The People’s Champion

The carrier is confident that the cheap-ticket bait to book early and book online has worked spectacularly across the Asian markets of Southeast Asia and will work just as well in price-sensitive India, China and other countries near and far

The 21st century is increasingly being called the Asian century primarily due to the widespread belief that if certain favourable demographic and economic trends persist, this century will be dominated by Asian politics, Asian culture and almost anything Asian. So AirAsia has been aptly christened. Last October, the airline carried its 100-millionth passenger within nine years of commencement of operations. On the occasion, Tony Fernandes, the colourful and capable Chief Executive Officer of the AirAsia Group, and Forbes Asia’s Businessman of the Year 2010, stated that the carrier expects to handle its 200-millionth passenger within the next three years because of its “connectivity, more destinations, and of course attractive fares.” Now that is a rate of growth that any airline boss would be willing to die for, yet it seems to have been a cakewalk for AirAsia.

It wasn’t always so. AirAsia was set up as a Malaysian stateowned carrier in 1993 and commenced operations in 1996. Five years later, it was a sick airline with two creaky Boeing 737-200 aircraft, four destinations, 250 employees and an assumed debt of $11 million ( Rs. 49.5 crore). On December 2, 2001, it was purchased by Tune Air, owned by Tony Fernandes, for the token sum of RM1 ( Rs. 14 today). It was soon relaunched as a low-cost carrier (LCC). Practically overnight, it had to transform itself from a sleepy and bureaucratic government concern into a highly competitive and innovative enterprise. It introduced scores of new routes, radiating from its main base at Kuala Lumpur International Airport and undercutting former monopoly operator Malaysia Airlines with rock-bottom promotional fares. Claimed to have been operationally profitable from day one, AirAsia now has unmatched connectivity in the ASEAN region with “sky bridges” (routes) that link the capitals and communities of Southeast Asia to each other and beyond. Together with AirAsia X, set up in 2007, the airline links three continents—Asia, Australia and Europe. With around 8,000 employees, the AirAsia Group has 102 aircraft on strength plus 122 on order and operates approximately 150 routes to 68 destinations. Today, it is among the world’s fastest growing LCCs—a remarkable transformation for what was once a carrier on life-support.

Everyone Can fly Everywhere

AirAsia has a dream of bringing flying to the masses, and its catchy slogan “Now Everyone Can Fly,” says it all. In 2010, the World Airline Survey of the well-known London-based aviation consultants Skytrax polled almost 18 million travellers globally to select the world’s top airlines. AirAsia was chosen as the “best low-cost airline worldwide” for the second consecutive year. As Tony Fernandes said, “It reaffirms once again that we are the people’s champion.”

According to the Centre for Asia Pacific Aviation (CAPA), notwithstanding the global economic downturn, AirAsia has been expanding and conducting major discounting promotions as part of its determination to increase traffic, market share and profits. The airline recorded double-digit capacity growth across its network over the past two-three years. While this strategy depressed ticket prices and weakened yields in 2009, there was a marked recovery in 2010, supported by a gushing revenue stream of ancillaries, which enabled the carrier to record strong profits. Despite a 33 per cent increase in fuel costs, revenues during the fourth quarter of 2010 also increased by 33 per cent, and ancillary revenues more than doubled to 18 per cent of the total. Therefore, Centre for Asia Pacific Aviation (CAPA) believes that for airports, suppliers and competitor airlines, AirAsia is the airline to watch in 2011.

So far, AirAsia has avoided the temptation to expand too far too fast, and has pragmatically concentrated on the Association of South East Asian Nations (ASEAN) region. Apart from its main Malaysia-based enterprise AirAsia Berhad, it has adroitly set up cross-border joint venture (JV) airlines as a way to tiptoe around touchy transnational issues. The operations of its JV airlines Indonesia AirAsia and Thai AirAsia turned profitable in 2010. AirAsia can now look elsewhere to project its growth, first with its Philippines affiliate, AirAsia Incorporated (scheduled to commence operations in the second half of the year) and then into pan-ASEAN markets. And the attractions of India and the North Asian triangle—Japan, South Korea and China—for new JV operations will only grow, as each of these markets embraces the LCC way of life.

The other member of the group is AirAsia X, its low-cost longhaul affiliate, also based at Kuala Lumpur International Airport. To begin with, experts questioned the viability of AirAsia X’s model. They felt that the use of bigger aircraft with more baggage handling would jeopardise the quick turnaround time that make LCCs so effective. In addition, the discomforts that customers patiently endure to save costs on short flights become more irksome on longer journeys. So budget carriers on extended flights are constrained to offer more food, entertainment and space, all at additional cost. However, within two years of its launch, AirAsia X began to enter a rapid expansion phase and is now out to prove its sceptics wrong. In November, the airline’s inaugural flight to Seoul touched down at the Incheon International Airport, notching up its 12th international destination. That the Airbus A330 operated with all 12 premium seats and 365 economy seats taken, reflects the carrier’s aggressive marketing skills.