Tony Fernandes, founder and CEO of Asia's first low-budget carrier Air Asia, talks with Andrew Stevens.
Tony Fernandes, founder and CEO of Air Asia
A: Tony Fernandes, welcome to Talk Asia.
T: Thanks for having me.
A: We talk about you, a lot of people talk about you and describe you as the Richard Branson of Asia. Do you like that comparison?
T: Well, I mean Richard Branson has done a lot of great things, so it's a bad comparison, but we're very, very different people, from a business philosophy. We're also very similar in some areas, but we are different business-wise. But there could be worse people that we're compared to.
A: Mr. Branson, Richard Branson, has actually just bought into your long haul operation, which is gonna be starting shortly, taking 20 percent for not a huge amount -- under 10 million, we believe. What are you gonna get out of that? How do you get the Branson name or magic involved in that?
T: Well, I think what a lot of people have missed out, is we started this idea about two years ago. I mean we're obviously friends, we've known each other for a long time, I worked for him initially, 20 odd years ago. So we talked about doing something together. We talked about Virgin Blue first, but that didn't work out 'cause he had a funny kind of partner back then. Through a conversation we said, hey, why don't we try this out. And, so he's really a founder as much as I am, and I think if this model works, there's no reason why it can't go into the UK and other parts where Virgin are in.
A: This is a big if, because the long-haul model, the short-haul works obviously, your short-haul model works. And you're basing the long-haul on the short-haul plan...
T: Well, do you know, um, if I can go back five years, everyone said a short-haul low-cost carrier couldn't work in Asia. And the market stubbed two fingers after that, we've carried 40 million people. On my flight over this morning, I always go around and meet everyone on the plane, and the biggest, most repetitive question was, When are you flying to London?
A: Well, it's interesting 'cause no one has done it before, which tends to suggest there must be some pretty big hurdles.
T: I don't think so. I think airlines have been very much parrots. They'll just follow what everyone else is doing. Why change a model that they're happy in? And it takes someone like myself or Richard Branson who comes from outside the industry to say, hey, let's try something new. Why didn't anyone do iPod? So innovation... Business is all about innovation and this blue ocean strategy. I know the market wants it. And if I can get the price right, we'll be successful.
A: Ok, let me tell you why people said it wouldn't work. A, regulation closed skies in Asia. B, people who do fly like to be pampered. C, there just wasn't a real hunger for low-cost travel. They're three reasons which were cited again and again about why it hadn't been done before.
T: Cited by the premium airlines. Number one, regulations, Southwest Airlines, when they started 35-40 years ago, couldn't fly out of Texas. So regulations are there to be broken and it needs people like ourselves to go out there and change regulations and to show the benefits of a free market. Airlines are one of the last things to be liberalized. People want to be pampered? Yes. I think Asian airlines have done a phenomenal job pampering people. But I was not after that market. I was after the guys who had never had a chance to fly before, and in Asia there's a hell of a lot of them. And comfort-wise I'm substituting a nine-hour bus ride with a half-an-hour flight. So I think I provide a comfort to most of these people.
A: Let's talk a little bit more about the 25-minute turnaround. Just how easy it is to turn a plane this size, clean it, refuel it, I guess, get the bags on and get the passengers on -- 25 minutes?
T: Well it's not easy, we work hard at it, because Asians generally bring more bags. In Europe they travel a lot lighter. I always joke that my Indonesian passengers bring their house and their neighbor's house. Having actually done the loading and the unloading, you know what it's like. So uh, it's not easy, but we've got it to an art now.
A: We're at Macau International Airport today... This is your hub really for Hong Kong and for China. Why Macau, why not Hong Kong?
T: Well, I mean, Hong Kong in those days weren't interested in us. I don't think they took us very seriously. Um, they're very much a premium airline kind of operator. Obviously Cathay's huge there, and then you got all the airlines in the world flying there. And they're fairly full, so why do they have to give us a discount? And Macau was fairly empty... You know, Macau Air isn't that big, and it fed a lot of traffic off going by Taiwan, so it offered us virtually a free airport.
A: How tough has it been for you as far as competition from the established carriers -- from SIA, from Cathay? How do you feel they've tried to squeeze you, if at all?
T: I think Cathay realized from an early stage that the low-cost end of the market is not really theirs. They're focused on business class, premium traffic. And I firmly believe that the better airlines will start saying, hey, I'm gonna move up the value chain. Airlines are gonna be the last product that are really market segmented. You've got three-star hotels, you've got 4-star hotels, you've got 5-star hotels. You've got a Rolls Royce, you've got a Nissan, you know. But airlines have tried to do everything. So I think, if you look at Cathay and SIA, they've been moving up the value chain, and they go, well, I think these guys in Air Asia are creating a new market. You know, I think 180 of these people really wouldn't have come to Macau, Hong Kong before.
A: Well, this is the question -- listen, are you competition or are you growing the whole pie?
T: No, I think we're growing the whole pie. Now obviously, there are... Airline guys have massive egos. I mean I've never seen it. I came from the music business, which reputedly has the biggest egos, but I really think the airline world caps it.
