expensive aerobridges, Fernandes has managed to turn AirAsia from a loss-making airline into a slick and profitable concern, paying back inherited debts and reversing a sizeable loss of RM19.1m. In June 2003, AirAsia reported revenue of RM324m and a net profit of RM30m. And the fleet has grown from two to 11 planes that now fly on 13 routes, with the promise of more aircraft and destinations to come. 'Two years doesn't make a successful company,' notes Fernandes. 'But we've accomplished a lot. It's a fantastic start.'

Fernandes concedes that it hasn't been easy getting this far. In a country unfamiliar with the concept of a no-frills airline, he has had to educate the travelling public and persuade the Government to treat AirAsia as the second national airline, which it has. And then there are the ongoing hostilities with premium carrier Malaysia Airlines. Still sore about an upstart airline muscling in on its domestic routes, Malaysian Airlines has attempted to beat AirAsia at its own game by slashing fares. 'Malaysian Airlines must think we're a bad dream,' crows Fernandes. 'For years, they've been losing money on domestic routes and then along comes a team with no background in aviation turning in a profit.'

Despite the rapid heights AirAsia has reached in its short history as a budget airline, Fernandes stops short of speculating where he or the airline will be in the future. 'I have a vision for AirAsia but how long it will take or whether we'll even achieve it, I don't know,' he says. 'But whatever we do, we've changed aviation in the region forever. Everyone is looking at low-cost airlines and at stimulating air traffic. If there's one thing we've done it's change the way people think about air travel.'