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BW Businessworld

‘My Grey Hair Comes From Lobbying’

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"Naresh Goyal is obsessed with bone china and gold spoons." "Malaysian Airlines is a confused puppy." "Vijay Mallya abandoned the low-cost model after one year." "Indigo is trying its best, but it is not as good as us." "Most of my grey hair comes from having to make presentations after presentations to governments." "Airports worldwide dislike low-cost airlines."

No one can accuse Dato Sri Anthony Francis Fernandes of being politically correct. The chief of AirAsia — the continent's biggest low-cost airline headquartered in Malaysia — is pretty clear about two things in life. One, he doesn't want to die an unhappy man because he did not do all that he wanted. And two, he has to be the best in whatever he does.

The one-time music executive quit Virgin Records because his then boss Richard Branson was planning to start an airline. As it turned out, Fernandes quit the music industry (he was with Warner Music Group) within a few years because he wanted to start his own airline. He was refused a licence by the Malaysian government to start one, but was offered a loss-making airline that was then government owned. He bought it for a token sum of one ringgit and turned it around through sheer discipline.











FAST FACTS
Air Asia
Revenues (2010): 3,993 million
Malaysian Ringgit*
(approximately $1.32 billion)

Tony Fernandes
Age: 47 years
Education: Graduated from
the London School of
Economics in 1987
Claim to fame: Bought Air Asia
from Malaysian government
in 2001
Past positions: Vice-president,
Southeast Asia, Warner Music Group;
Financial controller,
Virgin Records, London

Since then, he has turned AirAsia into a behemoth, kicked off another airline called AirAsia X to handle longer flights, and is getting into low-cost mobiles and budget hotel businesses. He enjoys being competitive and creating ultra low-cost operations.

That does not of course mean that Tony Fernandes enjoys a low-cost life. He has jumped into the F1 racing business. He recently won a bet against his former boss Branson on whose F1 team would do better. The bet: the loser would have to dress up as a stewardess and serve in one of the winner's flights. (Last heard, Branson plans to shave his legs and serve in one of AirAsia flights in May).

He also did not give this interview in one of his budget hotels. Instead, Fernandes, who had invited BW to Malaysia for this interview, met correspondent Abhinav Sharma at the lobby of luxury hotel Shangri-La at Kuala Lumpur for an extended conversation on his philosophy in life.

From Time Warner, how did you get into the business of aviation?
Well, I have always liked the idea of travelling and I think there is a lot of happiness around it. And that was one of the factors. It has been a long journey, though.

How did you actually go about working on a low-cost airline?
I didn't have much money and that was one advantage. It is easy to take brave decisions when you have no money. But there's a fine line between brilliance and stupidity. I had left a very good job to do this. But I didn't want to sit there at the age of 55 and say ‘I should have done this'. You only live once so you live life to the fullest.

I have thoroughly enjoyed the past nine years of my life. And if I get hit by a bus tomorrow... it's okay because I have lived a good life.

When you took over the ailing AirAsia in 2001, what was the biggest challenge you faced in turning it around?
The biggest challenge was dealing with the government. (AirAsia was started by a Malaysian government-owned conglomerate in 1993. Fernandes bought the ailing airline with 40 million ringgit of debt for a token 1 ringgit in 2001.) The national carriers have a great amount of power with governments; it is disproportionate to their market importance. Look at Air India — it has so much power. The reasons are beyond my understanding.


 











 



(BW pic by Bloomberg and Tribhuwan Sharma)

How difficult was it to make the low-cost model work?
That was easier, to be honest. One of my gifts is that I can find good people. I have got great people in my company. And I had Conor McCarthy from Ryanair to help me. (McCarthy was former operations chief at Ryanair and an early investor in the AirAsia IPO.) The low-cost model is not difficult to plan; implementing it is. By implementing, I mean discipline, focus, stubbornness, and good people. No Indian airline has been able to implement like us. Vijay Mallya relinquished the low-cost model within a year, and became a full-service airline. Indigo is trying its best, but it is not as low cost as us.

How has the response to AirAsia services in India been?
Tremendous. India is a big, diverse country. Even the metros are quite different from one another. To get your brand across is not easy, and it takes a long time.

What kind of competition do you see from the full-service carriers?
I think Jet is a very good product, and I don't think it's trying to compete with us. Naresh (Goyal) is obsessed with bone china and gold spoons — we can't compete with that. He wants to be Singapore Airlines... There will be no competition from him.

First of all, you have to decide what kind of an airline you want to be. Malaysian Airlines is a confused puppy here. It doesn't know if it is a full-service airline or a low-cost one. Invariably, airlines will get themselves in the mess. Because consumers need to be clear about the brand. See, Naresh Goyal and Mallya made mistakes with JetLite and Kingfisher Red. Off-shoots of a brand don't generally work. The only bad thing on our side is that we have a big brand. So, people make a big deal about AirAsia entering the market.

