Mending bridges

By JOSE BARROCK

jose@thestar.com.my

DATUK Tony Fernandes is keen to set the record straight once and for all. Something has visibly vexed him but he manages to stay calm as he ponders carefully on his next utterance. I want to clear the air and the misperception some people seem to have. I’m thrilled that MAS is making money. Idris has done very well and he deserves the credit. Competition doesn’t mean we have to hate each other.

During the interview, Fernandes’ typically combative self seems to have frittered away and instead, he appears weary, almost regretful. He is clearly seeking to mend bridges. I think my relationship with MAS has been completely misunderstood. I like Idris.

For those not familiar with the context of that rare expression, Fernandes is referring to the generally perceived cold war between him (as low cost carrier AirAsia Bhd boss) and traditional carrier MAS’ boss Datuk Idris Jala.

Over the years, that perception has been fuelled by several developments that have taken place in the airline sector, most notably involving the rationalisation of the domestic routes where intense lobbying and the understandable quest to get the best deal for their respective companies had ended up souring the relations somewhat.

Although MAS has had a few false starts before, it seems to be building a sustainable model. He (Idris) is obviously looking at a four or five-year horizon and he has planned it well. I know how tough it is to run an airline…it can be a nightmare. But that doesn’t mean we dont have to compete. With the right competition, people get better. Actually protection is the enemy of success. In a market our size, we should be maximising our resources.

We want MAS to be successful. I firmly believe that there is space for the two of us. I’m glad that we are both doing well…after all we are in two different segments. I also believe MAS has become better because of AirAsia. When AirAsia didnt exist, MAS lost money on the domestic routes. Now they are making money. I have no beef with MAS.

The ‘S’ Factor

Fernandes’ triumphs with AirAsia and how he has grown the company from a seed capital of RM1mil and two planes to its current scale is widely narrated as it is commended. Having overcome numerous challenges to get to this point, there still persists a major cause of exasperation; his audible cry for the opening up of the KL-Singapore route to AirAsia before the open sky policy provisionally adopted by ASEAN member nations kicks off in the start of 2009.

He asserts: I’m not asking for open skies. I’m asking for Malaysia and Singapore to give me two flights a day. How can two flights a day make a difference? We have been denied Singapore for five years now. We have lost five years of potential profits.

AirAsia X (the long-haul LCC) is facing the same issue as well. We want to try and get traffic from everywhere and make KL a hub. (For that) I need people from Singapore…it’s a big market. How can I be the region’s leading LCC and not call at Singapore? It can be really frustrating. I think it’s time we are given a chance.

I say MAS will not lose any passengers if we start plying KL-Singapore.

There is a sense of desperation in his voice. And it’s easy to appreciate. An analyst says that a major concern weighing on AirAsia is that his big plans to turn it into a hub may not materialise without sufficient access to Singapore. The analyst makes a rough estimate that if it were accorded two flights a day to Singapore, AirAsia would get a major boost to its bottom line of some RM18mil or so. This further proves the point of how important the KL-SIN route is for the LCC.

The shares of AirAsia have also come off its high of RM2.17 reached in May this year. It is currently hovering around RM1.96. Generally, analysts opine that the share price is rich in terms of price earnings ratio. Earnings need to catch up with the share price for investors to start swooping its shares. The KL-SIN potential would definitely help in this sense, remarks an analyst.

He is peeved that while there is a proposal to build a bullet train linking KL to Singapore, his request to get two flights into Singapore is being begrudged.

Weve fought all the battles we need to, and this is our last one - access to Singapore, he says in his trademark assertive self.

Come September, Fernandes will face another major test - one that will either prove his harshest critics or most ardent admirers right.

His bold and ambitious long-haul LCC AirAsiaX under Fly Asian Xpress Sdn Bhd (FAX) is scheduled to take off.

Yet, if by then, the KL-SIN route is still not in the bag, it is likely to pose as a major dampener.