A: It sounds to me that like you obviously think you're a pioneer.
T: Well, I mean, you know, one doesn't want to be arrogant or anything, but I mean yeah, we were the first. If the definition of a pioneer is the first, than we were the first. We've certainly gone places where no one has ever been, and everyone's copying us. We came to Macau first and then those jokers from Singapore followed us.
T: Taking you to the cockpit.
A: After you, sir.
T: So this is where it all happens... This is Gerald.
A: How do you do, Gerald... Nice to meet you.
T: Andrew's out there checking the plane during our 25-minute turn.
A: Ok, so first of all, let's get down the basics. Are you an airplane nut?
T: No, I mean I've always liked planes... Maybe I've always liked crew more than planes.
A: So you've never had a great urge to actually learn to fly?
T: No, never had that.
A: Leave it to the experts.
T: Leave it to the experts. But it's, um... The whole principle of flying generally is a happy thing. Generally people go on holiday, reunite with their family... So I've always liked that concept... Airports are generally happy places.
A: And how do you try and make it happier for them?
T: Well, I mean, obviously we're a very nice product, because most of these people here today have never flown before. So by giving low fares, we generally make people happy. And the flight today was fun... We had a great crew, they played games, we gave people a couple flights to Hong Kong, which is gonna be our latest destination... We're gonna fly directly to Hong Kong.
A: So you're trying to encourage a lot of interaction with staff.
T: Yeah, I started it four years ago... I was on a plane, I was bored and I went to the PA system and said, Ladies and gentlemen, we can't afford in-flight entertainment, so you're gonna have to entertain yourselves.
T: We did that today... We did Air Asia Idol today (little girl singing using the PA system).
T: We designed all the interiors to make it as bright as possible. You'll see the crew, in 15 minutes, cleaned up the plane, got all the belts ready.
A: I was gonna say, Tony, you've got part of the cost counting, or cost savings, I guess, 'cause you've got your flight attendants to clean the aircraft after it lands. They must hate that, mustn't they?
T: I think they've kind of gotten used to it. I think when I first took over the airline, they were just like a normal crew, but I said look, we've got to do things a little different if we want to survive, and then we'll survive as a family, and it's sort of built in to the culture. And I can tell you that the number of applications we get from Malaysian Airlines, Singapore Airlines, and other full-service airlines show that they don't mind doing it at all.
A: And big savings for you?
T: Yeah, huge savings, obviously. The cleaning of the aircraft is, uh, saving on the cost, yes, of cleaning, but also saving on the cost of the time. Just to get a bunch of cleaners up, get them off, it's just much quicker.
A: We've been standing here for 10 minutes and you've already got people coming on. That's an amazingly quick turnaround.
T: Yeah, I mean, I think we've got it to an art, you know, the staff is great. What I like about this is no one's worried about whether the CEO's on here or whether they should be holding the boarding. They've got a job to do, bring those passengers in.
A: You don't look like a CEO, what people would perceive a CEO to be. Are they conscious?
T: Yeah, no, I'm not. It's very conscious. I want people to be themselves, I think a hierarchy can be very damaging to an organization. So I'd rather have 5,000 brains working for me, than 10 and the rest are just implementers.
A: You started Air Asia with a grand total of 350,000 dollars. Now that's gonna buy you a small apartment in Hong Kong, you launched an airline with it... How?
T: I think one of the great things about the airline business is that it's been so badly run that suppliers, you can lease or rent anything, even down to the baggage trolleys. We borrowed everything, in effect. And because there've been so many bankruptcies and so many things, the financial structure in this business had evolved into extended credit for a lot of these things.
A: You left the relative comfort of an executive position in the music industry, you re-mortgaged your house, you sank your savings into an airline which A, is a very competitive industry and B, in Asia, was particularly hamstrung by regulations and rules... What made you do that?
T: I didn't have a lot to lose. And I thought I was young enough. I got tired of the corporate life, I got tired of corporate politics. And I saw a business opportunity. Everyone likes to fly. And I think the key number that got me going was only 6 percent of Malaysians flew. I started looking at the prices of tickets and to travel from one part of Malaysia to another -- it was almost someone's one-month salary. So that drove me.
A: Sorry, I want to interrupt there, because you were 37 years old -- that's quite late, isn't it, to be going for that enormously risky second career.
T: But I didn't want to sit there, you know, at 55, and say I should've done it. Life is about risks, life is about not being afraid to fail.
A: It couldn't have got much more risky for you in that industry, because you bought this airline just three days before 9/11. What did you think? You could have pulled out at that stage.
T: Well, I mean, I think I was committed. And I was gonna do it, whatever was thrown at me. 9/11 was far, far away. I still felt that people had to travel.
A: But it reverberated
T: It reverberated, sure, actually it was a blessing in disguise, because airline prices came down. The price of metal just collapsed.
A: But at the time, airlines were going into bankruptcy, oil prices were going through the roof, people were too scared to fly globally... Didn't you think, oh my god, I've made the worst decision of my life?
