Tony Fernandes – The Truly Air Asia Hero (Part 1)

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Dec 27 2006
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AirAsia Bhd (KLSE : AIRASIA, stock-code 5099) group chief executive officer Datuk Tony Fernandes has been named “Malaysia’s Ernst & Young Entrepreneur of the Year 2006”, for his efforts in revolutionizing the air travel industry in the region. He also won the “Master Entrepreneur of the Year” award. Fernandes learned to think like an entrepreneur from a master. After graduating from the London School of Economics in 1987, he worked as an accountant for Richard Branson’s Virgin Records from 1987 to 1989. At the age of 28, Tony became the youngest person in recording industry’s history to head Warner Music Group (from 1992-2001) as the vice-president. Instead of imitate his mentor Branson by branching out into many businesses, Fernandes stays focused on just one thing – Air Asia.

Looking back, when Tony Fernandes wanted to start Malaysia’s first discount airline a few years ago, he couldn’t get a license. Then he heard bankrupt government-linked conglomerate DRB-Hicom’s (KLSE : DRBHCOM, stock-code 1619) Air Asia, with two Boeing jets and $37 million in debt, was desperately trying to unload the company for nearly two years. All he had to do was to sell then-Prime Minister Mahathir Mohamad, airplane leasing partner General Electric (NYSE : GE) and DRB-Hicom on his idea for the ailing Air Asia.

With a vision to make air travel more affordable to Malaysians and to remodel AirAsia into a low fare no frills carrier after successful low fare airlines such as U.S.-based Southwest Airlines (NYSE : LUV) and Dublin-based Ryanair (ISE : RYA), Fernandes believes Air Asia will be the next giant. Fernandes set to meet then-Prime Minister Mahathir in October-2001 after managed to get the appointment with the help of a person who was about to retire working in the ministry of domestic trade (who used to help Fernandes in fighting piracy during the early day). Mahathir didn’t say much nor gave any indication during the presentation but the comfort words of “I like the idea, I like the passion and the drive even though you do not seem to have any experience, you have my blessing, but you have to buy an existing airline” set the tone to the vision of a discount carrier which will revolutionize Southeast Asian air travel and boost tourism.

Fernandes who founded Tune Air Sdn Bhd in 2001, together with three other partners, only had to pay a token of 1 ringgit (26 cents) and assume $12 million of Air Asia debts – but airline analysts were skeptical as the airlines worldwide were struggling from the impact of the September 11 terrorist attacks. “When we started, they said it wouldn’t work, most people thought I was crazy” recalls Fernandes. “They said we would die.” And so, the young and ambitious Fernandes started his journey after quitting his job which provide him a company Jaguar and a $10,000 stereo system, mortgaged his home and sank his savings.

But the brave man thinked otherwise:
  • Since September-11, aircraft leasing costs are down by 40% which means Air Asia can get newer Boeing models than the airline had before at the same price.
  • Airline layoffs mean experienced staff are readily available
  • Malaysian travelers will choose and prefer a cut-rate air service that will save them time and money, especially in a tight economy
Furthermore, 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 amongst other:
  • slash fares on heavily traveled routes
  • turn around planes much faster than before
  • stop serving complimentary food and drinks
  • cut cabin crews from six to three as a result of eliminating meals
  • flights to spend only 25 minutes on the ground at any one time

Under Tony’s leadership, not only Air Asia repaid all the RM40 million debts but has been in a profitable position from the first day of operation besides revolutionize the air travel industry in Malaysia and pioneered the low cost phenomenon in Asia. He also makes money with a lucrative cargo service, sales of drinks on board, and marketing tie-ups with other companies. In less than 5 years, AirAsia grew from 2 modest Boeing (NYSE : BA) 737-300 to 46 and is now operating over 100 domestic and international daily flights from hubs in KLIA, Johor Bahru , Bangkok and Jakarta. Air Asia’s planes are flying 80% full on average to destination such as Thailand, Indonesia, Macau, China, the Philippines, Brunei, Cambodia and Vietnam. It had carried over 23 million passengers in less than five years.

Continue To Read: Tony Fernandes – The Truly Air Asia Hero (Part 2)

# TIP: If Tony were to leave AirAsia one of this day, reconsider your stock portfolio if you have AirAsia shares as not everyone has the “click” to run an airline.

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