The vision thing

“It’s really simple inventions, simple things that I’ll talk about, mostly around our people, and some of the things that we did in growing the airline.”

Mr Fernandes told a captive audience that he came from the music business: “I had very little experience in the airline business. That’s probably why we have succeeded. I did 14 years making records and my last record was in Germany, with an artist called Westernhagen: . . . a German . . . singing country and western music. It was quite interesting.

“And then I had the idea. I was at AOL Time Warner. It started as Warner Communications, became Time Warner and the final merger [AOL] was one merger too many for me.

“I was sitting there in July 2001 and the owner of Time Warner was talking about his vision for AOL: “The owner, Steve Case, said to me “Tony, what do you think our stock price should be in a year’s time?” The stock price back in 2001 was $80 and I thought to myself, based on what I’ve heard, and that Time Warner was the company that came up with EBIT — ‘earnings before everything you don’t like‘ — and they call it cash flow. Forget about the $8 billion of debt there.

“And I thought, having listened to what he had said, if it’s $80 in a year’s time you’ve done well. But I knew that I would get instantly dismissed, so I said $90.” And he said “Wrong, boy — $500.” At that point Mr Fernandes said “Please give me the drugs you are taking” and walked out of the room:

“I sold my stock options — not very many of them, but I sold them — for $78 and I went to my boss and I said ’I quit because I think this company is going to be destroyed. I don’t want to take my salary and be a part of it.”

Mr Fernandes recounted that his boss was thrilled because he had wanted to get rid of him, as he thought Mr Fernandes was after his job: “Which I was, and before he could change his mind he gave me a payoff and I left.”

At this point, he had no idea what he was going to do: “Music was my life. I was flying back from New York and I stopped in London and I was in a bar and saw Stelios, the founder and largest shareholder of EasyJet, on TV — another Airbus customer that John Leahy [Airbus COO – Customers] loves slightly more than me, but maybe afterwards he will love me more.”
And Stelios was talking about low cost airlines and was fighting British Airways, and I thought . . . this is interesting.”

So Mr Fernandes went to an English airport he had never been to before, Luton: “Everything was orange and people were flying to Barcelona for ₤9, to France for ₤7 and at that point I decided I was going to start an airline.

“Now, there is a very fine line between brilliance and stupidity. I knew nothing about the airline business but I thought, this is a great idea.” However, this was before he had met Mr Leahy.

“If I had met John I probably wouldn’t have started an airline business. But if I could bring this to Asia it would be unbelievable and you know, I knew nothing about airlines, and between me and my partner we had about $250,000 to start this airline.

So when Mr Fernandes got back to Malaysia he hired an accountant more familiar with the Windows operating system, explaining that while he’s trained as an accountant he did that training on Lotus.

“So my first investment was hiring an accountant to build a financial model. It looked very good and we roped in two more partners. We sat there one day and it all looked very good but suddenly someone said to me: ‘So, how do you get the airline licence? It’s not like you’ve go to a supermarket and buy one’.

“To cut long story short, we saw the Prime Minister of Malaysia – he loved the idea. I remember him saying to me: ‘You will succeed because you’re so passionate and you’re not from the airline business. You have my blessing but — you have to go and buy an airline.”

Optimistic but wondering how they were going to buy an airline for US$250,000, Mr Fernandes managed to find two for sale in Malaysia, one called Pelangi Air. He quipped that “you would have had to be God — or pretty close to God — to turn around that airline”.

“I had never seen a balance sheet like that in my life. So we walked away.”
Interestingly, Pelangi Air failed a few months later and its five turboprop aircraft apparently abandoned.

“Then there was AirAsia, which was owned by a Malaysia conglomerate. They said ‘You can have it tomorrow’’. And then they said ‘How much will you pay’. I cheekily said 25 cents, or one Malaysian ringgit.

“They said ‘You can still have it tomorrow!’ and I thought damn, I should have said pay me to take this airline away.”
So. armed with US$250,000 on September 8, 2001 Mr Fernandes signed to buy Air Asia, subject to due diligence. He noted they added the subject to due diligence because the group had to re-mortgage their houses to pay for the insurance, which was due that December.

Adding to the drama three days later, 9/11 happened: “Welcome to the airline business. And it’s been like that ever since,” he said. “I told my partners that people still had to fly from KL to Penang, from KL to Singapore, so you know, let’s go ahead.”

Interestingly, the situation helped AirAsia in some ways: “Lease prices collapsed, he said. We were initially going to start with 737 200s and now we were able to afford the 300s. On December 8, 2001 we took over Air Asia with 254 terrified staff, one of whom is still here.”

Mr Fernandes attributes the success to innovation:“We used a very innovative route structure — we flew to places no one ever flew before. Fifty per cent of our routes are ones that no one ever did before. So you can be innovative in the airline business, with the right aircraft and the right support, with the Airbus 320 we can go to virtually any airfield around and we developed so many new routes.”

Citing Macau as an example, Mr Fernandes said: “We flew to Macau before anyone else flew. I remember we did some cheeky advertising. We said ‘At least you have a low fare to take you home when you lose all your money in the casinos’.”

