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Asiaweek: This Is One Guy With No Fear Of Flying
By Arjuna Ranawana

24/11/2001 8:59 am Sat enterprise/0,8782,185613,00.html

This Is One Guy With No Fear Of Flying

Why would anyone trade a great job in the music business for the uncertainty of owning a failingairline? Well, Tony Fernandes thinks he can chart a course to profitability


Four months ago, Malaysian Tony Fernandes was the envy of his peers at Warner Music. Only 37, he controlled a swath of territory from India to Indonesia as the record label's vice president for Southeast Asia. He drove a company Jaguar, had a $10,000 stereo system in his office and jetted around the region to hobnob with recording stars and entertainment executives. Then in July, Fernandes quit Warner, mortgaged his home, and sank his savings into a venture aimed at reviving Malaysia's loss-making second airline, Air Asia. Even before Sept. 11, the world's airlines were in trouble, and this move was not universally hailed as a wise career choice. "Most people thought I was crazy," says Fernandes.

Events since that plunge have hardly improved the situation. But Fernandes thinks he can make Air Asia work, and that conviction was a godsend for the former owner of the airline, government-linked conglomerate DRB-Hicom, which had been trying to unload the company for nearly two years. Given that the airline is running at a loss and has racked up $37 million in debt, finding a buyer hasn't been easy. Enter Fernandes, who convinced DRB-Hicom, the Malaysian government and airplane leasing partner General Electric that he could make Air Asia work as a no-frills carrier.

The deal was for Fernandes and three other partners to pay 1 ringgit and assume $12 million of Air Asia debt. That leaves him, four months after quitting a cushy job and two months after what was undoubtedly the worst day in the history of commercial aviation, relaunching a failing airline. "Considering that many airlines are cutting back, and domestic airlines rarely make money anyway, [Fernandes] must be a very brave man," says Sebastian Chang of DBS Vickers Research in Kuala Lumpur.

Fernandes says in fact his timing was perfect: Since Sept. 11, aircraft leasing costs are down 40%. "I can get newer [Boeing models] than the airline had before at the same price," he says. Also, airline layoffs mean experienced staff are readily available. Fernandes believes Malaysian travelers will embrace a cut-rate air service that will save them time and money, especially in a tight economy. That's why he's copying one of the world's most successful no-frills carriers, Ryanair out of Ireland (which in turn is modeled after Southwest Airlines in the U.S.). In fact, Conor McCarthy, a former Ryanair chief operating officer, will be a part-owner in the new Air Asia and chief advisor to Fernandes.

The new Air Asia business model will slash fares on heavily traveled routes, turn around planes much faster than before, and stop serving complimentary food and drinks. "Just stacking, storing and serving 200 meals on a flight is very expensive," says Fernandes. Eliminating meals will also mean the normal complement of cabin crew can be cut from six to three. And as for keeping the planes in the air more, Fernandes says flights will be expected to spend only 25 minutes on the ground at one time. If passengers are late, he says they'll simply forfeit their ticket: "We are not going to wait."

The goal of all this is to get ticket prices to a level where they're competitive with alternatives. "If Fernandes wants to make a go of this, he has to compete against the buses," says Chang. The old Air Asia didn't even try to compete. Its only regular route on Peninsular Malaysia was between Kuala Lumpur and the resort island of Langkawi near Penang. But the new carrier is adding three leased commercial jets to the two it already has. And Fernandes says it will offer the critical Kuala Lumpur-Penang route for $30 one-way. That undercuts the $47 fare of Malaysia's flag carrier, Malaysian Airlines, and is close enough to the average $15 bus fare to entice those travelers. "Our whole business model is constructed to meet that challenge," says Fernandes.

The would-be airline mogul is now spending his last days in his old Warner Music office in a downtown Kuala Lumpur high-rise. As a parting gift, Warner gave him use of the office until the lease expires in a couple of weeks. Warner also gave him the Jaguar, but he probably won't get the stereo. That's okay. Fernandes's new life will be no-frills.