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Fernandez is eager to put Malaysia on the world sports map

Saturday November 7, 2009, By ANITA GABRIEL

He scored a home run with budget airline AirAsia. Tony Fernandes is now bent on expanding his field of dreams through the social power of sports.

DATUK Seri Tony Fernandes' rhetoric can be a little over the top for some. Self-help mantra such as "Dream the impossible", "Dare to dream", "Stand tall" is commonplace in his blog, speeches and media interviews.

Truth is, not many Malaysian "CEO superstars" can rally the crowd wherever they go and carry the banner "Believe the unbelievable" without coming across as too cheesy. But that's largely owing to his entrepreneurial prowess as founder and boss of budget airline AirAsia Bhd.

Given his crowd pull, it seemed almost a natural choice for the corporate phenom to have visibly tapped the social power of sports to market AirAsia. Ironically, even when he does so under his personal capacity or that of his privately-owned vehicle Tune Group, the CEO brand of AirAsia still stands out.

Fernandez is eager to put Malaysia on the world sports map
Having got the bang for every advertising buck, Fernandes is now eager to put Malaysia on the world map of sports.

Branding through sports is a strategy that's hard to fault. For Fernandes and AirAsia, the field is wide open; football, basketball, hockey, table tennis, athletics, cricket, tennis and more recently, MotoGP and Formula One (F1) – significant money has been ploughed in these sports to raise the brand's equity value. The rewards far trump the actual investment.

Fernandes echoes that notion: "We won't be able to carry over 24 million passengers without marketing this way. The return is huge. You can definitely see it translate into the bottom line."

After all, what better way to battle the perception that low cost is synonymous with low quality than by getting involved in world-class premium sports such as F1 and English football?

It is important though, says Fernandes, that the branding is "ruled not by our hearts but the brain." Heart would have led him to put his money behind his personal favourite – West Ham United football club but instead AirAsia became the first low cost airline to associate itself with Manchester United, one of the biggest football club in the English Premier League.

"Sports is the most homogenous mass market. It's there for the whole year and garners one of the largest audiences. That's why we chose sports," says Fernandes.

That may not sound like an original thesis but this is – "You will see the evolution of my involvement in sports from the branding aspect for AirAsia to now content creation."

Simply put, Fernandes, having got the bang for every advertising buck, is now eager to put Malaysia on the world map of sports, a Herculean task say some for a country that is traditionally not a stronghold of major sports like basketball, football or Formula One, all of which are currently on his cross hair.

"Malaysians don't have their own belief that we are as good as anyone in the world. We used foreign brands to brand ourselves, primarily because there is no local brand. We need to create more talent, more of our stars, our own content and our own heroes," he asserts.

In search of heroes

Cynicism aside, his message for Malaysians to find their own sports heroes somehow seems to resonate with the general masses. He has found three other partners to invest in 1Malaysia Racing Team which has a start-up capital of RM168mil with an annual budget of RM308mil. And job applications have been pouring in.

The strongest selling point may just be team principal Fernandes himself with his "Dream the Impossible" pitch which he has tirelessly conveyed over the years in the AirAsia context: "We started with two planes, one destination and 250 staff. Now, we have 7,000 AirAsians, 85 brand new Airbus and have ferried over 75 million passengers over the years to over 60 destinations."

He continues to stay on message on all the various online social networks and one of his most recent tweets to his followers reads: "The power of Airasia. Come back from Bangkok. Spend a few hours in KL. Then to JKT (Jakarta). Launch basketball. Then back home. All in a day."

But there are concerns. Are the countless activities that Fernandes is involved in posing a distraction from his main task of running listed airline AirAsia?

"Of course, my job is AirAsia. Nothing changes in that aspect," he replies. "I wear an AirAsia cap at a F1 event so AirAsia gets enormous benefits. So for AirAsia, there's a lot to be delivered."

The route ahead

These days, Fernandes appears calmer, less so of the feisty challenger when he talks of the airline and its challenges. That may be because there's relatively less to fight for. "I'm very happy and focused now. A lot of the problems that we had over the last 8 years are going away." The perennial optimist then adds: "Next year is going to be very rosy for AirAsia and the industry."

But needless to say, there are likely to be bumps. Analysts expect brutal competition in the airline industry to continue which may keep a lid on yield and potential rising fuel prices to crank up cost.

But Fernandes is unfazed. "We are volume driven, not yield driven," he replies. In other words, if load factor falls, AirAsia will do what it has traditionally done – adjust yields to fill up the planes.

"We're load-driven. We want the volume and we will get it at whatever price we can," Fernandes says.

For the third quarter of this year, AirAsia's passenger load grew 19% year on year; quite a feat for an airline, which an analyst says, has traditionally witnessed a weak third quarter. Still, most expect the second half to be tough on the back intense ticket fare competition among its peers, although this may to some extent, be offset by growing ancillary income.

"We are in a wonderful position. There are a lot of other external factors, but we can deal with it. I can say as an airline, we'll be the best performing airline," says Fernandes.

