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Budget health, education on agenda for AirAsia head

Fernandes says budget carriers face "irrational competition" from government-owned, full-service airlines.

KUALA LUMPUR -- Tony Fernandes has realized his dream of owning a budget airline. AirAsia has grown from just two planes to over 180, and counting, in 13 years. Keeping costs low is what the airline does best. But AirAsia is also a place where porters can work their way up to become pilots.

     AirAsia's founder started out on a very different path: He previously had an executive-level career at Warner Music in Southeast Asia.

     Fernandes, who also founded the company Tune, spoke with The Nikkei Asian Review about his business philosophy and future ambitions.

Q: With a background in the music industry, how did you start the airline without any prior experience?

A: I just did it. I watched TV and called up Conor McCarthy of Ryanair who gave me the [business] model. Planes were a big part of my life. I always liked planes. My mother worked for Tupperware and she flew all over Malaysia. Dad and I would go to the airport early to look at planes. I was always saying to my dad when I was 5 that I wanted to own an airline, when others wanted to be a pilot.

     I was sent to a boarding school [in the U.K.] at a young age. Airports were a place I could use to get home. At 13 or 14, I told my mum I wanted to make it cheap to fly from London to Kuala Lumpur so that I could come home often. When I was fed up with music, I said, let's do it.

Q: What was the toughest time for you as AirAsia head?

A: (It was) probably when Malaysia Airlines went after us. They chopped their fare. We just had about five planes then. I had to gatecrash a party to see the minister [for new route approvals].

     Regulators don't like change and I am a disruptor. If you want to change, you have to change the way things are done. It is part of the business that I hate, because I know I am not well liked. If every car was a Lexus, how many would be able to afford to drive?

Q: The time between landing and takeoff for AirAsia planes is 25 minutes, one of the shortest turnarounds in the industry. How do you do it?

A: The secret is the people. The reason we can do it is that we are close to our people, we are transparent and our staff understand why it is important to do it in 25 minutes. It is in our culture and blood that we have to save money. My CEO says, "This hotel is too expensive, I will stay somewhere else."

Q: How do you view the competition from other budget carriers?

A: I don't think there is a lot of competition. The problem comes from full-service carriers such as Malaysia Airlines. The worst thing about my industry is that governments own the assets [airlines and airports] and are my competitors. In Southeast Asia, every airline is owned by governments. We have irrational competition. If I have a fare of $100, I have to make money. [Malaysia Airlines] put fares at $100, and if it does not make money, it gets it from taxpayers. That affected us.

     With Malindo Air, Lion Air, that's competition. [There is] nothing wrong with that as long as it is fair competition. You have got to compete. Competition makes us better.

Q: What about the budget airlines started by legacy carriers?

A: Airlines are destroyers of capital. Japanese airlines are great example. They have short- and long-haul, cargo, hotels, catering ... [they] try to do too many things. If I have $1 billion [in] capital, I put it into AirAsia's short-haul model. I move people from A to B in four hours, one type of plane and one business model. I think eventually, these airlines, as their business models become clearer, will focus on high-end passengers. So, there will be five-star airlines and three-star airlines.

     Airlines originated from the fact that there was huge capital and they were generally owned by governments to serve everybody. I can never make the CEO of Sumitomo bank happy on my plane, probably not. He wants the services, lounge, space ... and so would I.

Q: The budget airline business is crowded and some carriers are not doing so well. Is consolidation in the horizon?

A: I disagree. We have a population of about 700 million in Southeast Asia and effectively one regional player: AirAsia. Tiger Airways pulled out from Indonesia and is only in Singapore. Jetstar is in Singapore and Vietnam. Then you have Lion Air, big in Indonesia but tiny in Malaysia and Thailand. In Europe, you have Ryanair and easyJet, and between both of them, they have 800 planes. You add all the planes [operated by budget carriers] in Southeast Asia together, and we do not come close to them. And we have twice the population. You can drive in Europe but not here.

Q: What is next for AirAsia? 