AirAsia went from one flight a day to Macau to 22 flights a day: “We have almost as many flights as Air Macau into Macau. And that’s been the trend.” But he other trend that doesn’t seem to go away, says Mr Fernandes, is problems.

“We have always had problems but having good partners like Airbus has helped us tremendously. Through our growth, we’ve been through SARS, bird flu, tsunami, earthquakes, governments, national carriers, high oil, low oil, credit crises — you name it we’ve had it. But we’ve always found a way to grow.”

Mr Fernandes attributes the success to new routes and marketing: “We have never been defeated,” he said.“Through SARS, no one wanted to fly. They said ‘If you go on a plane you will die’. But I knew Malaysians very well.

“If you put a fare low enough, they will risk their lives! Eight hundred Ringgit and they will not risk SARS. Make it 80 Ringgit — who cares about SARS! And we filled the planes and made enough money to cover our costs and we grew.”

After the Bali bombing Mr Fernandes said few people wanted to fly there. But he told his marketing staff they couldn’t let the Balinese down. AirASia came up with a “Love Bali” campaign, giving away 10,000 free seats.

“And again Malaysians, Thais and Indonesians didn’t let me down. Give a free seat and they weren’t scared of terrorists either.” But he explained that the key to the free seat is that it was innovative marketing, because for every Asian who gets a free deal, they will tell 1.000 people about it.

“So effectively, the cost of those 10,000 free seats was more than recovered through word of mouth when people went to Bali and came back and said — ‘No problem’.”
He claimed AirAsia was the only airline never to cancel a flight to Bali and added that after the Tsunami in 2004 AirAsia was the first and only international airline flying to Banda Aceh because the people needed connectivity.

“We have always found ways, we have looked at crisis as an opportunity, there are always opportunities. We have ordered planes during the bleakest periods.”

Mr Fernandes said AirAsia is now the world’s fastest-growing LCC: “We believe in the years to come we will be one of the world’s largest LCCs. We are in the fastest growing sectors in the world – Asia. But we still have to deliver.”

And highlighting that the airline has won the world’s Skystrax best low-cost airline award three years running, he heaped praise on Airbus and its A320: “We work our aircraft very hard, 14 hours day, eight sectors with 25 minute turn times. Airbus has been great and the support from them and CFM has been superb.”

He asserted that the airline had some of the best reliability numbers in the industry. But how did he do it, from an investment of $250,000 to a market cap of $3 billion?

“It’s all about how you work with a deal with your people. How we make our pilots like our engineers. We worked hard. I made our chief pilot carry the picture of the chief engineer and vice versa.”

The airline has 9,000 staff, no unions, a flat structure and no titles: “Most of the airport staff think I am an illegal immigrant,” he said. “I dress with jeans and have a pot belly. I got dressed up today for this function.”

And he reckons that “when you look worse” than the rest of the staff they will talk to you: “So we have 9,000 brains working for us.”

Each month he works the ramp, serves passengers or checks them in but is coy on the latter as he says that is the toughest job: “You can’t be an effective boss unless you work on the ground. A good example was the A320, which is higher off the ground than the 737. My staff said we needed belt loaders for the A320 to get the bags on.
I said, no way, it costs too much.”

So next time he was working the ramp they workers put him on the flights to Indonesia. Struggling with the bags, he hd to admit belt loaders were needed.

The Air Asia CEO said innovation need not be complicated:“It can be simple like getting your people motivated and working for you. But then there are cultural issues.”

He explained that in Thailand pilots refuse to go on the bus with the flight attendants, while in Malaysia the pilots refuse to go on the bus unless the flight attendants are with them — and I won’t tell you what the Indonesian pilots want.”

So to show the Thai pilots the advantage of sharing a bus with flight attendants, he sent20 Malaysian pilots up to Thailand: “So we had five Malaysian-Thai marriages.”
He’s also proud of his company’s ability to encourage staff in building their careers, saying: “AirAsia has a massive talent pool and some many companies miss the rough diamonds.

“When I was carrying bags I could see we had many bright young people who didn’t have the money to complete their education.” So, he offered his people the opportunity to be pilots

In the first pilot program of 18 cadets, 11 came from within the company and the highest marks were achieved by a former check-in agent — and since then, five of the 11 have become captains.

He stressed that the airline would not have been able to grow the way it has if it had not tapped its own talent pool. Initially, the airline had no female pilots, Mr Fernandes decided if women could run countries they could fly planes. “We now have 62 female pilots,” he said proudly.

He told of one Thai female flight attendant who asked if she could try out for a pilot position. Once qualified as a co-pilot she came back to him and said that her friends were encouraging her to compete in Thailand’s Miss Universe contest.

He agreed but said if she won he wanted to use her photo free. “She won Miss Thailand and came in fifth in Miss Universe,” he said. She is now back with us doing commander training.”

On a final note, he said AirAsia’s style and innovation allowed the company to get the best out of people: “And innovation is also about having the courage to go out and do it.”

Clearly, there are many airlines that could follow this great example.