Abu Dhabi, UAEWednesday 23 September 2020

CORONAVIRUS

AirAsia's Tony Fernandes: we will come out of pandemic much stronger than before

Chief executive of Asia's largest low-cost airline talks exclusively with 'The National' about the worst crisis he has ever faced and how the company is building up its digital businesses across e-commerce, food and FinTech

Tony Fernandes, group chief executive of AirAsia. Bloomberg
Tony Fernandes, group chief executive of AirAsia. Bloomberg

The airline business has never been more precarious than it is right now during a global pandemic that has resulted in closed borders and depressed travel.

The group chief executive of AirAsia, Tony Fernandes, has had a particularly difficult time of it.

In April, some reports speculated that the airline would be lucky to survive five months given the impact of Covid-19 on aviation.

Dressed casually, he exudes a relaxed air, even with the lack of proximity in a video call last week with The National. Mr Fernandes is sanguine despite what he has been through.

“Without a doubt” this is the worst crisis he has faced since he took over AirAsia almost 20 years ago, he says.

“Can you imagine that at one stage 96 per cent of aircraft [worldwide] were on the ground? That’s just unthinkable.

"AirAsia had 275 planes sitting, doing nothing. I mean, that's nothing I would have ever imagined.”

The pandemic started in January. We're going into September. We’re flying, we’re paying people. We’ve done all right so far

Tony Fernandes

On Tuesday, a week after we speak, AirAsia reported a record quarterly loss, underlining the extent of the pain felt by the group in April, May and June.

What the overall experience adds up to, he says, is that he is learning how to survive in a pandemic.

“We’ve learnt to survive in Sars, we learnt to survive in bird flu, we learnt to survive in tsunamis and earthquakes and political changes in government," Mr Fernandes says.

"This is something else but we'll survive it. We're still around, right? The pandemic started in January. We're going into September. We’re flying, we’re paying people. We’ve done all right so far.”

Survival is a common business theme for the former music executive, going all the way back to when he bought a debt-laden, loss-making carrier from the Malaysian government for less than a dollar at the tail end of 2001, with aviation reeling from the September 11 attacks in New York.

Since then AirAsia has become a publicly listed company and grown into Asia’s largest low-cost airline. Before the pandemic it flew to more than 150 destinations.

The 56-year-old, who is speaking from his home in Kuala Lumpur, Malaysia, says the good news today is that, apart from AirAsia X, all of the group’s airlines are flying, although capacity levels are about half of what they were before the pandemic.

So far the business has not taken any government funding to help it survive, he says, although the plan is to secure some kind of financing from the emergency measures on offer.

“We’re working on it and we’re getting close, but at this point we have received nothing and we’re still standing,” Mr Fernandes says.

AirAsia planes are seen parked at Kuala Lumpur International Airport in Sepang, Malaysia on April 14, 2020. Reuters
AirAsia planes parked at Kuala Lumpur International Airport in April, amid coronavirus related travel restrictions. Reuters

During the crisis, he says that “a lot of great work has been done” at the company.

“We are now beginning to rationalise the cost side of the business. We’re beginning to talk to creditors to start a proper repayment plan. We’re flying, we’re at break-even cash flow,” he says.

He concedes there is still a long way to go before it can be anything like business as usual.

“We are off the aerobridge, we are taxiing [but] we are far away from a take-off right now,” he says, using an analogy to describe how close the company and by extension the sector is to a rebound.

It's like one of those volcanoes that erupts, there’s this massive pandemonium and then you don't know when the next eruption’s coming.

Tony Fernandes

There are still many unknowns to contend with, such as when borders will fully open, to be able to predict when that recovery will materialise, he says.

“This continual kind of unknown of secondary and tertiary waves, some countries experiencing a third wave, and, you know, that's obviously something no one can predict.

“It's like one of those volcanoes that erupts. There’s this massive pandemonium and then you don't know when the next eruption’s coming.”

The situation in the markets in which AirAsia operates is also uneven, with some countries showing higher incidences of Covid-19 – such as India, Indonesia and Philippines, and to an extent Saudi Arabia – compared with others.

Still, Mr Fernandes believes the world is in a much better position now than it was in March, with the potential for a vaccine to be produced more quickly than anticipated and people beginning to get over the initial shock of what has happened.

'I’d rather be AirAsia than Singapore Airlines'

While the outlook only offers a “blizzard view”, he believes AirAsia’s low-cost model is “slightly better” to operate than the full-service model given the current slump in global aviation.

“I’d rather be AirAsia than Singapore Airlines, which is really predicated on flying to Europe and America, long-haul travel and business-class travel,” he says.

“We are probably at the right end of the spectrum [of airline business models]. The second thing that is counting in our favour is that we are in the right geography.

"South-East Asia has handled [the pandemic] better than most … so when South-East Asia comes out of it, it will be a longer lasting scenario than other [regions] but it is still quite a ways away for me in terms of international travel [really coming back]."