Full-service airlines have to understand that there is no direct competition. But airlines are generally monopolies and they don't like to cede any power. That is something they have to deal with because we are not going away.

Some airlines offer both full service and low cost. Will all airlines eventually have to choose one or the other?
I think eventually that will happen. Malaysian Airlines is obsessed with us. And they have even started a low-cost carrier, which is going to be a complete disaster. They call it Firefly, which is a dumb name because firefly is an insect with the shortest life span.

We are not worried about competition. With this business, it is very easy to overgrow — do things you shouldn't do and complicate your business. AirAsia has been the same for 10 years — we move people from A to B in four hours and that's it." (AirAsia operates flights only of four hours or less. Any flight more than four hours is handled by AirAsia X — a completely separate operation.)




What are the obstacles that you run up against while expanding AirAsia?
Airports. Generally, airports around the world don't like low-cost carriers. Airports are a big problem in India, too. They are either not very commercial or they are too commercial — they will privatise and the guy (who takes over) just wants to make his money back in one year. So, airports have gone against low-cost airlines. Also, dealing with governments is another problem.

How do you address that?
Most of my grey hair comes from that — giving presentation after presentation. The amount of time I spend on lobbying (with governments) is disproportionate to any other business. This is one of the reasons why airlines are so bad. Malaysian Airlines spent so much time lobbying against us, as opposed to focusing on building their airlines... I think that's the norm with most government-run airlines — they spend a lot of time on negative issues and I am sure Air India is no different. Air India thinks Praful Patel destroyed the business. I think quite the opposite.

Now you have got Jet, Indigo and Spice. So you have choice. Consumers need choice. Even here, I got no problem if five new airlines open, as long as there's fair competition.

In India's case, if you open an airline, you can't fly international for five years. What's the logic behind that? Foreigners can't have a share in an Indian airline. But you have foreign banks, foreign mobile phone companies, foreign roads, even airports built by foreigners. It is a funny industry.

break-page-break



What would have happened had you got a licence to start your own airline?
I think that was a massive blessing in disguise when Tun Dr Mahathir Mohamad said "go buy the airline". I don't think we would have been able to start an airline from scratch. We really didn't have enough cash. Luck does play a part. We had $1 million; we couldn't have started an airline, but with AirAsia we had an airline that was running and all I had to do was stop the losses.

You have been focusing on the same business model for the past nine years. Will you change your strategy?
There will be no change. We will continue on the same path — with more flights, more destinations, more people. There is nothing more we can do to the model that we can make it better. We have improved the experience. I want more people to check-in by phone. We tried and improved the reliability as much as we can. But it is always going to be harder for us as one delay affects us badly compared to others (because of the low-cost model). We improved the airport experience as much as we can, but the model is more or less what it is. We are looking at clever ways of mobile or SMS and in-flight entertainment.

Would you consider acquisitions to grow your business?
I don't believe in acquiring. You do acquisitions when you run out of ways to grow or you don't know how to cut costs. So you acquire and cut costs. Or you want to build market share. But acquisitions, generally, are value destroyers. I don't know too many acquisitions that have worked well. If you go back to Harvard Business School and study every acquisition, you will find that most acquisitions were value destroyers. Because you have three different cultures involved. I am very culturally sensitive to having the right management team.

Is it because you are very confident about the way you are implementing things at AirAsia?
It is easier for me to shake my own people than to bring a bunch of new people to shake. Could you imagine me going to Indian Airlines? They will dislike me even before listening to me. We could win them over, but it will take a lot of energy. And I would rather put that energy into building the airline.

What difference do you find in terms of operating low-cost carriers in different continents, countries?
No difference. Indians are no different from Malaysians or Chinese. No one will convince me that there is any difference.

Is there not a value-for-money culture, where people are ready to pay extra for the services?
Of course. But that's not the market I am after. That's why airlines confuse themselves. If you look at Singapore Airlines, for instance, you have got someone who has paid for a bed, and someone who has paid for an economy seat. It is the most disproportionate business.

I am just looking for guys who want the lowest price to get from A to B comfortably and safely. And if you want to have extra services, don't fly with us. Don't try to get everyone, because you can't. And that's the problem with airlines, they try to get everyone and you end up with a messed-up cost structure. There are people who prefer to pay more for more service, but I am not going to change my business model for them. Because there's a big enough market for me. That's why I keep saying about Malaysian Airlines or Indian Airlines or whatever — what is your market, and focus on that market. So, I am not trying to say, ‘Well, let's put in a few business-class seats because there's a market there.' It just destroys the model.


 











(Pic by Airasia Travel3sixty Magazine and Reuters

And you've got to be disciplined. My people keep asking me to do interconnect, and I say no. Because it is problematic. Suppose there's a delayed flight: passengers are annoyed; we have to give you accommodation; take care of your luggage… All of it complicates the operations. But why? There are so many more passengers who still haven't filled our planes. Outbound tourism in India is going to explode, so is inbound tourism into India. So, why are you worried about passengers who want more value? There are millions at the low end of the market who have never flown. They are my customers. I am after someone who travels by train, who watches MTV, and says ‘I want go to the beach in Bali'.

