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Fernandes: Low fares here to stay

13 August 2011

A decade long rivalry between AirAsia and Malaysia Airlines (MAS) came to an abrupt end on Tuesday when major shareholders of both airlines extended the olive branch to forge a collaboration agreement.

The battles between AirAsia and MAS have been long and loud, to say the least, with Tan Sri Tony Fernandes protesting over stumbling blocks placed on the path of his fast growing low-cost carrier resulting in it not securing new lucrative routes and not having low-cost carrier terminals (LCCTs) to support growth.

With Khazanah Nasional Bhd holding controlling stakes in MAS and Malaysia Airports Holdings Bhd, AirAsia was relegated to a “step-child” status in the aviation sector.

But with this deal, Fernandes, who is best known for not having a defeatist attitude and his tenacity to push boundaries, can now give up the tiresome “lobbying” to grow AirAsia and its sister airline AirAsia X.

In an interview with StarBizWeek, Fernandes, who sits on MAS board and an executive committee set up to oversee the management of the airline until a new managing director is appointed, shares his thoughts on the deal.

SBW: As AirAsia’s group chief executive officer, you oversee AirAsia and advice AirAsia X, as well as keep an eye on Thai AirAsia and Indonesia AirAsia. Now, you have become a shareholder in yet another airline, MAS, and will provide your inputs. Do you think you have spread yourself too thin?

Fernandes: No, because the deal frees us from having to lobby, which took so much of our time. If you think about the amount of politics this airline (AirAsia) has endured to get to where it is now, that lobbying time is now cut and we can focus our resources into growing the airlines and strategising on the best way to deploy our resources. I’m free to do a lot more now and people forget that I already did a lot more outside of AirAsia – the Tune Group and owning a Formula 1 team but yet AirAsia’s profits have never been better.

In your opinion, what type of CEO will be apt to run MAS?

I would like a numbers-driven CEO. I would like someone like Azran (AirAsia X Sdn Bhd chief executive officer Azran Osman-Rani), to be honest. Someone who has a clear thinking mind and doesn’t come from the airline business. Someone who is humble, analytical, knows numbers and understands the basis of marketing. But I also think there needs to be a very strong commercial head at MAS. There has been a lot of good people brought into MAS, judging from the impressive board line-up so this signals a new beginning.

You are best known for being a “no-frills man” but you have been placed on the board and exco of MAS to give some inputs to turn it around into a premium full-service carrier. How do you expect to contribute to a premium airline?

In terms of running an airline, there will be similarities in certain areas such as aircraft utilisation, negotiation of aircraft prices, marketing and branding, route development and people management. Now, I’m not going to be the one to say what is the right cutlery to be used or food to be served.

Having said that, I have flown on first class many times, so as a consumer, there are inputs that can be given. But I’m just a board member at MAS and there will be a CEO leading the management so my inputs will be given to this CEO. In the same way I advise AirAsia X, I can advise MAS. But my job is with AirAsia nothing changes.

Is cutting staff strength at MAS on the cards? And do you think MAS will be able to adopt the cost discipline AirAsia has executed based on its business model?

I don’t see staff as an issue at MAS. With the airline poised for growth, there are other ways of reducing costs staff is not a major cost and it is about the same as AirAsia’s in terms of cost out of overall revenue. I think too much has been made out about staff numbers are not really an issue but I believe we can always work to improve productivity in any organisation.

As far as cost discipline, in any business, cost is important. While we haven’t looked over the numbers extensively, you can start looking at some comparisons between peer groups and benchmark yourself. But ultimately, it is down to the people who manage the business and if there is a way of decreasing costs and increasing efficiency, then the staff will have to buy into it.

It would appear as if AirAsia benefits the most from this deal over the long-term, especially with the group’s route impediment removed? Do you think AirAsia has the best deal from all this?

People are evaluating that MAS has a better deal but we both have gotten a good deal. We (Fernandes and Datuk Kamarudin Meranun) are entrepreneurs and have a longer-term vision of what we would like the airline to be.

But what it means for AirAsia, on top of route approvals, is that we can channel our resources to building the airline and our network in Asean now.

Aside from this, the tie-up will also help us build more LCCTs around the country Penang and Kuching while we are now allowed to remain in Kota Kinabalu Terminal 2. We don’t harbour hopes of running our own LCCT but giving us the right airport charges is extremely important.

There are concerns in the market that this collaboration will lead to air fares increasing, especially since there are bound to be some streamlining of routes operated by MAS and AirAsia. Will AirAsia’s air fares increase?

AirAsia’s fares will not go up because such a strategy is not our bread and butter. If we increase fares, less people are going to fly. The whole basis of AirAsia is to make people fly.

And in terms of rationalisation, it not necessarily has to come in the form of routes but instead, aircraft capacity. So we could look at first class and business class travel for MAS while AirAsia focuses on economy this means a segmentation of the market. So instead of an aircraft with 180 seats flying seven times a day, you can re-configure the aircraft to have 140 seats flying seven times a day.

Would AirAsia and MAS ever consider a code-share agreement? A: No. Never. As both are two different models – AirAsia operates in the low-cost segment while MAS is to operate as a premium full-service carrier.

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

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