The whole issue is going to hit the roof when we start AirAsiaX. We have to confront this issue when we start the long haul. Let’s say we start flying to Amritsar, in Punjab or Manchester in Britain and one day MAS decides there is a business class market there. Does that mean they cannot fly these routes? I disagree. Of course, they should be able to. I’m not asking for exclusivity when I develop a route, he says.

Below excerpts of the interview:

Rationalisation of domestic routes

The rationalization decision was a huge success because MAS, which never made money on the domestic routes, is now doing so on on these same routes. AirAsia is also making money on the domestic routes. Both our traffics have grown.

At the start of the rationalisation exercise, the Government wanted to avoid wasteful competition. Initially, we were the drivers as we couldnt compete against a fully subsidised domestic airline. So, we called for a level playing field. We asked for two things - routes and the removal of subsidies. When the Government looked at the plan, they thought one airline should focus on international and the other on domestic and regional. With that, initially we were given all the routes, except for four trunk routes.

Then MAS came out and said that they needed more routes, so they got 12 routes.

The Government also wanted us to take over the Rural Air Services (RAS). It was difficult because we were so fixated with the one aircraft one model concept but we took it.

Then MAS decided that it can make money on the domestic routes. Dont get me wrong. That’s business and it’s fair. Idris was new at that time and he didnt want to lose the domestic routes.

He said MAS had a lot of fixed overheads, which required the domestic revenue. So it became 22 routes and then few more.

In the end we didnt care. Consumers shouldnt be disadvantaged. Consumers in Johor Bahru were freaking out saying they wanted MAS back, so we didnt object.

There was only one issue left - the imposition of the floor price for MAS to price its fares.

The Government wanted to avoid competition but MAS wanted it lifted. So the Government removed it and from a market perceptive it was the right decision.

So, what started out with us getting all the routes except for four didn’t end that way. But the subsidy was removed.

What has been portrayed is that we wanted the rural air services, when actually we never wanted it. The incentive initially was that we were going to get all the routes except four.

On the Fokker

FAX got the rural air services. It was separate from AirAsia.

Our mandate from the Government was to reduce cost. We did it how we know best - charge for infants, do quick turnarounds, basically we took our experience at AirAsia to the rural air services. We charged for cancellations, and people went berserk…so within a month, maybe two months we went back to exactly how things were.

Lets be clear, we made mistakes, and we didnt get any help or advice from any parties.

[b]We started out with 10 Fokker Friendships. We thought we could do the schedule with seven, save the Government some money. We didnt realise the planes break down everyday…literally everyday. When we got the planes, everything was great for about a week, then we saw why MAS needed 10 planes.

We thought two spare planes would be enough. But we needed four planes. Then we had an issue with spare parts, the planes were old and no one makes Fokker Friendships anymore. [/b]

There is also something called mandatory improvements to aircraft. Certain things had to be changed with the aircraft. By then Firefly was going to start.

So our first mistake was that we should have taken the 10 aircraft. But nobody advised us.

Also, we didnt do an audit on the planes as we did everything in good faith.

Secondly MAS was doing the engineering for the first four months. The pilots and engineers were from MAS, and the people knew the planes well. There was actually no change.

When MAS started Firefly we didnt say that they shouldnt. There was not one single statement from us.

Our comment was that we should not be a full service airline and they should not be a low cost carrier. In a population of 28 million, we would not be maximising our resources.

It made more sense for them to operate the turbo prop operations. That was our suggestion that we give up the RAS to MAS.

http://biz.thestar.com.my/bizweek/story … ec=bizweek

All those issues were what I thought. That FAX was set up in a haste and under-delivered, while MAS just plain gave up and threw all their problems at them (under government directive), despite the fact that when Idris took position at MAS he was thought to be a local hero and knight in shining armor to improve things (aviation-wise) here in Sarawak.

Of course, we all know by now, the opposite outcome came true.

Fly Asian Xpress…365 days low fares & close shop. Wham Bam Thank You Ma’am, cheers Tony