Would you like to revisit music, the business from where you first started?
Yeah, definitely. I will end up in the music business when I retire. But no clear plans as yet. But I think if I go to the music world — which I will — I got to find a new way of distributing it. So, I really see the Internet as a distribution channel, and I think music cannot just be selling music anymore. You've got to have live, and artist management. You just don't make money from music anymore because it is so easy to get it free.

Tune Hotels, Tune Mobile and AirAsia... all your ventures provide low-cost services to customers. What led you to build these low-cost service businesses?
It is a lifestyle I was trying to create. So, I was trying to serve the underserved. I looked at all categories, and I thought there was inefficiency and high cost. And everyone in Asia is trying to build highest, tallest, fanciest, 6-star, most diamond, etc. But the mass market is always neglected. So, I brought services to the mass market, so that they can also enjoy the benefits of a developing country. Most people who fly in AirAsia don't even have credit cards. So, how do they use the Internet? So, we created pre-paid cards












      REPORTER'S DIARY
I flew AirAsia X — the AirAsia subsidiary that operates flights with duration of over four hours — from Delhi to Kuala Lumpur. It is a comfortable enough flight provided you do not expect any freebies. Want a blanket and a pillow? Pay 35 ringgits. Want a bottle of drinking water? Five ringgits please (Rs 72). Want to watch a movie or listen to music? If you are not carrying your iPod or iPad, pay about 35 ringgits (Rs 516). But the seats are comfortable, the leg space is okay, and I managed a three-hour nap without a problem. The crew is briskly efficient, if not particularly friendly. And yes, they lack Tony Fernandes's ebullience.

What made you explore such business ideas? Is it only the business side of it — the potential, the opportunities in these markets, or is there something more to it?
I love people. I love my staff. Business is secondary. I know that sounds very clichéd — but money has never driven me. It is nice to have. It's a by-product; you will be able to do things. I don't believe in charity. I believe in helping people help themselves. I wouldn't write a cheque and give it to charity and feel good about it. I write a cheque and give it to a social entrepreneur, and help lots of young kids build their businesses.

The biggest kick I get is being able to give 9,000 people a job, and be able to develop someone who carried bags into a pilot. I am driven by different things. I am driven by challenge. Our Formula One is one such challenge. Everyone laughs at us... but I love it, I love it. That motivates me one day we can do something special.

What drives Tony Fernandes to help people? Is it the upbringing, is it the travel or your stay in London… what is it?
That's a good question… I don't know. I suppose I was always thrown into the deep end. I was sent to the boarding school when I was 12. I had never been to England before. But I think you're born with it. I can't answer your question. People say to me, ‘Why do you keep going? Why do you pick another challenge like Formula One? Why do you do this?' I can't answer these questions.

I want to show that Asians can do that as well. You live once in your life, right? You try and make the most of it.

You say ‘Asians can do it'. Do you mean that your stay in London influenced you to do something impressive in Asia?
I went to Manchester United Football matches. And every Malaysian was wearing a Manchester United shirt. Me and the Malaysian Football team were the only guys wearing Malaysian shirts. I said we must develop our own heroes. Isn't it great in India now, you have world champions. You are proud of Sachin Tendulkar and M.S. Dhoni.

What is the objective behind entering Formula One?
You have to make it profitable. How many people can say that they own a Formula One team to make it successful? It is a challenge. And here, you are at the global stage of pinnacle. AirAsia is in Asian playground.

But in Formula One, I am competing with the biggest and the best. There is nothing better than the Formula One in motorsports and I got a seat at the table. I am right at the back, but I got a seat at the table. It is up to me whether I can make it go forward. The first chapter has been good, we beat all the new teams. It is the start of the season; we are catching up with Force India.

Your thought on the October race in Delhi…
I think it's fantastic for India to have it. I hope the masses watch it. The success of the race is when everyone can watch it. But Formula One in our countries will not be successful until there's a local champion, till someone like Karun Chandok is a world champion.

…and about investments in F1

"I can't tell you yet. Over the few months you will see."

How does your image of a cool guy sync with driving such a tough business?
I think I am the same. I shout once in a while. I generally manage the pressure the same… But it isn't because of pressure, it's generally because I think they can do better. I hate people who underperform. I don't change my style of management due to pressure. Humour is my best way to handle pressure.

What have been the turning points in your career?
The turning point was leaving music. When I decided to leave, music business had changed. I left it because I knew it would end in disaster because music business did not embrace the Internet, and I knew it would be destroying. You can't hold back technology.

What about succession plans?
The next guy will have huge clout. I think I have got another 2-3 years of making Air Asia what it is, and then someone else can take it to the next stage.

Do you see a successor from within the company?
Oh yeah. No one knows who they are, but there are enough people there.

(This story was published in Businessworld Issue Dated 02-05-2011)