Low-cost airline kingpin prepares for life after AirAsia

By Anurag Kotoky

(Bloomberg) — One of the best-known names in global aviation is preparing to step back from the front lines.

Tony Fernandes, the larger-than-life character credited with revolutionizing budget air travel in Asia, plans to focus more on areas such as health, education and private equity.

The 58-year-old Malaysian would be moving on as the industry emerges from Covid. Like other carriers, AirAsia, the group Fernandes founded, was floored by the pandemic. It’s no longer quite the empire it once was, having closed down ventures in Japan and India, but still operates airlines out of Malaysia, Indonesia, Thailand and the Philippines, and plans a Cambodia launch.

“Good leadership is to know when to go,” Fernandes said in a recent interview in Singapore. “Aviation as my journey might be coming to an end. I’ve got to talk about succession planning. Exactly when I press the button, I don’t know, but I want to talk about it because I want to attract the right leaders.”

Rapid Growth

Fernandes, who grew up in Malaysia and the UK, dived into airlines in his mid-thirties, buying AirAsia from a government-owned conglomerate in September 2001 for a solitary Malaysian ringgit, about 30 US cents at the time.

After starting out with just two planes, AirAsia rebranded as a low-cost, no-frills carrier in January 2002, offering flights in Malaysia for as little as $3, and in some promotional cases even for free. By early 2004, it was flying from Kuala Lumpur to a handful of international destinations and soon established regional carriers like AirAsia Thailand.

With the motto “Now Everyone Can Fly,” AirAsia’s red and white planes became a popular choice for jetting to places such as Bangkok, Singapore, Jakarta and Phnom Penh. The cheap tickets helped supercharge a boom in flying in the region, feeding the needs of a growing middle class wanting to travel and cutting out long boat journeys between thousands of islands.

“Tony was the first to exploit the market for discount flying,” said Shukor Yusof, founder of aviation consultancy Endau Analytics, who first met Fernandes at an AirAsia event at the Intercontinental Hotel in Singapore in 2002. “His contribution in making low-cost carriers a way to fly in this region is huge.”

Fernandes has been the face of the company, a high-profile figure with a range of interests — from co-owning a Formula 1 team and a London-based football club, to hosting an Asian version of hit TV show The Apprentice.

“Tony’s impact has been to demonstrate the importance of branding, as well as the key element of being the first mover,” said Tim Bacchus, an analyst with Bloomberg Intelligence in Hong Kong. “It is fair to characterize Fernandes as a true pioneer of LCCs in Asia and someone who had the vision to bring the model to this part of the world, making air travel more affordable to many.”

Now Fernandes aims to channel some of his experience with AirAsia elsewhere.

“I like private equity with an active management and helping young people change things,” he told Bloomberg News. “I believe there’s a low-cost model for education and health. These are the two things that discriminate people the most.”

As for who will take the reins at AirAsia, Fernandes said he would prefer someone from within the company and Southeast Asia, at the heart of the airline’s operations, though he didn’t rule anything out.

“Honestly, I don’t care where they are from,” he said. “We don’t really talk about race, religion, sex, sexual orientation — I don’t care, as long as you can do the job.”

Opportunity Knocks

Fernandes graduated in 1987 with an accounting degree from the London School of Economics. He worked as a financial controller at Richard Branson’s Virgin Media Communications Ltd. in London. Years later, in 2011, Branson shaved his legs and dressed as a flight attendant on a charity AirAsia flight after losing a bet to Fernandes.

Fernandes moved back to Kuala Lumpur in 1992 to become general manager of Warner Music Malaysia. He mortgaged his home in 2001 to establish Tune Air Sdn. with his partners, and used that entity to take over AirAsia.

Fernandes has said he sensed an opportunity in aviation while sitting in a London bar watching EasyJet Plc’s Stelios Haji-Ioannouon speaking on television about low-cost flying. It was around the time that companies like Lastminute.com had also become widely-recognized online travel startups and investor darlings. “Wow, is this the calling?” Fernandes thought, he told CNBC in 2018.