With that, there's no stopping the budget carrier from continuing its staunchly-held over arching theme of aggressive expansion.

"We want to plant our red flags everywhere. We're connecting the dots. We are in Penang. We are in Macau. We just need to put a plane and connect the two. Everyone knows us in Indonesia and Thailand and the Philippines. It's just connecting the dots. We are adding more routes to India and we make no secret about wanting to be in the Philippines and Vietnam," he says. There's more – the budget carrier recently won the landing rights in Paris, its second destination in Europe. The announcement was made by no less than the Prime Minister Datuk Seri Najib Tun Razak during a recent visit to Paris in early October. Cementing the deal could have been the fact that AirAsia is one of Airbus SAS A320's largest customer in the world. (The route will be undertaken by its long-haul budget airline AirAsia X, in which AirAsia has a 16% stake).

There remains one or two "delicate" issues, both of which involve airport operator Malaysia Airports Holdings Bhd.

Back in June, AirAsia X was dealt a major blow when the Malaysian Government denied it permission to fly into two sweet spots – Sydney and Seoul. The reason – its sister carrier AirAsia had yet to settle long-outstanding fees to MAHB for airport services. Visibly disappointed, the long haul budget airline had to craft a last minute plan to redeploy its excess capacity into several other existing routes.

Of deferment and differences

The strategy seemed to have worked. Fernandes says AirAsia has paid some RM30mil (a discount to the total amount owing) to MAHB and with that, the issue is settled. "All settled. They (MAHB) gave a discount. We are now re-appealing. Let's wait and see. We've got so many other cities that we want to fly to. We've got Delhi, Mumbai…"

Of no less significance is the fact that AirAsia recently decided to defer taking delivery of 16 A320s (8 due in 2010 and another 8 due in 2011) to 2014. It was originally scheduled to take delivery of 23 aircraft next year and another 24 in 2011. Thereafter, AirAsia will take delivery of 24 aircraft annually up to 2013 with a final delivery of 10 in 2014.

The airline has attributed the decision to potential "infrastructural constraints". Bluntly put, it doesn't think the new low cost carrier terminal (LCCT) which MAHB had strongly and successfully lobbied to build can be completed on time (by third quarter 2011). (Much earlier, AirAsia had submitted a plan to build a new LCCT in Labu, Negri Sembilan but the bid failed).

Naked or hedged?

Tongues are wagging that the LCCT project is facing severe cost and time over runs although MAHB officials have reported to have said that it would be completed on time.

"I don't think so but well, if they really complete it on time, we can go back to Airbus and say we'd like to have those planes back," says Fernandes.

One analyst points out that there may be yet another reason for the deferment – to realign capacity with demand – which he views positively. "AirAsia will manage to avoid building up significant capital and finance costs in its books over a

soft phase in passenger demand cycle. This would allay the market's previous concerns on AirAsia's aggressive expansion plan amid a weak demand environment – which could have resulted in a mismatch between slowing earnings growth and huge growth in cost base," says the analyst.

Is that true?

"I just told you there is a lot of routes that we would like to do! But if we can't park our planes, what can we do?" Fernandes replies.

Last year, AirAsia unwound its fuel hedge contracts and since then, has remained largely unhedged, paying spot prices for fuel. By doing so, the airline was able to remove the fuel surcharge from its fares, hence offering more competitive fares. The frontloading, however, came at a cost – in FY08, the airline posted its first full-year net loss of RM472mil from a net profit of RM698mil the previous year despite a 37% rise in sales. The losses largely stemmed from exceptional items due to the unwinding of its hedges and higher finance costs.

Going forward, however, given the green shoots of economic recovery, there is some expectations that fuel prices may rise, which has thrown up another question – wouldn't it be wiser for AirAsia to hedge its fuel requirement?

But Fernandes is hardly convinced, not by the signs of economic recovery and definitely not by the sustainability of the rise in oil prices.

"There's still a lot of speculation and bubble and that worries me. Even if it goes to US$100 (a barrel), we're ready for it. We've been at the level where oil was US$150. Again, we're so price competitive. We have a strategy in place to deal with US$150/barrel," he says.

"The pain of hedging is also when prices go down as many have discovered. Oil prices are so volatile right now. We will hedge some over the short term but the key to the business is not to rely on hedging but to rely on sustainable business.

How does anyone get hedge in this kind of market?" he adds.

For now, that may be a sound strategy. Most analysts do not expect fuel prices to shoot up drastically enough to rattle the cost structure of the airline industry. Besides, they say, if the global economies are gradually improving and there's a significant supply of crude oil, they don't expect oil prices to skyrocket.

Quite clearly, there's no slowing down for Fernandes. He's got his work cut out for him in two spheres – the airline, which promises to be nothing less than challenging still and the seemingly "Lofty Lotus" Formula One goal, among several others.

Will he be able to do for Malaysian/Asian sports, what he has done for the low cost airline business? It's a long shot, but in sports speak, if he does, he'd have hit a branding homer.

This article is a verbatim copy of the original article from The Star.

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