by Anurag Kotoky
(Bloomberg) — One of the biggest names in global aviation is preparing to step back from the front lines.
Tony Fernandes, credited with revolutionizing cheap air travel in Asia, plans to focus more on areas such as health, education and private equity.
As the industry emerges from Covid, the 58-year-old Malaysian will move on. Like other airlines, the AirAsia group founded by Fernandes has been hit hard by the pandemic. It is no longer the empire it once was, closing joint ventures in Japan and India but still operating airlines in Malaysia, Indonesia, Thailand and the Philippines, with plans to launch in Cambodia.
“Good leadership is knowing when to go,” Fernandez said in a recent interview in Singapore. “Aviation as my journey may be coming to an end. I have to talk about succession planning. I don’t know when the button will be pressed, but I want to talk about it because I want to attract the right leadership.”
Fernandez, who grew up in Malaysia and Britain, devoted himself to airlines in his 30s, buying AirAsia from a state-owned conglomerate in September 2001 for 1 Malaysian ringgit (about 30 cents at the time).
After starting with two planes, AirAsia rebranded in January 2002 as a low-cost, budget airline offering flights in Malaysia for as little as $3, or even free in some promotions. By early 2004, it was flying to a handful of international destinations from Kuala Lumpur, and soon established regional airlines such as Thai AirAsia.
With the motto “Now everyone can fly”, AirAsia’s red and white jets have become a popular choice for flights to destinations such as Bangkok, Singapore, Jakarta and Phnom Penh. Cheap airfares have helped fuel a flying boom in the region, catering to a growing middle class that wants to travel and reducing long-distance boat trips between the thousands of islands.
“Tony was the first to market the discounted flight,” said Shukor Yusof, founder of aviation consultancy Endau Analytics, who first met Fernandes at an AirAsia event at the InterContinental in Singapore in 2002. The way operators fly in this region is huge. “
Always the face of the company, Fernandes is a well-known figure with a wide range of interests – from co-owning a Formula 1 team and a London-based football club to hosting the Asian version of a popular TV show apprentice.
“Tony’s reach is a testament to the importance of brands and the key to being a first mover,” said Tim Bacchus, an analyst at Bloomberg Intelligence in Hong Kong. “It’s fair to say that Fernandes was a true pioneer of low-cost airlines in Asia and had the vision to bring this model to this part of the world, making air travel affordable for many.”
Now, Fernandes intends to take some of his AirAsia experience elsewhere.
“I love having private equity that is actively managed and helps young people change things,” he told Bloomberg News. “I believe in a low-cost education and health model. Those are the two most discriminatory things.”
As for who would take over AirAsia, Fernandes said he preferred someone from within the company and in Southeast Asia, which is at the core of the airline’s operations, but he did not rule anything out.
“Honestly, I don’t care where they come from,” he said. “We don’t really talk about race, religion, gender, sexual orientation — I don’t care, as long as you’re good for the job.”
Fernandez graduated from the London School of Economics in 1987 with a degree in accounting. He was formerly Finance Director of Richard Branson’s Virgin Media Communications Ltd. in London. Years later, in 2011, after losing a bet with Fernandez, Branson shaved his legs and dressed as a flight attendant on an AirAsia charity flight.
Fernandez moved back to Kuala Lumpur in 1992 to become the general manager of Warner Music Malaysia. He mortgaged his house in 2001 and established Tune Air Sdn. with his partners and use that entity to take over AirAsia.
Fernandez said he sensed an opportunity in aviation when he sat in a London pub watching EasyJet Plc’s Stelios Haji-Ioannouon talk on TV about low-cost flying. Around that time, companies like Lastminute.com also became the darlings of well-recognized online travel startups and investors. “Wow, is this a calling?” Fernandez thought, he told CNBC in 2018.
“Whether it’s a silly hop on TikTok or sharing words of wisdom to young people, he can read quickly and capitalize on market opportunities,” said Yusof, who lives in Malaysia at Endau.
Airbus has benefited from the rise of AirAsia, which has since become one of the European manufacturing giant’s biggest customers. At the Farnborough Air Show in 2014, Fernandes kissed Airbus’ chief operating officer on the cheek an order for 50 wide-body jets worth nearly $14 billion.
Long-range unit AirAsia X Bhd was listed as the biggest customer for Airbus’ new A330neo wide-body jet, picking up an order of about $23 billion, although it ended up committing to only 15 planes as it struggled to grow. Low-cost, long-haul flights have proven to be a tough sell, and customers prefer full-service options that offer free refreshments and more amenities on long-haul trips.
Robert Mann, head of aviation consultancy RW in New York, said the productivity and cost-efficiency achieved by low-cost airlines on short-haul flights “decreases as segment lengths and equipment specifications increase, and ends up in longer-haul, larger-scale international operations.” “Disappearing in the midst of the pandemic” Mann & Co. “AirAsia X is no exception, although Fernandes may not think so at first.”
It certainly hasn’t been smooth sailing.
In 2020, Fernandes resigned as AirAsia chief executive following the UK’s Serious Fraud Office investigation into bribery linked to the Airbus order, although he has since been cleared. He is also being investigated by Indian authorities over payments to influence public policy.
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AirAsia also experienced tragedy in 2014 when a plane crashed into the sea in Indonesia, claiming the lives of 162 people. The disaster was blamed on a weld crack in the electronics on the rudder, as well as pilot error.
Recently, Covid has brought unprecedented challenges to the entire industry. The International Air Transport Association estimates that airlines worldwide have lost $200 billion over the past three years. China, the main market — which has banned international travel longer than anywhere else — is likely to take at least another year to return to pre-pandemic air travel levels.
“We just went through the worst crisis of our lives,” Fernandez said. “Culture is what brings this airline together.”
AirAsia, whose passenger traffic has fallen from nearly 52 million in 2019 to just 4.8 million in 2021, has had to ground most of its fleet of about 200 planes as travel restrictions dent demand.
“Tony’s charisma and motivation are outstanding. I once asked him to give a keynote speech at a sales rally and I had to call in the police to protect him from raving fans,” said Piyush, chief executive of DBS Group Holdings Ltd. Gupta said he has known Fernandez since 2003. “Less less known, however, is his tenacity and resilience and willingness to persevere.”
Even with a full recovery in air travel as we move forward into 2023, high oil prices and broader economic problems are likely to continue to limit demand, and the days of ultra-cheap flights appear to be numbered as airlines try to squeeze profits.
“The return on capital is not great,” Fernandez said. “I think airfare is way too low.”
However, AirAsia is still offering $70 return fares between Kuala Lumpur and Singapore over the Labor Day holiday weekend in May. The cheapest fare on Singapore Airlines for the same travel dates was $186, according to Booking.com.
While the airline still operates under the AirAsia brand, Fernandes revamped the business in 2022 as Capital A Bhd, which operates a so-called super app that can be used to book flights, hotels, taxis and food , and providing fintech services.
Fernandes said the rebranding better reflected the group’s status as an investment holding company with an interest in travel and lifestyle, and helped outline that it was “no longer just an airline”.
Capital A expects non-airline businesses to account for around 50% of the group’s total revenue by 2026, paving the way for Fernandes to hand over his beloved AirAsia airline to a successor and pivot to other lines of business.
“I would never not do anything,” he said. “I’m always going to do something.”
—with the assistance of Chanyaporn Chanjaroen.
©2023 Bloomberg Intelligence