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How Air Asia founder Tony Fernandes' dream came true

Former music executive Tony Fernandes bought an ailing airline for 25p and transformed it into Asia's first low cost, long-haul carrier Continue reading the main story

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When the music industry failed to adapt quickly to the internet, Tony Fernandes decided to make a clean break. He left his job to pursue a childhood dream: set up an Asia's first low cost airline.
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Air Asia Turnover: $1bn (2009) Number of employees: 8,000

 HQ location: Kuala Lumpur, Malaysia Year founded: 2001 Ownership: Listed on the Malaysian stock exchange

Mr Fernandes bought Air Asia from a Malaysian government-owned company in September 2001 for a mere 25 pence. "When the music business failed to embrace the internet, I thought it was game, set and match for the industry and I quit," he recalls. But he had no experience of running an airline. "It really was a little bit of stick your finger in the air and hope for the best. But we were good marketing people from the music business we just went out there and felt the market and said if you halve the fare, there's a huge enormous untapped market." Air Asia was heavily indebted at the time. Fernandes set about reforming the airline as a short-haul low cost carrier, similar to those operating in the West. The decision revolutionised short-haul flights around Asia and Fernandes saw his business expand rapidly. The company grew from two planes in 2002 to a fleet of 86 aircraft flying 30 million people around the world.

Separation
He puts the turnaround of the airline down to 'culture, focus and discipline'. Mr Fernandes believes the trick is to be single-minded about the operation and to keep it simple. After the success of Air Asia's short-haul flights he expanded into long haul journeys with a new airline, Air Asia X. The result was two separate companies, one dedicated to low cost short-haul flights, the other focusing on long-haul routes. There are "two separate management teams, two separate marketing teams, and the two brands Air Asia and Air Asia X." The separation continues even on the plane. "We have two separate sets of crew, two separate sets of pilots and engineers. So it's a very different culture but they're symbiotic without being parasitic and being on top of each other," he explains.
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If you sit up in your ivory tower and just look at financial reports, you're going to make some big mistakes.
Tony Fernandesgroup chief executive, Air Asia

Despite this, the two airlines utilise a similar modus operandi: efficiency is key to keeping up with demand and ensuring a healthy profit-margin. "Turnaround [of planes] is very critical. We do a lot of practising on doors, on the cabin crew, helping people sit down quickly and clearing the aisles." Mr Fernandes first envisioned cheap flights across Asia as a young boy. Being at boarding school in Epsom in southern England far from his childhood home in Malaysia meant that half-term visits were out of the question. "I always dreamt about doing a long haul low-cost airline," he remembers. "For my first ever flight in Air Asia X, I refused to do the launch to Australia and China and everyone thought it was a bit odd. But I wanted my first flight to be LondonKuala Lumpur." "It was very emotional for me 35 years on."

Ground experience
Fernandes adopts a 'walk around' management style. "If you sit up in your ivory tower and just look at financial reports, you're going to make some big mistakes." For a few days every month he works on the ground or in the cabin crew. He says he's learned a lot from working on the airline himself. "When we moved from the 737 to the Airbus, the Airbus is slightly higher off the ground and my guys said we need belt loaders. It would have cost us about a million US dollars. We used to just put the bags manually into the cargo hold on a 737." So Fernandes turned the idea down. But on his next stint working alongside staff, he says he almost 'broke his back' loading the plane. "I said 'Ron, you're right, we'll get belt loaders' I made the decision instantaneously.' He says that without the experience, "I could have made a decision - a very wrong decision that damaged a lot of people and destroyed the morale of the organisation at that level."

Employees before customers

Air Asia and Air Asia X fly to 13 destinations in Asia, Europe and Australia

Fernandes says that to him "employees come number one, customers come number two. If you have a happy workforce they'll look after your customers anyway." "We have a culture department whose sole job is to organise parties." He has been known to search out new staff in queues. "I look for people who have drive, who have ambition, who are humble. I've hired many people at very strange places." "You can have all the money you want in the world, and you can have all the brilliant ideas but if you don't have the people, forget it."