A: My name is AirAsia. My base is ASEAN but if I want to cover Asia, I have got to have something in North Asia and South Asia. We have kind of done that now, even though we have not launched Japan. Japan is our North Asia hub and India is our South Asia hub. From those two places, we can cover the whole of Asia.

Q: Are the current low oil prices a tailwind?

A: That's a Christmas present. About 50% of our cost is oil, and oil [prices] have dropped 50%. We had very little hedging this year. We now hedge about 50% for next year, [as we predict oil will cost] an average of $80 per barrel. We are in much better shape with oil prices coming down.

Q: What is in the pipeline in terms of expansion?

A: There are three things I want to do in 2015. One is, we want to get back to London. London is very important to the people of Southeast Asia. We have a connection, whether it is through football or education. Two, we are going to fly to Sapporo and allow every Southeast Asian to see snow. Three is Hawaii. We will do Hawaii probably from Nagoya.

     These are the three sexy destinations we are going to do. You have got to have sexiness in an airline. If I put in my Twitter that I am flying to Hawaii, everyone will be excited. 

Q: Any acquisitions?

A: We had one acquisition in the Philippines. That's enough. You are buying into a lot of problems such as regulations and assimilating your culture into the new airline. I prefer organic expansion.

Q: What sort of impact do you think you have had on people?

A: I don't care about form and structure. I was lucky I had a good education, but there are many people cleverer than me who just do not have the money. I cannot change the world but I can change my company. So, we say to anyone who has a dream: You can do anything in AirAsia. We have people who carried bags for us who are now pilots. Of all the things that I have done, I think creating an environment [in which] my staff can live their dreams [has had the biggest impact].

     We are a true ASEAN brand. AirAsia has touched many lives. We created Southeast Asian tourism that was not there. Businesses, including small and medium enterprises, have benefited and we created aviation jobs. 

Q: Are there other businesses you would like to be in beside airlines?

A: My dream is to start a low-cost hospital and [offer cheap] education. [Only] then would I have created a total lifestyle. Hospitals are like airlines, which are very inefficient. I think it is every human being's right to have good health and education. I created a school [a U.K. boarding school campus in Malaysia] which is everything but expensive. But my dream is to video everything so that people can receive a cheap education online.

     My tagline is "serving the underserved" and it originated from AirAsia. If you take someone to Tokyo and the only hotel is the New Otani, he will die spending in an expensive hotel. So I say let's create Tune Hotel. Then, I saw not everyone has a credit card. So we created Tune Money. And most of staff were not insured, so we started Tune Insurance. Roaming ... kills me. We created Tune Talk.

Q: How is your partnership in Japan going?

A: AirAsia Japan will be delayed because the regulators are much stricter now. I hope we will start by the end of 2015.

Q: How different is your collaboration this time compared than the one with All Nippon Airways?

A: It is very different. My life is about friends and relationships. ANA was a corporation. With Miki [Hiroshi Mikitani, chairman and CEO of Rakuten] and others, four of us could get together over sake and we could do business. Like AirAsia, they are easy-going entrepreneurs. They take risks. They understand business, like the challenge and they want to change Japan. So, it is a lot easier. It is expensive to travel in Japan. If we can change that, it [would be] really cool.

     Miki does not own an airline. So, I have an advantage. When you have two kings, one dies. My experience is, never do a partnership with an airline. There's got to be one driver.

     We will also start a pilot training school as soon as we get the license.

Q: Are you interested in Skymark Airlines?

A: [Not] unless it wants to sell, and I don't think it does. Going for Skymark is like jumping into a volcano. It would not work.

Q: Do you have any succession plan?

A: We started a succession plan. I can't be here forever. Most Asian leaders stay too long. If I leave and the company fails, I am a bad leader. A good leader knows when to resign and put in his replacement. I will be successful if the new leader makes the company better than [it was when] I was there. I have got to retire at some stage. It is coming. It may be between two and five years. After that, I would like to [be involved] in education and watch football.

Interviewed by Nikkei staff writers Wataru Yoshida, Mayuko Tani and CK Tan

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