AirAsia X’s A340 is given a ceremonial water canon welcome at the Stansted Airport, the UK. The crisis is actually an opportunity for low-cost carriers or any low-fare model of business, the chief executive of AirAsia saidBudget airlines need access to more countries while airports in Southeast Asia have to understand the “volume game,” Tony Fernandes, founder and chief executive of AirAsia, said.
“To be a truly low-cost carrier, we need to have access,” he told Thanh Nien Daily in Singapore last week.
The Malaysian knows a thing or two about getting access to destinations from governments – after all, it took him seven years to get a license to set up operations in Singapore while a proposal to set up a joint venture with Vietnamese state-owned Vietnam Shipbuilding Industry Group was shot down in 2007.
But he told Thanh Nien Daily the bigger challenge for no-frills carriers is paying airport charges.
“Our airfares are sometimes less than the airport taxes.”
The region’s airports have to understand low-cost flying is a “volume game.”
“If I build an airport I have fixed costs. If I can put another two million [passengers] through there by only charging 30 percent [of the fare], it’s better than not having the two million.
“Airports in this part of the world are used to premium legacy airliners -they don’t understand the ‘volume game’ yet – that’s the big challenge.
“If I have that then we reach the optimal stage.”
And by “optimal stage” he means cheaper, more approachable no-frills airlines so that, as AirAsia’s slogan says, “Now Everyone Can Fly.”
The glass is half-full
AirAsia’s load factor remains strong despite the global economic slowdown and Fernandes has no plans to slow the pace of its route expansion.
As the recession gains traction, many passengers, instead of canceling trips, would look for cheaper tickets, he said.
“People won’t stop their holidays. It’s about life.
“To cut costs you may go closer or maybe for fewer days but people have a routine of having a holiday.
“So I think we’re in a good position to benefit.”
The crisis is actually an opportunity for low-cost carriers or any low-fare model of business, he said.
“If you look at America which is in a very bad situation, Best-Buy is doing very well, Wal-Mart is also doing very well.
"We are obviously seizing this opportunity when some of the other premium airlines are cutting back on their growth and people are transferring their business from legacy airlines to low-cost carriers.”
Advance bookings at AirAsia for the second and third quarters are actually higher than in the same period last year, Fernandes said without giving numbers.
This, however, includes 80,000 bookings on four new routes – from Singapore to Bandung, Jakarta, Bali and Yogyakarta in Indonesia – launched last month.
AFP quoted the Center for Asia Pacific Aviation (CAPA) forecasting earlier this year that as the global downturn bites, low-cost carriers would outpace traditional airlines “in terms of traffic growth and earnings in 2009.”
Qantas Airways Ltd., Australia’s largest airline, has eliminated 1,500 positions globally. Air France-KLM Group, Europe’s biggest airline, plans to cut 2,000 jobs, joining Ryanair Holdings Plc and SAS Group in shedding staff, Bloomberg reported.
Hong Kong’s Cathay Pacific Airline registered a loss of US$1 billion in the second half of last year, while Singapore Airlines’ passenger numbers slumped 20 percent to 1.18 million, the biggest decline since June 2003, according to Bloomberg.
But Fernandes does not think low-cost carriers would replace traditional full-service airlines, saying instead a market segregation is likely in the future.
“The low-cost airlines are looking after the back end of the plane and airlines such as Vietnam [Airlines] and Thai [Airways] and Singapore [Airlines] focus on first class and business class and they may have something called premium economy.
“Airlines try to do too much themselves and that’s why they’ll run into problems.
“To look after first-class passengers and economy passengers is very different. We need a focused product.
“I think, eventually, [we’ll see] low- cost model taking economy and full-service the higher classes.”
Headstrong and successful
Fernandes recently won the Laureate Award for Commercial Air Transports given by the US-based Aviation Week magazine for successfully keeping “the airline’s low-fare model intact while substantially growing the fleet and promoting employee empowerment.”
Launched in December 2001 with just two aircraft, AirAsia has since grown to become the region’s leading no-frills airline with a network covering more than 122 routes and a fleet of 75 planes.
The carrier last week scooped this year’s “World’s Best Low-Cost Airline” award by Skytrax, a UK-based consultancy that rates commercial airlines.
The 45-year-old attributes the carrier’s success mainly to his single-mindedness.
“I think persistence is the thing. One of my mottoes is ‘never take No.’ Persistence is the difference between us and other low-cost carriers. Never give up.”
He spent seven years trying to break into the Singapore market and now the carrier has 10 routes out of Singapore. It expects to carry a total of two million guests to and from Singapore this year, Fernandes said.
The CEO looked ahead to that time with a sense of contentment.
“I said to the then Minister of Transport in Singapore ‘I’ll still be here when you retire and I’ll get my right.’ And he retired and I got my right.”
Fernandes said his determination comes from an awareness that he’s helping connect ASEAN countries and boost their tourism and popularity.
“Ultimately I know I’m doing something good. We need to promote an ASEAN brand and that’s what AirAsia is contributing to.”
AirAsia’s slogan for new routes in Singapore is “A New Girl Has Arrived in Town. She’s Half the Price but Twice the Fun.”
“The airline industry is a high-pressure industry,” Fernandes said to explain the risque slogan.
“We had SARS, we had tsunami and terrorism and life is too short. I think people will enjoy a taste of fun. Some might not but the majority will,” he said.
Yearning for Vietnam
Despite AirAsia’s failed attempt to strengthen its position in Vietnam, Fernandes is hopeful it will manage to grab a larger slice of the market in future.
“I’d love to be in Vietnam. Vietnam is an amazing country and the people are so bloody nice.
“I think Vietnam will benefit from AirAsia’s flights and vice versa because there is so much culture, so much potential.”
But AirAsia has no plans now to launch a direct flight from Vietnam to Singapore.
“We don’t have a license to fly directly to Singapore from Vietnam. Right now we can’t do that,” he told a press briefing in Singapore recently.
Vietnamese customers must transit in Kuala Lumpur to fly to Singapore.
But AirAsia is training a crew of 20 Vietnamese and Fernandes is bullish that one day the Vietnamese government will allow the airline in.
“Believe me, if I have the license, I’d be there tomorrow.”
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