Succession planning
But Tony Fernandes admits that despite this, being a central presence in an organisation can have an inhibiting effect. "The one bad thing about Asian companies and family owned companies and those started by entrepreneurs is: when do they move?" "Good leadership is to know when to go and you only succeed as a good leader if you've transported someone else in and the company gets stronger. Then you've succeeded as leader." The founder of Air Asia says he's not about to leave just yet, but is certain he won't make that mistake. "We're nine years old and there's a few things more that have to be done but there are lots of young people coming in, lots of energies coming in. I'm very, very confident that when I do go, and my sell-by date does come, the company will still grow from strength to strength and then I would have said I've succeeded."

Interview: AirAsia CEO Tony Fernandes

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BY: SIVA GOVINDASAMY SINGAPORE 12:30 18 May 2009 Source:

We are stuck inside a busy restaurant called "Taste of Asia"at Kuala Lumpur's low-cost terminal for 20 minutes. A crowd has gathered because a rock star is in the house; his name is Tony Fernandes. All it takes is for one person to tentatively walk up to the AirAsia chief executive and ask for a photograph. Fernandes adjusts his trademark red cap, shakes the passenger's hand, puts his arm around him and smiles widely with a thumbs-up as the camera clicks. He then turns to the passenger and says: "Thank you for flying with us." Within seconds, dozens of AirAsia passengers -on their way to destinations as disparate as Bandung in Indonesia and Brisbane in Australia -leave their food and surround him. They are waiting to have a snapshot taken with the man who made their trip affordable, and possible. The 45-year-old Malaysian happily obliges everyone.

Law Kian Yan

Welcome to the world of Anthony Francis Fernandes. In 2001, the man who spent much of his youth studying in England and playing schoolboy rugby, got out of a great career in the music business to plunge into a dream of running an airline. He mortgaged his house and, together with some friends and investors, bought AirAsia. Back then it was then a moribund Malaysian operation that cost 1 ringgit ($0.28) and brought with it 40 million ringgit in debt and two Boeing 737-300 aircraft.

He proclaimed that he would start Asia's first proper low-cost operation, and met polite smiles and condescending nods. He was seen as a maverick, who would crash and burn trying to take on the Malaysian and Southeast Asian airline and airport establishment. He has proven everyone wrong. AirAsia is now the region's largest low-cost operator, with a network of 122 routes covering more than 65 destinations. It has carried over 65 million passengers since its inception and grown its fleet to 80 aircraft. It has gone public, ordered 175 Airbus A320s, started associates in Indonesia and Thailand, and finally secured access to Singapore after overcoming various obstacles. Fernandes and AirAsia have also helped to start AirAsia X, a long-haul, low-cost airline that has 25 Airbus A330s on order and will imminently sign a deal for around 25 Airbus A350s. "For the first time, in 2009, we really see AirAsia's true potential," he says with a satisfied grin. "I've had a lot more white hair in the process, but it has been worth it." Many still think he is a maverick, but they add the "visionary"tag to that. AirAsia has grown beyond anyone's imagination - except, perhaps, his own - and has arguably done more than any other to unite the 10 members of the Association of Southeast Asian Nations. He adds: "AirAsia has gone from a sparkle in my eye, to thinking that this could work, and then believing that we have arrived. It affects many lives and economies in a positive sense. We are no longer just a Malaysian carrier; we are an Asean airline." The evidence is in Kuala Lumpur's low-cost terminal (LCCT), a 20-minute drive from the main Kuala Lumpur International Airport. It does not have flashy restaurants or fountains, but it packs in the crowds. Imagine Kuala Lumpur's old Pudu Raya bus station -which in its heyday had hundreds of passengers arriving every hour from all corners of Malaysia, and Singapore and Thailand -and you get the idea. Simply substitute the buses with aircraft and include accents from every Southeast Asian country, with the Chinese, Indian, English and Australian twang thrown in. "We're the only brand to promote Asean. It is not just about price, we brought points together like never before. Bandung-Singapore, Kuala Lumpur-Banda Aceh; it was not this easy to travel around the region until we started doing it," he says. It involved building the business up, and then doing "a helluva lot of lobbying and presentations" to convince governments it was better to open their doors, instead of protecting their legacy carriers. "Commerce, rather than governments, drives Asean. Countries will always want more want tourists and traffic. Asean governments realised they had to open up or always play second fiddle to China and India," says Fernandes. "When you're AirAsia, carrying 24 million people, airport chiefs and tourism ministers realise it doesn't help them to protect national airlines after we talk to them." Singapore, Southeast Asia's main air hub, is a prime example. It did not allow him to start an associate in the country, but he continued to lobby the government and proved the airline's value through its Malaysian, Thai and Indonesian operations. He still does not have a Singapore-based carrier, but finally has access to the country. AirAsia flies to five cities in both Malaysia and Indonesia, two in Thailand, and there are more to come.