T: No, I just felt so good about this, because I knew people wanted it.
A: Do you think you could've launched Air Asia without having the blueprints of perhaps Ryan Air and Easyjet?
T: No, I don't think so. I mean, I think I learned a lot from them, and I made it better for Asia. And I think in some ways we did make the model better. I mean Ryan Air is known for being not exactly friendly, and I told my guys hey, it doesn't cost anything to smile. And so we practice, we train people to smile, from the guys who carry the bags to the cabin crew. But no, I don't think I would've dreamt up this all by myself. And I would be kidding myself if I thought I did.
A: Let me ask you, when you took this company on with your two Boeing jets and your 11 million dollars worth of debt, did you ever think that you would ever be sitting here, five years later, with 130 jets on order, a fleet of 50, carrying 18 million passengers a year?
T: No, I didn't think we would be like this... Did I want to be? Absolutely. And it's a wonderful feeling to inspire young kids. I love going to universities. I was at a Malaysian university the other day -- 3,000 kids and they're inspired, because they say, well, that guy can do it, he's not that bright, I can.
T: We go 85 destinations... We're carrying more passengers than Cathay Pacific. 18 million people this year.
A: What's gonna keep you different from the pack now?
A: How important is the marketing for an airline like yours, is it the lifeblood?
T: I think it's the most important thing. And I think airlines don't really spend enough on it. They take it for granted. They don't go and develop new roots. I think the most impressive airline I've ever seen is Emirates. All the big airlines like to run them down and say they get free money, they do this and that -- but they go out and build new markets, they build new routes, and they branded themselves. You see it on rugby referees, on cricket referees, you see them on the America's Cup... They spent money on building a brand, and that's how they became successful.
A: You actually have pictures of some of the Man U stars on your planes. How much of this was based on the fact that you're a fan of Man U?
T: Actually I hate Manchester United. It was a very painful decision to sponsor them. But we all have to be a prostitute once in a while. I sort of side for West Am United which is a great training ground for adversity, 'cause they're always doing badly. But you know, hey, they're the biggest football club and the biggest brand, sports brand.
A: Have you seen an impact on the bottom line?
T: Oh yeah, without a doubt. You can't measure it. This is why Asian companies don't spend enough on branding, 'cause they want to see an immediate return. There are a lot more companies that are successful, but I think the aura of our brand has attracted a lot of partnerships, Citibank credit card, Tie ups with Royal Bank of Scotland, etc. etc., so the intangible value of the brand is huge. And the Manchester United relationship was the start of that.
A: Speaking of marketing, the ever-present red cap, that Tony Fernandes red cap is here. Is this another marketing thing or do you actually enjoy wearing a cap?
T: It started off as, again, a cheap form of publicity. Um, if I wore the cap when I was being interviewed, I got Air Asia on there. You know, we had to be creative because we had no money.
A: Let's just talk quickly about the culture of your company, because we were talking before and you were saying you like to pluck people from all different walks of life, from all different professions. How do you meld them all together? What's the philosophy underlying this?
T: Well, I think one is that everyone plays a part. There is no hierarchy. Everyone is valuable.
A: So when you're looking at prospective employees, how important is their education?
T: I look at people who have ability, who have drive, who have passion. The guy who's running all our airports now, I picked him out of a Singapore passport queue. This guy comes up to me in an SIA uniform and he's a steward and he says, I really admire what you do, I'd love to work for you. I said ok, I'll interview you after passport, outside passport. And I sat there and -- I have a gift, I can see through... very quickly I can see talent. And I said, boy this guy is gonna be a superstar. And I hired him on the spot. And I said, you wait right here, and I called up my office and said, get a contract, and I got his e-mail address and said the contract's with you in 10 minutes. And he joined. He started learning our Singapore office, and now he runs the whole group.
A: What's gonna keep you different from the pack now?
T: People. I mean, I think, one is that we've got a huge... We're everywhere now. We go 85 destinations... We're carrying more passengers than Cathay Pacific. 18 million people this year... more than Emirates. So we're not a small airline anymore, so any upstart has to one, compete against us, have higher oil prices, higher asset prices, etc. etc. What keeps us different is the people, is the culture.
A: What do you think the perception of Air Asia is?
T: Well, I -- that's a damn good question, no one's ever asked me that -- I think it depends on the person you're asking, I suppose. To a lot of people it's a purveyor of dreams. It's been able for people to fly to places they've never dreamt of. To a lot of people it may be seen as an upstart, a challenger brand.
A: Which is where you wanna be, you wanna be the maverick?
T: Yeah, exactly.
A: It's been written that you have a low boredom threshold and you're always looking for new horizons. Can you see yourself in the next five years still being as involved as you are now in Air Asia?
T: Yeah, very much. As long as the board want me there, I'll be there. This is my baby... We're only five years old, we've got a lot more to do. I want, I really want to be seen as a great company, corporate governance. I want to show the world that Malaysia can have a great company, and I want to be remembered for being a great place to work at.
A: Tony Fernandes, thanks very much for your time.
T: Thank you. E-mail to a friend