“Air-Asia is in a playground of 600 million people in ASEAN. If you add India and China, the other key markets we can touch, you can easily add a billion people, maybe more. That is Air-Asia’s potential, and we aim to get there.”
— Tony Fernandes in an interview with Flightglobal magazine, 2009
The little boy stared wide-eyed at all the planes in the busy airport. Turning to his father he exclaimed, “One day I will own an airline.” Not impressed, his physician father retorted, “If you make it past the doorman of the Hilton hotel I’d be pleased.” That little boy was Tony Fernandes, CEO of the Malaysia based budget airline, AirAsia. In 2009, he was voted Airline CEO of the Year by Jane’s Transport Finance magazine.
For Fernandes, born to Indian and Portugeuse Malaccan parents, the flight path to the top has been circuitous to say the least. Deflecting pressure from his father to pursue a career in medicine, the young Fernandes instead chose an entrepreneurial route. Graduating from the London School of Economics in 1987, Fernandes first dipped his toes into business while in the music world, moving up from financial controller for Virgin Records in London to the youngest managing director of Warner Music in Malaysia. In 2001, Fernandes returned to London and cashed in his Warner shares, narrowly missing the Time Warner-AOL merger debacle.
But like his counterpart Sir Richard Branson of Virgin Atlantic, the lure of aviation was too strong. While in London, Fernandes caught glimpse of a television interview with the CEO of easyJet, Europe’s answer to no-frills travel. Ryannair and easyJet had succeeded as budget airlines in Europe, while Southwest revolutionized air travel in the U.S. Now Fernandes was inspired to launch the Asian version of low cost travel.
Armed with just a dream and a handful of investors, together with capital from mortgaging his house and his Warner shares, Fernandes applied for a license to start up the airline in Malaysia. He was flatly denied. But government officials instead convinced Fernandes to rescue the debt trodden government-run AirAsia. The price was right. Fernandes snapped up the struggling airline for one ringgit or just $0.29. Those few cents bought him two limping Boeing jets, and a debt of $11 million, but it also snared the much sought after operating license.
To Fernandes, the timing could not have been better. The AirAsia deal was inked just three days after the 2001 9/11 terror attacks. The depressed airline industry was glut with unused and cheaply bought aircraft, laid off pilots and airline personnel. With its slogan “Now everyone can fly”, AirAsia took off, redefining air travel in the region. A million passengers boarded AirAsia’s flights in its first year of operations. The very next year, Fernandes not only registered a profit but even began introducing new routes from its base in Kuala Lumpur, Malaysia.
With the lowest operating costs than any other airline, Fernandes built up a brand through unconventional advertising, offering sinfully low prices that customers found hard to resist. It was not long before rival Malaysian Airlines was left with a few seats empty as Air Asia offered promotional fares as low as $0.27.
But the 46-year old Fernandes loves to play the role of contrarian, and hard times have mostly worked to his advantage. When other airlines trimmed advertising budgets during the SARS crisis in 2003, Fernandes tripled his spending. That same year, he lobbied for an open skies agreement with Thailand, Singapore and Indonesia. When the global financial crisis downed airlines everywhere, Fernandes decided to expand the reach of AirAsia X, the company’s budget long-haul carrier. “Each growth spurt has always come at a time of calamity for the airline business. I think the best time to build a brand is in times of recession,” remarked a smiling Fernandes to the Dailymail, attired in his trademark baseball cap and open-neck shirt.
However, the 2008 global financial crisis caught Air Asia by surprise. After the pre-crisis energy price surge hurt its profitability, the airline aggressively hedged its future fuel purchases against future price increases. As oil prices plunged in the wake of the financial crisis and the global recession during the second half of 2008, these hedges became a significant burden for the company. To its credit, instead of vacillating, Air Asia decided to unwind its fuel hedges even though the company was forced to report a financial loss for 2008 as a result. Since then, the airline has been more cautious in its fuel hedging strategy.
Today, Air Asia boasts 80 aircraft that fly to 122 destinations. Weathering the recession, the airline maintained its passenger load factor at 69% during the first two quarters of 2009 and increased it to a high 77% during the third quarter. Increasing volumes of travelers contributed to earnings of $139 million for the nine month period ending September 2009. Around 5.9 million passengers chose the bright red airline to travel just during the third quarter of 2009 alone, a 24% increase year-on-year.
To Fernandes, the “no-frills” attitude of the budget airline also applies to its corporate culture. This everyman CEO insists, contrary to Asian cultural norm, that any employee in the company has the ability to climb the ranks to the top. Fernandes himself routinely works as baggage handler, ticket clerk, or flight attendant, slipping into the shoes of his employees to drive his message home.
Now everyone can fly. Fernandes surmises that before he launched his budget airline, only six percent of Malaysians had ever flown the skies in an airplane. Yap Choo Ying, who owns a market stall in eastern Malaysia, is grateful to Fernandes. She revels in her newfound freedom to travel frequently to see her grandchildren. Fernandes’ boyhood dream has become her reality.
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© Thomas White International, Ltd. 2018