27.11.2002

Malaysia's no-frills airline a flyer

KUALA LUMPUR - No to regional expansion next year, no to long-haul partners, no to initial public offerings - Malaysia's Air Asia chief Tony Fernandes is focused on one thing for now, which is expanding in his home market.
The low-fare, no-frills operator, an Asian clone of the model pioneered by Southwest Airlines in the United States and Ryanair Holdings in Europe, is on track for a million passengers in its first year.
Yet despite the prospect of a first tranche of private equity finance arriving in a couple of weeks, Fernandes is keeping his cool.
"You can easily get carried away. Many airlines fail because of that," he said.
"They're seduced by the number of routes, they're seduced by big, new shiny planes and they're seduced by adding cost to their business because they think in the end passengers are prepared to pay for it - and they're not."
Asked about reported plans to spread his airline's wings to Indonesia, Thailand and the Philippines, Fernandes sees no such thing before the end of next year.
"It's better to go in in a position of strength than to risk everything by doing things substandard."
In the face of travel-industry woes magnified by last year's September 11 attacks and the October bombings of neighbour Indonesia's Bali resort, privately held Air Asia is in the black and debt-free.
Even the first commercial bank loan taken since the revamped airline reopened its doors last December remains unused.
"We actually don't know what to do with the money now, because we are so cash positive," says Fernandes, an accountant and former music industry executive.
The simple reason is a client base comprising mainly locals, many of whom could not previously afford to fly.
Fernandes declines to give specifics on a 20 per cent private equity placement to investors from Europe and the Middle East, but promises audited results from the privately held firm come December.
Operationally, the airline serves 10 destinations in Peninsular and East Malaysia, using five leased Boeing 737-300s and filling 72 per cent of the seats offered.
Last January, Fernandes said five aircraft would generate monthly revenues of 30 million ringgit ($NZ15.9 million), a forecast he said had proved close to the mark.
New equity would allow the lease or purchase of more 737s.
"We will end up with about 15 or 16 planes by the end of 2003, which was originally our year-four target," he said.
The self-deprecating Fernandes says his credo of KISS - keep it simple stupid - steers him clear of long-haul carrier tie-ups or hasty initial public offerings.
"I only have one brain," he jokes.
- REUTERS