Behind The Scene: Air Asia Success Story!

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 Air Asia, with two Boeing jets and $11 million in debt, could be bought from the government. All he had to do was sell then-Prime Minister Mahathir Mohamad on the idea. The two met in October, 2001, with Fernandes, a British-trained accountant, telling Mahathir a discount carrier could revolutionize Southeast Asian air travel and boost tourism at a time when airlines worldwide were struggling from the impact of the September 11 terrorist attacks. Mahathir was persuaded -- Fernandes only had to pay a token 26 cents for the carrier -- but airline analysts were skeptical. "When we started, they said it wouldn't work," recalls Fernandes. "They said we would die."

Well, Fernandes not only survived, he has thrived. One-way fares as low as $2.50 have persuaded thousands of Malaysians to fly who in the past would have taken a bus, train, or boat. Since its relaunch in December, 2001, Air Asia has bought four Boeing 737-300s and leased 13 more. It now flies to 28 destinations around the region, including Jakarta, Bangkok, and Macau. Fernandes keeps costs low with short-haul flights, a high rate of aircraft utilization, and a fast turnaround rate. He also makes money with a lucrative cargo service, sales of drinks on board, and marketing tie-ups with other companies. Air Asia's planes are flying 80% full on average, and analysts say it will earn $16 million in profits on $120 million in revenues for the fiscal year ending June 30.

Fernandes' biggest achievement has been to turn Air Asia into an international carrier. Before he arrived on the scene, countries in the region never had any kind of open-skies agreement. In mid-2003, Fernandes' lobbying pushed Mahathir to raise the idea with the leaders of neighboring Thailand, Indonesia, and Singapore. As a result, those nations have granted landing rights to Air Asia and other discount carriers. "Fernandes has had remarkable influence in shaping government and airline thinking in Southeast Asia and beyond," says Peter Harbison, managing director of the Center for Asia Pacific Aviation, a Sydney consultancy. "The Asia Pacific airline industry will never be the same again."

Now, Southeast Asia is buzzing with successful, low-price carriers such as Thai Air Asia, which took off in January, and Singapore-based Valuair, which began flying in May. Asia's big established carriers are responding with cut-rate rivals of their own. Singapore Airlines, for example, is preparing to launch Tiger Airways in late November, while Australia's Qantas Airways is starting up JetStar in mid-November. Even though this means more competition, Fernandes is proud of what he set in motion. "It was the popularity of low-cost carriers like Air Asia," he says, "that forced them to move toward more open skies."

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. The amateur guitarist went on to become vice-president for Southeast Asia for Warner Music Group from 1992-2001. But Fernandes says he won't imitate his mentor Branson by branching out into many businesses. "Unlike Sir Richard, I am totally focused on just one thing -- Air Asia," he says. Not that he doesn't have big plans. He wants to fly 6 million passengers annually by 2005, up from 1.8 million last year, and buy 80 new planes to serve them. An initial public offering is looming as soon as September. Whatever he does next, Fernandes is likely to teach his competitors a thing or two about how to push the business envelope.

Source: http://www.businessweek.com/magazine/content/04_28/b3891409.htm