AirAsia flies high on a small budget

13 April 2009

Kathleen Tan (second left) and flight attendants whose images are painted on the bodies of AirAsia planes.

AirAsia has all the hallmarks of a no-frills airline: smaller seats, less legroom, and charges for drinks and meals. But it is not just low costs that have created Asia's most successful and largest budget airline.

Kathleen Tan had much to do with it.

A former recording industry executive, the fortyish Tan is regarded as the marketing fuel behind the success of the seven-year-old Malaysia-based airline.

"Our fares are cheap but nothing else about us needs to be cheap," said Tan, executive vice-president of AirAsia.

Despite soaring oil prices and a deepening global economic downturn, AirAsia last year launched six new routes to southern China, the most aggressive expansion by a foreign carrier in the country. The airline began to fly to Tianjin at the beginning of April in a bid to expand its network to northern China. It also plans to fly to the country's southwest city of Chengdu next year.

Branding has been key to AirAsia's fast growth. Last year, the airline unveiled the world's first commercial A320 airplane painted like a Formula 1 racecar. In 2007, AirAsia signed a three-year partnership with the world's leading Formula 1 team, AT&T Williams, as its official airline. The airline is now in talks with Manchester United about becoming the football club's fourth sponsor, following Sharp, Vodafone and AIG.

"Saving costs is the most important target for budget airlines. But you cannot cut costs on everything. It is worthwhile to invest in brand-building," said Tan.

Sports sponsorship is an important part of Tan's strategies to strengthen AirAsia's brand globally. The sports sponsorships create a direct connection with the airline's core population of passengers who are largely male, Tan said.

Before joining AirAsia in 2004, Tan was managing director of Warner Music Singapore for seven years, and chairwoman of the Recording Industry Association of Singapore.

Tan considers her biggest advantage in operating the airline's marketing to be "thinking outside the box and breaking the conventions".

An AirAsia jet displaying sponsor logos.

"Promoting a new air route is somewhat like promoting a new music CD. Also, pilots and music stars have one similarity: they both have very strong egos. You should be careful when working with them," she added.

Tan went one step further than sports sponsorship for image building. The airline has painted the pictures of their flight attendants on the aircraft bodies.

"We want to present an image of 'youth and energy'," Tan said. "Everybody at AirAsia should be an ambassador. Our stewardesses are pretty and friendly. Why can't we promote that on our own aircraft?" she said.

If sports and beauty are not enough to attract passengers to AirAsia, the airline's annual 1 million-free-air-ticket promotion has definitely attracted attention in China.

"This annual free-ticket campaign has been very effective in driving the traffic on our website," Tan said. "Many young people regularly visit our website. They may not necessarily come to book a ticket. They just want to know if AirAsia is dishing out new promotions. That is just what I want to achieve. "

AirAsia has been the hottest topic on the Internet backpack travelers bulletin board system in recent years for such promotional activities.

"We often exchange tips on how to get best deals at AirAsia," said 33 year-old Qin Siyi, who has traveled to Southeast Asia on the budget airline at least once a year since 2007.

Qin was one of the lucky travelers in a recent AirAsia promotion. He got a free roundtrip ticket between Hangzhou and Kuala Lumpur and only paid 460 yuan in taxes.

"The whole trip will only cost 460 yuan. It is even cheaper than flying from Hangzhou to Beijing," said Qin, who runs a consulting company for overseas study in Nantong, Jiangsu province.

But, said Qin, such promotions are not suitable for everybody.

"The free-ticket campaign officially kicked off at AirAsia's website on February 10. I started booking right after midnight and tried several times before I finally got one," Qin said.

"Another issue is that you have to plan your trip way ahead of time," Qin added. The travel date on Qin's ticket is October 12.

Compared to full-service carriers, low cost airlines may not have the most optimal time schedules, especially for catching connecting flights, Qin said. You may arrive at midnight or have to rush to catch the next flight.

"But backpack travelers like me don't care so much about that. The low price is the most important thing," said Qin.

A rising number of business travelers have been using AirAsia, as corporate travel budgets shrink due to the global economic downturn.

"Business travelers now account for nearly 30 percent of our passengers," Tan said.

Asian businesses could reduce their travel spending by as much as 20 percent this year to cut costs amid the global economic slowdown, according to a recent report by Carlson Wagonlit Travel, a business travel management company.

"The prevailing global economic uncertainty is exerting negative pressure on the industry. But there is a silver lining. We continue to enjoy sustained traffic growth as more passengers switch from the legacy carriers to our low cost services," said Tan. The airline is expecting a 15-20 percent passenger growth in 2009.

Despite that, AirAsia has not been immune to economic challenges, such as last year's volatile crude oil prices. AirAsia's revenues grew by 37 percent year-over-year in 2008, but it still encountered losses of $129 million.

The competition is another challenge. Guangzhou-based China Southern Airlines was the first to fight back against AirAsia's low price campaign at the beginning of March. The State-owned carrier slashed its round-trip fare between Guangzhou and Southeast Asia to 199 yuan per person as opposed to AirAsia's 308 yuan.

As one of the fastest growing airlines in Asia, AirAsia operates a fleet of 72 aircraft and has over 400 flights daily from hubs located in Malaysia, Thailand and Indonesia. The ambitious airline has placed a huge order for 175 Airbus A320 jets and 25 A330 wide-bodied aircraft.

From limousine to bus

Kathleen Tan was brought into AirAsia by the airline's CEO Tony Fernandes, who was Tan's former boss and Warner Music Group's Southeast Asia regional vice-president. Fernandes did not respond to China Daily's request for an interview about Tan.

"I was tired of working in the music recording industry. I wanted something new," Tan recalled. "Young people seldom buy CDs. They are all downloading music from the Internet. It would be very hard to do this business in the near future."

To shorten her transition into the new job, Tan bought books on the success stories of low cost carriers such as Southwest Airlines and JetBlue Airways from the United States and Ryanair from Ireland. "Those books helped me get a grip on how the low cost airline industry works," said Tan, who loves reading and cooking in her spare time.

Getting used to the culture shock at a cost-conscious carrier was not easy at the beginning for a businesswoman used to limousines and exclusive golf club memberships in her previous jobs.

"I take the shuttle bus from downtown to the airport instead," she said.

When she wanted to quit after the first few weeks, Fernandes assigned her to head AirAsia's expansion in China, the world's fastest growing commercial aviation market.

She stayed.

"China is one of the most exciting markets for anybody. You can't resist the temptation," Tan said.

China is still an open field for low-cost airlines. Spring Airlines, a private Chinese start-up carrier based in Shanghai, is the only budget airline in the country and only operates domestic flights. AirAsia's smaller rivals, Tiger Airways from Singapore and Cebu Pacific from the Philippines, are the other two international low-cost airlines operating in China.

When traveling around China, Tan always gives speeches in Chinese.

"You will have a better connection to the local people by using their own language," said Tan, who was born in Singapore. "I really feel grateful to (former Prime Minister) Mr Lee Kuan Yew, who was a strong advocate of teaching mandarin at school."

Tan began her career in the advertising industry in agencies such as Leo Burnett.

She later spent six years with fashion retailer F J Benjamin Group Singapore where she oversaw marketing communications for Guess, Gucci, Coach and many other labels.

"She has a lot of passion for her work and the people around her," said Bingo Wang, supervisor of public relations for China market, AirAsia. "She is also very good in providing direction and the type of boss who wants her staff to excel in their work."