“He is quick to read and exploit market opportunities, whether dancing himself silly on TikTok or sharing words of wisdom to young people,” said Endau’s Yusof, who is based in Malaysia.

Big Orders

Airbus SE gained from AirAsia’s emergence, with the carrier going on to become one of the European manufacturing giant’s biggest customers. At the Farnborough Air Show in 2014, Fernandes marked a nearly $14 billion order for 50 widebody aircraft with a kiss on the cheek of Airbus’s chief operating officer.

Long-haul unit AirAsia X Bhd was lined up as a top customer for Airbus’s new A330neo widebody jet, making about $23 billion in orders, though it ultimately committed to only 15 aircraft as it struggled to grow. Low-cost, long-haul flying turned out to be a tough sell, with customers preferring full-service options with free refreshments and more amenities on lengthy journeys.

Productivity and cost benefits that budget carriers achieve on short-haul flights “diminish with sector length and equipment gauge, ultimately disappearing on long-haul, larger gauge, international operations,” said Robert Mann, New York-based head of aviation consulting firm R.W. Mann & Co. “AirAsia X was no exception, though Fernandes may have initially thought otherwise.”

Challenging Times

It certainly hasn’t all been a smooth ride.

In 2020, Fernandes stepped down as chief executive officer of AirAsia amid a UK Serious Fraud Office bribery investigation relating to an Airbus order, though he was later cleared. Indian authorities are also investigating him in a probe into payments being used to influence public policy.

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AirAsia also experienced tragedy in 2014, when a flight crashed into the sea in Indonesia, claiming 162 lives. The disaster was blamed on a crack in the soldering of an electronic component on a rudder, as well as pilot error.

More recently, Covid presented unprecedented challenges to the industry as a whole. The International Air Transport Association estimates that carriers worldwide lost $200 billion over the past three years. The key market of China — closed off to international travel for longer than anywhere else — will likely take at least another year to get back to pre-pandemic air travel levels.

“We’ve just been through the worst crisis of our life,” Fernandes said. “Culture is what kept this airline together.”

AirAsia’s passenger traffic dropped to just 4.8 million in 2021 from almost 52 million in 2019, with the company having to ground most of its roughly-200-strong fleet as travel restrictions eviscerated demand.

“Tony’s charisma and ability to energize are exceptional. I once asked him to be keynote speaker at a sales rally and had to bring in the police to protect him from exuberant fans,” said Piyush Gupta, chief executive officer of DBS Group Holdings Ltd., who has known Fernandes since 2003. “Less well known, however, is his tenacity and resilience and willingness to hang in there.”

Even with air travel broadly recovering as 2023 progresses, high fuel prices and wider economic issues may continue to limit demand, and the days of ultra-cheap flights look numbered as airlines try to scrape out profits.

“There hasn’t been a great return of capital,” said Fernandes. “I think airfares have been too low.”

Yet AirAsia is still offering $70 return fares between Kuala Lumpur and Singapore for the Labor Day holiday weekend in May. The cheapest ticket on Singapore Airlines Ltd. for the same travel dates stands at $186, figures from Booking.com show.

Business Revamp

While the airline still operates under the AirAsia brand, Fernandes revamped the business in 2022, changing its name to Capital A Bhd, which operates a so-called super-app that can be used to book tickets, hotels, taxis and food, as well as offering fintech services.

Fernandes has said the rebranding better reflects the group’s status as an investment holding company with interests in travel and lifestyle, and helps outline that it isn’t “just an airline anymore.”

Capital A expects non-airline operations to account for about 50% of total group revenue by 2026, paving the way for Fernandes to leave his beloved AirAsia airline in the hands of a successor and shift into other areas of business.

“I’ll never not do anything,” he said. “I’ll always do something.”

—With assistance from Chanyaporn Chanjaroen.

©2023 Bloomberg L.P.