He says short-haul and regional travel will “still be OK” and AirAsia’s customer surveys show there continues to be appetite for travel to Bali, Phuket and Bangkok, for example.

“And it's going to be a lot of regional travel versus intercontinental travel.”

We will come out of this much, much stronger and leaner than before

Tony Fernandes

“We see the domestic demand that people still want to fly and have holidays and meet their relatives. The migratory workforce is still there.”

The question remains, Mr Fernandes says, as to how long it will take for activity to pick up again.

The key is “not to shrink too much” so that when the recovery does finally materialise, you can take advantage of the opportunities to grow.

“So it's a fine balancing game of keeping that infrastructure in place. There's no doubt it's going to shrink, but not to cut it [so that] when it comes back, you're rebuilding from scratch.

“I think we're in a better position because there's less capacity, there will be airlines that will go under. There will be sensible practices from government airlines.

"So our fares are much better without killing demand, and the level of competition is much clearer. So the airline’s very valuable.

“We will come out of this much, much stronger and leaner than before.

“There's going to be a lot of travel where we are particularly strong, in secondary and tertiary centres, where people want direct connectivity. I think for transit, people are going to be Iess happy about hanging around waiting for a connection.”

Passengers walk off an aircraft gangway out of a Thai Airways airplane as a Air Asia plane comes into land at Phuket international and domestic airport on November 2. Phuket airport is undergoing a major airport expansion construction. As the third largest airport in Thailand, after Suvarnabhumi and Don Mueang, it handles more than double its originally built purpose of six million passengers a year capacity. The new airport expansion is expected to be finished in 2016. Barbara Walton / EPA
Tony Fernandes says short-haul and regional travel will “still be OK” during the pandemic. EPA

This was a trend already playing out before the current crisis and the hub model is under threat, Mr Fernandes says.

Another opportunity will be to show the ability to provide a safe and technology-led service for customers. This should be a seamless experience.

“Covid-19 is going to bring in a whole new health protocol. [What will be the difference is] how we handle it, and how can we make it as stress free as possible for the customer when travel returns, which it will eventually.”

Air travel won’t disappear, he says: “I believe it's in our blood”.

Building up digital business

In the meantime, there is the other side of his business, which is embracing the growing digitalisation of economies worldwide and consumer demand for more online services.

The AirAsia group is “blessed” with a huge amount of airline customer data that enables it to build other digitally led businesses including BigPay, a FinTech on its way to becoming an online bank, a fast-food chain and an e-commerce platform, Mr Fernandes says.

That is why he says that AirAsia is “a lifestyle company, you know, it's not an airline anymore”.

“We've now split the company into two bits, airline and Redbeat Ventures, which is our digital arm”, which are almost like two separate entities.

“So if you take Uber, it started as a mobility company, moving people from A to B, or Grab in South-East Asia, now it does so many other things. AirAsia started as an airline from A to B and now we've built four very solid digital businesses,” he says.

“It's a long, hard journey, when you're competing against a young start-up that’s got tonnes of capital

This process started several years before the pandemic. The airline loyalty programme has evolved into an online shopping portal, the cargo department has become a cross-border parcel delivery business and its catering division has spawned Santan, a restaurant franchise.

“People laughed at me and we’ve now got two restaurants, we’ve 50 franchisees who are now applying all the way from New York to Malaysia," he says.

"And I think we can have our own little McDonald’s and you’ve got to dream. It’s a crazy dream to think you could be the size of McDonald’s but hey when I started with two planes, everyone laughed at me and we became the biggest airline in Asia.

“So you know, something new. Maybe people are tired of burgers”

As a result of the new directions the company is taking and the impact of the current crisis, there will be less investment in the airline and more investment in digital businesses, Mr Fernandes says.

“We’ve enough aircraft to last 10 lifetimes at the present moment. If that V-curve [recovery] comes back and a vaccine comes back then we'll have to relook at the aircraft situation.

"I've been very clear that I don’t think we will be taking aircraft for many, many years. I don't think many airlines will.”

However, he says the future direction of AirAsia is more than hopeful.

“We can be bigger and better than most” other digital businesses.

“No one's taking this very seriously because it's sexy to be in Grab and Uber and all of these other companies," Mr Fernandes says.

"We think we have a much, much better model, in the same way we felt we had a much better model when we started AirAsia.

"We think we can be leaner, more efficient and our path to profitability is very clear while many, many digital businesses haven’t got that clear path to profitability.

“We’re proving the investment thesis that we can convert airline data into successful digital businesses that are profitable. And so people are taking note now.”

Mr Fernandes is the original entrepreneurial spirit personified, much like the Virgin founder Richard Branson, for whom he worked after he finished training to be an accountant in the UK.

Even now he remains steadfastly bullish, when as he puts it, he is the “old man” up against today’s young tech start-up founders.

“It's a long, hard journey, when you're competing against a young start-up that’s got tonnes of capital.”

He believes he can beat them at their own game.

Updated: August 27, 2020 12:57 PM

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