Much of the success stems from AirAsia's work culture, which stresses innovation, openness and a never-say-die attitude. Its offices have few physical barriers between desks, there are no titles on name cards and everyone is encouraged to use first names. Cabin crew are pushed to develop their own personality, instead of conforming to preconceived notions about their role, resulting in a relaxed onboard environment. The CEO sets the tone. Anyone can walk up to "Tony", exchange a high-five, and offer a suggestion or just grumble about football. Talk to almost any of the 6,000-strong AirAsia staff, and a strong sense of ownership is evident.

Law Kian Yan

"We're still a small operation, despite growing so fast, and that means everyone is valuable. At the end of the day, I would rather have 6,000 brains working for me instead of just 10. We are always innovating and we never stand still, and that has helped us," says Fernandes. "If there is a good idea, it can be implemented very fast as there is little bureaucracy. If there is a bad idea, we can kill it really fast too. That is how we do things that others may not try."The informal culture also helpskeep costs down, ever-important to a low-cost carrier. There are few personal assistants, the executives do not have drivers and Fernandes does not have a posse when he travels.

AirAsia has made tough calls recently, paying $115 million to exit fuel hedges last year and unwinding interest rate swaps, related to aircraft term loans. The short-term pain will save money in the longer-run and "we won't have a noose around our necks going forward over this year", says Fernandes. "We had to think on our feet. People initially criticised us, but we turned out to be right. The company's culture allows us to move fast when it comes to making decisions like those." As a result, Air-Asia had a unit cost of 3.08 cents per ASK in 2008, 10% lower than the previous year. "That is the toughest part of the business and our margins are among the best in the world." Retainingfocus on the key business helps, and that remains serving markets within four hour's flying time of its three hubs. "I'm still scratching the surface in Southeast Asia," he says. "I'm still small in Thailand and Indonesia, relative to their population sizes, and we're eyeing joint-

ventures in the Philippines and Vietnam. We've faced obstacles in Vietnam, but we are patient. It took us seven years to get Kuala Lumpur-Singapore, and a lot can change in Vietnam in the next five years." India and China are next in his sights, but that is in tandem with AirAsia X, which will serve the markets four to eight hours out of Kuala Lumpur. These include destinations in Japan, South Korea, Australia, the United Arab Emirates, Bahrain, India and China. Fernandes is not involved in AirAsia X's day-to-day operations, even though he gives a lot of input into its strategic direction. Walking up one of the airline's new A330s, which is about to take off forMelbourne, and meeting the passengers, he becomes animated. It is clear that this operation is close to his heart. After all, the long-haul operation was his original plan until former Ryanair executive Conor McCarthy, who became an AirAsia investor, persuaded him that the short-haul market had better prospects. He admits it was the right move: "AirAsia X is a wonderful addition; it brings the brand to another level. Look, it is sexier flying to London and Melbourne than Bandung," says Fernandes. "But without AirAsia's short-haul market and the connectivity to Southeast Asia it offers, there would be no AirAsia X. That is why it will be hard for anyone else to emulate it. Look at Oasis Hong Kong - what else did they offer apart from flights to London? Is it any surprise that they had to shut down?" Keeping AirAsia X as a separate company was a "clever step" that protects AirAsia, which has only a 16% stake in it, he adds. Aero Ventures, which Fernandes started with other prominent Malaysians and Air Canada's Robert Milton, owns 48% of the long-haul operation. The other investors are Richard Branson's Virgin Group (16%), Bahrain's Manara (10%) and Japan's Orix (10%). "We work on lots of things together, but we have not put down any money since we started it up. It is an independent business that derives its own cash and is profitable." AirAsia itself, which listed on Bursa Malaysia in 2004, posted a net loss last year - but Fernandes says the first quarter of 2009 was profitable. Its shares have had a rough time on the Kuala Lumpur stock exchange and last year, when the price fell to around 0.80 ringgit, Fernandes and the other founders considered taking the airline private. They abandoned that plan after credit became tight. "We saw value in the price at the end of last year, and we still do, but we could not raise the money," he explains. Even if the average Malaysian shareholder may not see value, others could. Branson is mentioned as a possible investor, but when questioned about it Fernandes says with a laugh: "Ask Branson about that one!" Equity partnerships with other airlines, however, are a possibility if they bring tangible benefits. "The world is a very small place. Will there be combinations between airlines? Sure. Will we consider something? Yes, if it makes sense. Air France-KLM is a good example of how something like that can work, but the combination must add value to shareholders. The reality is that many mergers are driven by ego or airline necessity but, truthfully, most have not done a good job of it." Fernandes concedes he may have to step down if there is a change in ownership, but he insists it may not be too hard. "If someone else feels that they can do a better job, sure. One of the great things is to know your sell-by date. Many people in Asia cannot let go. You are not a good

