AirAsia's case for its own home

DATUK TONY FERNANDES: "The principal cause of moving to Labu was our fear of MAHB’s inability to build a terminal in time. 2011 is fast approaching and we can’t afford a delay because a lot of our planes have already been bought. We definitely need a bigger place."

2009/01/12

AirAsia hit turbulence over its plan for a purpose-built airport in Labu, Negri Sembilan. CEO Datuk Tony Fernandes tells DAVID YEOW that having its own terminal is the only way to accommodate the budget airline’s growth

Q: What's the story behind Air-Asia's plan to build its own low-cost carrier terminal (LCCT) in Labu?
A: AirAsia has had three moves; it's not something we enjoy doing. We've gone from operating in Subang to the main terminal at Kuala Lumpur International Airport and then to the LCCT in Sepang, all in the space of seven years. Most airlines don't move in their lifetime.

At each stage, the move was prompted by capacity. When we were operating from KLIA, Ma-laysia Airports Holdings Bhd (MAHB) could see that we were going to outgrow the main terminal quickly.

But this is something a lot of people don't understand, because when they go to KLIA, it looks empty. So the question people always ask is, why doesn't AirAsia just stay at the main terminal?

If you count all the parking bays or aerobridges at the main terminal and its satellite, there are only 55 bays. That's insufficient for AirAsia's entire fleet, let alone in combination with those of Malaysia Airlines and others.
So, MAHB said they would look for a new facility, which led to the current LCCT in Sepang. We were assured by MAHB that we would have good connectivity and low charges, which were the main thing.

We went in March 2006. But as soon as we got there, we began to outgrow the capacity. So, we were concerned because the next spurt of growth, which would be coming from AirAsia X (the airline's long-haul affiliate), would be scotched if we didn't have the facilities.

Our prediction is that if we continue to operate from the LCCT, by 2011 it would be 4.5 million short in passenger capacity. Already with the current LCCT, we are running by a million passengers short and it's a nightmare.

So we started scouting around for land to build a new LCCT.

Our first option was with MAHB, but then there was the issue of who would finance it. We said, let's try to do it ourselves this time so the process wouldn't be so slow.

The principal cause of moving to Labu was our fear of MAHB's inability to build a terminal in time. 2011 is fast approaching and we can't afford a delay because a lot of our planes have been bought. We definitely need a bigger place.

We looked at 13 sites outside KLIA, and stumbled on Sime Darby's Central Vision Valley project. Subang would have been my ideal choice,

I've been a broken record about it. But a lot of the land has been sold, so we abandoned that.

Q: People are concerned that the move to Labu would make the distance longer and connectivity a bigger headache. Is this true?
A: I see the LCCT at Labu as KLIA-East, and not another airport. It's just 8.6km from KLIA, about the same distance from Terminal Five to Terminal One at London's Hea-throw airport.

And in a strange way, due to the geography of the land, it's actually closer to Kuala Lumpur. It is 58km from KLCC, compared with 78km to KLIA from the city.

It's just off the Nilai highway interchange and is also well connected by rail. It's actually an easier airport to get to.

Q: KLIA serves about 25 million passengers a year. KLIA-East can serve up to 50 million annually. What would you say to detractors who see KLIA-East as undermining KLIA's role as the nation's premier airport?
A: It's two business models. Ours is a low-cost airline, theirs caters to the premium airlines.

I guess we also have to look at where Malaysia is going. Does everything need to be in one place?

At the end of the day, with good connectivity, we are making Kuala Lumpur the hub. We are serving the Kuala Lumpur tourism market.

Clearly we have established the need for a new terminal. The question now is, should it be at KLIA or somewhere else?

It's a perfect scenario here. We have a massive piece of land adjoining KLIA, which can meet the needs of an airline that was not there when the KLIA master plan was conceived.

There was no such thing as a low-cost airline in Malaysia back then. We came out of nowhere.

Q: Why not use the proposed new expanded LCCT at KLIA, which MAHB now promises to complete at about the same time in 2011 as the one in Labu?
A: Prior to us coming out with the proposal to build KLIA-East, there was no such plan mentioned to us. The only plan MAHB talked about was offering us the terminal opposite the main one at KLIA at a cost of RM2.9 billion, which is substantially more than what we have budgeted for.

And on top of that, we wouldn't have our own runway.

On the actual date of completion for MAHB's LCCT, we heard that it's fluctuating between 2012 and 2014. This is despite the press release that states it would be completed by the end of 2011.

That caused me panic. You're talking about our bread and butter. What am I going to do with all the planes?

Furthermore, we looked at the site MAHB is considering -- we had considered it ourselves initially -- and became concerned about the condition of the soil there.

It's swamp land. The treatment of that soil would take a long time before you can start building.

And MAHB's plan did not mention a runway. They talked about a runway at some stage, without further details. They also didn't give details about the cost of the new LCCT, which is crucial to us because someone has to pay for that terminal and that someone is AirAsia.

We have been complaining that we have been overcharged and it doesn't look like things will change if we continue with MAHB.

Airport charges are fundamental to us. How costly the building of an airport is will result in how expensive the airport charge is.

On the other hand, AirAsia is confident that it can build KLIA-East for less than RM1.6 billion, including our own runway, and complete it in the next two years.

If we have our own runway next to our terminal, we can cut our operational costs, including environmental benefits from less fuel burn.

Since MAHB's announcement, we, as their biggest customer, have yet to get a phone call or word from them saying "let's talk".

