BROWSE COUNTRIES/ TERRITORIES
Reaching for the sky: Richard Branson and Tony Fernandes
Tony Fernandes is all set to take AirAsia to greater heights.
"Does Fernandes need Branson?" asked the Malaysian financial weekly, The Edge, in a recent edition.
Most Malaysian media seem to think so. When Branson turned up in the Malaysian capital Kuala Lumpur in mid-August, he was treated like royalty. His pictures were splashed across the front page of many papers. In one, Branson was seen wearing the garb of a traditional Malay warrior, standing next to a smiling Tony Fernandes in his traditional red jumpsuit.
Branson, founder, chairman and CPO (chief promotional officer) of the Virgin conglomerate, signed an agreement to invest in Fernandes’ AirAsiaX, a new low budget long-haul airline. Fernandes also runs AirAsia, a listed and highly successful regional budget airline.
As investments go, this is small beer – Virgin, which is building a global network of budget airlines, is putting down a mere RM$25 million (US$7.3 million) for a 20% stake in AirAsiaX.
This is not the first time Branson has gone into a joint airline venture in South-east Asia. In 1999 he sold a half stake of Virgin Atlantic to Singapore Airlines for nearly US$1 billion. The money enabled Branson to start up Virgin Blue, a budget airline in Australia, which now competes with SIA. It is said SIA will soon sell its stake in Virgin, as cultural differences have prevented the two premier airlines from forming a good working relationship.
It was perhaps with the sorry example of SIA in mind that The Edge asked the question whether Fernandes needed Branson.
The answer is: yes. Fernandes has been flying high the past six years since he took the loss-making AirAsia, then a Malaysian state-owned and ailing company, and turned it into a regional aviation powerhouse. But his success was due to timing as much as to business savvy. And competition is getting intense.
Fernandes, 46, part Goan and part Malaccan Portuguese, was born in Kuala Lumpur. He worked for Warner Music. For a few years he was financial controller of Virgin Records, and so an employee of Branson.
A man who knows his way around the corridors of power in Malaysia, Fernandes met Dr Mahathir Mohammad, then Prime Minister, in October 2001. Dr M (as he is commonly known) persuaded Fernandes to take AirAsia off the hands of the government, which already had too many duds. Or perhaps it was Fernandes who persuaded Dr M.
Regardless of who did the selling and who the buying, Fernandes soon mortgaged his house to raise money to take over AirAsia, then with two ageing planes and US$11 million in debt. He acted with the belief that, given low enough rates, millions who had never flown before would take to the skies. Fernandes was also given a concession – under Dr M, Malaysia signed a series of open skies agreements with its neighbours, thus enlarging AirAsia’s network.
Taking the low-cost, no-frills budget airline Ryanair as a role model, Fernandes led AirAsia to great success, breaking even in the first year and listing it in 2004, raising enough money to enable it to place orders for more planes.
But others are doing the same. When Fernandes started he was alone. Today he has half a dozen rivals. Soon it will be a price war, a race to the bottom. Fernandes is trying to play a different game – he is morphing AirAsia into an upmarket budget airline, where passengers pay a bit more for basic comforts. That is where Branson comes in – to lend a bit of glamour to a business that is little different from herding cattle – albeit in the sky. This is a masterstroke. Other budget airlines spend a large sum on advertising. Fernandes gets Branson to advertise for him for free, and gets RM$25 million in the process. No wonder the man has been successful.
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