leader unless you have a succession plan." However, he adds with a grin: "I'm not looking to leave any time soon. There's still a lot to do." Fernandes gets a kick out of overcoming challenges, and there are still plenty of them. The biggest, he says, are airport operators, in particular Malaysian Airports, which runs KLIA and the low-cost terminal. MAB has successfully lobbied the government, preventing AirAsia from building its own low-cost airport near Kuala Lumpur. Instead, it promised it would expand the LCCT by 2011. A visibly exasperated Fernandes points out that they made similar promises in the past and nothing happened. The existing low-cost terminal is already bursting at its seams. "Airports are parasites and, in Asia, their pricing is not transparent. Low-cost carriers should not be levied the same fees as the full-service airlines. We bring in a lot more volume, and there is plenty of ancillary income - just look at how crowded the shops and restaurants in our terminal are," he says. "I am an aggressive entrepreneur, but Asian airports are slow to respond. If anything stops our growth, it is the airports. If we have to defer aircraft orders, it is because of them. They curb our potential" If the airports meet his ambitions, he says the possibilities are mind-boggling. "Southwest Airlines has 400 aircraft and a market of 300 million. On top of that, in America, you can drive from one end to another and they have pretty good train services. We don't have that over here," Fernandes points out. "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." PLAYING THE GAME As a young boy, Tony Fernandes dreamt of representing Malaysia in the Olympics. He played rugby, hockey and cricket while studying in England, and now loves squash and football. It is hardly surprising AirAsia is involved in sports sponsorship. It partners the Williams Formula Oneteam and sponsors the shirts of English professional football referees. It also worked with Manchester United and considered shirt sponsorship. West Ham United fan Fernandes, says: "As a low-cost carrier, we constantly battle the image that we are low-quality. Our involvement in F1 and professional football helps. F1 races take place in the cities that AirAsia X plans to fly to, and English football is popular in Asia and shown all over the world. We won't be able to carry 24 million passengers without marketing." AirAsia gets good value through these deals, says Fernandes, but he is coy on the cost: "Let's just say that those in F1 and football are very good at making money!" CUSTOMER DIVERSITY AirAsia's main customers are still those who could not previously afford to fly, but its passenger profile is changing as it adds destinations and increases brand awareness. "The economically disadvantaged are there, and the main market is still the mass market -that will never change -but we are reaching markets that we never dreamt of," says Fernandes. "Goldman Sachs executives in Singapore, for example, are very happy that we opened up Singapore-Bandung as it allows them to them to meet clients in the Indonesian city. Our corporate business has gone up 400% because companies want to save money and, once they fly us, they don't want to change."