Q: Is any sort of government loan involved in KLIA-East?
A: It's going to be completely privately financed and AirAsia is ready to undertake it. The cost would probably be less then RM1.5 billion, probably RM1.3 billion, roughly the price of 10 Airbuses.

We have been inundated with calls from investors. So we are confident of this. Even if we have to take it up in our own balance sheet, we can easily finance this because the returns on the project are good and there are a lot of people who want to finance it.

In terms of ownership, I think it's too early to say who will own KLIA-East. We might take it up or we might enter into a sale-and-lease agreement with interested parties.

Q: With your new LCCT based in Labu, some people are concerned that you are disrupting the government's plan for KLIA as an international airline hub.
A: Again it's a myth. The hub is not KLIA. The hub is Kuala Lumpur.

In the United Kingdom, no one talks about the hub being in Heathrow and everything having to be built around it. The hub is London and there are five airports around it to serve different segments of the population.

When we talk about KLIA as the hub, what are we talking about?

The truth is, there is no connectivity between the current LCCT and KLIA that is worth getting excited about.

A hub offers the ability to change airlines with a minimum of hassle and a maximum of connectivity. It's impossible to do that at the main terminal. You cannot fly in to KLIA and change to AirAsia without going through Immigration and Customs.

The KLIA hub that we think we have has been destroyed in that respect. And don't get me started on the connectivity between KLIA and LCCT.

A person flying in from the UK would have to get his luggage, check out of Immigration, pass Customs and take a bus or taxi to take a flight via AirAsia.

I rate the bus service as one of the worst in the world for airport connectivity. It's badly managed and doesn't run on time.

Or you can take a taxi, which costs you about RM45 to get from KLIA to LCCT. You call that connectivity? You call that a hub?

But why is only AirAsia being accused of undermining the KLIA hub?

What about FireFly and their plans to bring in one million passengers to Subang Airport? Shouldn't someone argue that the one million passengers should be sent to KLIA?

Q: But if AirAsia moves into MAHB's new LCCT at KLIA, wouldn't that make it a hub? Wouldn't it be better for the country for AirAsia to move there instead?
A: One reason why we started AirAsia X is because the connectivity at KLIA is poor. There are not that many international connections.

That's why we thought that if we don't do something, we are going to lose out because Tiger Airways (a Singapore competitor) has all the benefits of Changi airport.

Malaysia only has two European connections, Lufthansa and KLM (Royal Dutch Airlines), and maybe five Gulf airlines.

We were scared. That's why we started AirAsia X. And now we can say we have passengers from Australia who connect with us. Eighteen per cent of passengers from AirAsia's foreign connections stay in Malaysia, while the rest use us to connect elsewhere. By March 2011, we will have flights to London, Japan and the Gulf.

In other words, AirAsia has become a hub by itself. You can put us in the new MAHB-proposed LCCT and there still wouldn't be any on-site connectivity.

We might be at KLIA but we are still situated at the terminal opposite the main airport. No link, no connectivity, hub destroyed.

If we can focus on Kuala Lumpur as the hub, I dare say we could be bigger than Changi by 2013, when we collectively serve up to 55 million passengers a year.

Where in anyone's dreams would KL the hub beat Changi? And yet it is near to realisation. The reality to all my fellow Malaysians is, that's income coming into the country.

Q: What about accusations of wastage? That the government has spent all that money building the current LCCT and now we need to build another one, possibly two.
A: There's no way AirAsia can remain at the existing facility. Something needs to be built.

It's set that we have to build a new terminal. Whether we build it in KLIA or Labu, it has to be built, so there's no money wasted there.

Then you say there are two runways at KLIA, we should maximise them first. But MAHB has said that eventually there is a need for a third runway, and guess what we are doing? We are building it now and it's only 7km from the existing two.

There is no wastage. Nothing unnecessary is being built.

The only duplication I would say is the tower. Because of the distance of the new runway from KLIA, we need our own air traffic control tower.

We will finance the construction of the tower, not the government. Department of Civil Aviation officials will have to man it, but we will also pay their income.

Q: There has been a lot of negative public perception of this project. People are suspicious of the way the project was approved by the cabinet. People are wondering why Sime Darby, a huge government-linked company, is coming in. The blogs are rife about you benefiting from cronyism.
A: I have responded to many of the allegations on the blogs themselves. I have nothing to hide.

We are a very negative nation. I think we live in a wonderful country though it's not perfect.

But the bad thing is, Malaysians have this bad habit of stereotyping successful people.

AirAsia has worked really hard for all that we have for the last seven years, without any handout.

Let's look at this situation and the potential cronyism.

Sime Darby is a public-listed company. Everything is open, it's all public accounts. It's transparent, everything is an open book.

AirAsia is now negotiating aggressively with them on the terms of KLIA-East, no different from how we negotiate with MAHB or anyone.

As for the cabinet decision, we put in the proposal six months ago. It's only now that the information has come out. It wasn't an on-a-whim decision. The government doesn't do things like that.

Even Penang Chief Minister Lim Guan Eng is asking us not to build the new LCCT in Labu but in Penang. If we are cronies, then why is the opposition asking us to do that? It took me seven years to get the KL-Singapore route. If I was a crony, would I have to wait that long?

We are basing the terminal in Labu for many reasons and one of them is the potential of bringing more development to Negri Sembilan and Malacca.

The government has been talking about its economic stimulus package, but the government alone cannot be responsible for stimulating the economy.

By building KLIA-East, we are creating jobs and pumping money into the country. Sime Darby has an amazing plan for its Central Vision Valley project.

KLIA-East can be the first purpose-built low-cost airport in the world. We can radicalise the passenger experience. No one has done that.