Air Asia's success story

Filed in archive Entrepreneurship on March 17, 2004

The Economist honours Tony Fernande' success with AirAsia.

"Like his friend, Sir Richard Branson of Virgin, Mr Fernandes has turned himself into his company's most effective marketing tool.

AirAsia has similarly been a soaring success. Starting with two planes bought from a Malaysian conglomerate in late 2001, the airline will have 30 by the end of 2004. It operates 19 routes across Malaysia, recently started Singapore-Thailand flights and, from next month, starts flying to Indonesia. The company has no debt and has been profitable from the start. Its profit margins (before interest, depreciation, amortisation and aircraft leasing costs) at around 35% are the highest in the world, according to Michael McGhee, CSFB's airline analyst. For the current half-year,AirAsia expects to make a profit of 42m ringgit ($11m), more than twice what it made in the entire previous year. No wonder bankers seem to be falling over themselves to help Mr Fernandes take the company public, probably later this year."

But before you head down to Singapore to start another low-cost airline consider this:

"His success is spawning a host of copycat carriers. In the past seven months, the number of budget airlines either flying or about to launch has doubled from seven to 15. Most are spin-offs from traditional airlines such as Thai Airways' Nok and Tiger Airways, run by Singapore Airlines. These tend to have neither the cost discipline nor the culture of genuine budget start-ups. Thai Airways, for example, has hired an advertising executive to run Nok who seems to be a pale imitation of Mr Fernandes, both in his marketing and operational ability. Eric Kohn, deputy chairman of dba---a company that did poorly as a low-cost offshoot of Britain's BA in its previous incarnation---believes that older airlines cannot easily make such projects work: "People at big airlines don't have accountability or a focus on costs. It is a lot easier to start an airline from scratch than to take a legacy airline and make a profit."