Fernandes' airline is transforming the perception of low-cost travel, giving rise to a diverse cross-section of passengers. The AirAsia chief executive says: "We show that low-cost does not mean low class. In the Jakarta-Kuala Lumpur flight, you'll find women with diamonds sitting beside maids. You could not see that before. That shows we're reaching everyone." What does he think AirAsia means to its customers? "Nobody has really asked me that before," he says, pausing for the first time in the hour-long interview. "I think they are really proud to travel in an airline that came out of nowhere and provides a service that they did not have before. AirAsia made air travel possible for millions; it's their airline. Every day that I walk around the terminal, people come up and says thank you. If you run an airline, there is probably little more that will make you more happy." Compare Fernandes' thoughts today with his views when we interviewed him in 2004

February 12, 2013

Emerging Leaders: Tony Fernandes, CEO of AirAsia & Founder of Tune Group

Image Credit: Iastsham, Wikimedia Commons

Anthony Francis Fernandes is a no-frills man, not unlike AirAsia, the airline he founded in the early 2000s. A man of efficiency, he doesnt even mind shortening his name to Tony Fernandes if it can help save time and effort.

A little more than ten years ago, Fernandes started what was Asias first low-cost airline. Before he arrived on the Asian aviation scene, the skies above the worlds largest continent were largely empty except for the cottony clouds. Asian passenger carriers of the time were typically a motley group of state-owned firms that charged sky-high fares but provided downbeat services. No wonder at the time the Asian aviation market was tiny and underserved.

But Tonys arrival changed all that. When Fernandes took-over the little known AirAsia, a loss-making airline owned by the Malaysian government, the decision looked like a no-brainer. Not many in the aviation industry had the vision, let alone the courage, to foresee how Asia would transform into the 2000s. Mortgaging his home and dipping into his live -time savings, Tony put all his faith in the Asian consumer, who he thought would board his airline if he provided good service at a reasonable price.

Meanwhile, ordinary Malaysian travellers were in fact waiting for someone exactly like Tony Fernandes to offer them the experience of flying. When Tony started his airline, millions of fellow Malaysian travellers took to his airline enthusiastically. By starting a low-cost airline in Malaysia, Tony not only set a fuse to the pent-up demand for air travel in his home country but across Asia. Soon Asias air travel market exploded spectacularly millions across the worlds most populous continent found that they too could afford to fly. Today, Asia is the worlds fastest growing air travel market and by 2025 the airlines in the region are forecasted to handle at least three times the amount of passengers as they used to in 2005.

AirAsia was a resounding success right from the word go.

From just two airlines in 2001 the firms fleet grew to 101 in 2012. Year-after-year AirAsia clocked doubledigit growth in the number of passengers it flew and the revenues it earned. Today, the airline carries nearly 15 million passengers a year. When AirAsia ordered 200 Airbus A320 aircraft in mid-2011 worth around $18 billion, the single biggest order for Airbus aircraft during the year, the low-cost airline that started small revealed the phenomenal journey it had undertaken.

Tonys airline flew higher because it stayed true to its mission: to fly as many people as possible at a low cost. Tony cut costs relentlessly in every possible way. He deployed his aircraft efficiently, hedged oil prices smartly, expanded the airlines services to where others feared to tread, and marketed his airline for the budget traveller.

Although many imitators trying to copy the Fernandes model are sprouting across Asia, the original AirAsia still stands out.

That is probably because flying is as emotional to Tony as it is a business proposition. Back when he was still a school boy, Tonys family could afford to send hi m from Malaysia to London for schooling, but it couldnt afford to pay for his trips back home during mid -year holidays. To beat the isolation of a vacant boys hostel during the holidays, Tony did the next best thing: he went to Londons airport and starr ed longingly at all the planes that took off. Plane-spotting Toni recalls nostalgically. That was a time when Tony sat longingly for someone to come and cut air fares so that he could go home. When no one filled that need in his home country, Tony took matters to hand and became an entrepreneur himself cutting air fares for other budget travellers. These days, first-time airline travellers consider Tony a celebrity. Regularly, an old man will come up to me and say, 'I never thought I would be in a plane before I died, but now I can be, Tony recalled in an interview to Forbes magazine.

Today, AirAsias flag flies high across Asia with its regional hubs in Thailand and Indonesia. Fernandes is keen on opening additional hubs in other countries in the region, such as the Philippines and Vietnam, with an aggressive strategy to capture markets in countries like Japan, China, South Korea, India and Australia as well.

As AirAsia soared high in the air so did Tonys wealth and standing in Malaysia. With a net worth of $615 million, Fernandes has become Malaysias 15 richest persons and one of the few self -made entrepreneurs who did not get rich with the help of government connections.

But for the man who started an airline empire with just two aircraft the personal rewards are sweet. No longer would whole villages gather at just the sight of a single gleaming airplane in the clouds. For the first time, those villagers could become airline passengers too.

Case 3: Tony FernandesWhy is Tony Fernandes a great leader? Tony Fernandes is a private entrepreneur who took over the debt-ridden airlineAirAsia for the symbolic sum of $0.26. Today, AirAsia is the best of the Asian airlinecompanies in its market segment and became profitable almost immediately after TonyFernandes took it over in spite of the air-travel downturn following the 11 September 2001terrorist attacks.These results can only be explained by the fact that Tony Fernandes is a greatleader. First of all, his skills and personal qualities are those of a good leader:

he was entirelycommitted to his business (sometimes with a little humor) and was very accessible to themedia: he wore AirAsias official red cap and official T-shirt to almost every official function,he gave his mobile phone number to all the media representatives he talked to, and washimself an advertisement for his company.Tony Fernandes has also had a good vision of the future because he was veryrealistic and he exploited the markets opportunities well. Although the context was not veryfavorable to enter the market, and especially in this field because of the 11 th September,Fernandes chose to take the risk because he strongly believed in his project, which is acharacteristic of a good leader. Another point that can prove this is that he was the first on themarket segment of low-costs, no-frills and entered the market at the most profitable moment:nobody on the market segment in Asia and attractiveness for customers. So Tony Fernandeswas courageous in this unfavorable context and he took his decisions in a very independentway. These strengths are crucial to be a leader.He did not take risks only by taking over AirAsia, but also in its drasticchanges. Since the creation, he continually brought a lot of innovative concepts, such as on-line booking and check-in, travel insurance, holiday products, booking services for hostels,car rental, credit card or medical care. He also deeply changed the business model of theairline company in choosing a low-cost and no-frills strategy and moved down the valuechain. Thanks to him, AirAsia was also a pioneer in the defense of environment, by fightingagainst carbon emissions and paper waste.Tony Fernandes was also a good leader because he succeeded in convincing people torally on his project, since the beginning. The acquisition of AirAsia by Fernandes waswelcomed by the Malaysian government. AirAsia became the official airline sponsor of theworld-famous Manchester United football club and the AT&T Williams Formula One team.

AirAsia was also implicated at the request of authorities but also on its own in tourism, rescueto cyclone-hit Myanmar in 2008 and Sichuan earthquake recovery in China. The number of rewards received by AirAsia is endless and this is a way to recognize the good job done byTony Fernandes.He was also a great leader because his management and leadership styles ledquickly to huge profits, whereas the situation was not very favorable. Several indicators provehis good skills in leadership and management (see Exhibit 10). The productivity of the staff was superior to the quality in other airline companies in the market segment of low-cost (0.33cost/ASK compared to 1.18 for the others): it shows that people were encouraged, motivatedand committed to the company policy. Fernandeschoices in investments such as new fuel-efficient Airbus A320 and new aircraft decreased the costs of fuel and maintenance. The costof marketing was also lower because he was a recognized leader on the market and neededless money for marketing and sales because of the effectiveness of the distribution channel,which is another indicator of his good leadership towards employees. Purchasing aircraft alsocost less than other companies because he knew how to convince suppliers and gainattractiveness. People in the company were wholly loyal to Fernandes, which also proves hewas appreciated and respected as a leader.As a result, Tony Fernandes was not only a leader, but also a great leader thanks to several aspects: his skills and personal qualities, his good and right vision, hisindependence, his innovative capability, his sense of convincing and making partnerships withtrust, and the performance

of the employees due to his good leadership leading to very goodand quick results. Being a great leader means to have qualities and skills as well as results:Tony Fernandes showed he had both of them