Excerpt: AirAsia’s Journey from a Tiny Airline to Low-Cost Giant
By offering low-priced and non-refundable tickets, AirAsia managed to revolutionise the low-cost airline space.
You never know what’s going to be thrown at you when you start a business. And it may have been a completely ridiculous idea to start an airline with no experience, particularly in the dark shadow of 9/11.
But when I look back to the early years of AirAsia I’m struck by just how many unpredictable, huge problems we faced and survived. I’m convinced that our young company grew stronger after each crisis and we are where we are now because of each of them.
Shaping AirAsia’s Business Model
Though my first staff meeting had been met with a positive response, the next staff session we had was a little trickier. The routes AirAsia were flying when we took over were twice a day to Kota Kinabalu and twice a day to Kuching. That’s all the airline covered, despite holding landing rights to other locations.
Our business model required the ground crew and pilots to double the aircraft utilisation from six to twelve hours a day; and to reduce the turnaround (the length of time between arrival at the gate and departure) to twenty-five minutes. I thought it was going to be a tough sell but as I walked into the room all the pilots and engineers stood up and saluted. I was thrown and quite amused. They were not aware of my style of management, that was for sure.
‘Sit down. Chill,’ I said in my music industry style. If I had never been saluted before, then I certainly don’t think they’d ever been told to ‘chill’.
As I outlined the proposals, I sensed some pushback from the pilots and the engineers. There were concerns about cooling the plane’s brakes enough in the time, as well as more obvious worries about doubling the amount of flying the pilots would be doing.
I privately thanked GECAS (GE Capital Aviation Services) again for letting us retain the better 737-300s; if we’d suggested this while operating 200s instead I don’t think there would have been many people left in the room.
The consensus amongst the staff, though, was that they’d give it a go. As we left the room, we met a few of the DRB-HICOM directors, who asked how it had gone. Aziz, always one with a quick tongue, just smiled and said:
Great. They can’t wait to be out from under you lot.
It was true for the staff but I have to say that DRBHICOM (Malaysian automotive-to-logistics conglomerate) couldn’t have been more accommodating or helpful to us.
Taking Over AirAsia
We finally signed for and took over the airline on 8 December 2001, once the due diligence had been completed.
The pens and documents were being put away when DRB’s chief executive looked at me and raised an eyebrow. I thought this was odd but smiled. Then he held out his right hand, palm up, and said, ‘Come on then, pay up.’ ‘What?’ ‘You and Din owe us one ringgit.’ I laughed and took my wallet out. No cash. I looked at Din. He pulled his wallet out of his back pocket, looked inside and shrugged. ‘Can you lend us the money? We seem not to have any cash.’
When the laughing subsided, the CEO found a note which he gave to us and we ceremoniously handed it back. The purchase of AirAsia was complete. I don’t think Din or I ever paid the money back . . . so technically we didn’t pay anything for our airline.
From that moment on, running AirAsia became the most exciting and exhausting rollercoaster I’ve ever been on; we really were flying by the seats of our pants. Our staff knew how to do their jobs well but we, as management, had to knit the whole process together and it was clear that it was going to take a bit of time.
‘Your Business is Your People’
Fortunately, we made some key decisions that helped bring everyone together. When we took over the full operation in December, DRB-HICOM let us know that a bonus was due to the staff. The bill came in at MYR (Malaysian Ringgit) 1 million, which would have wiped out all of our cash and forced us to look for outside investment again. DRB were supportive once more and they agreed to pay half.
Even so, we had less of a cushion than we felt comfortable with. Captain Chin, to date our longest-serving employee and a company legend, says that paying that bonus brought any remaining sceptical staff onside.
It would have been easier to defer or not to pay at all that period, but Din and I felt strongly that we had to treat the team fairly. The mantra, ‘Your business is your people,’ is still one of the strongest elements of the AirAsia culture.
Making of a Low-Cost Giant
When our first flight took off, my heart really did swell with pride. Not even a year before, I’d seen Stelios talk on a television set in an old pub on Hampstead Heath; now I was watching my own plane lift off into the skies. However, there was so much still to do to convert this tiny airline into a low-cost giant, it seemed we barely had time to celebrate or even mark the first flight before getting back to work. We couldn’t implement our low-cost model immediately.
We relied on existing routes and structures for the first few weeks until we could convert the planes and introduce the full low-cost plan. This was based on increasing the number of seats in the cabin from 124 to 148 by ripping out business class completely.
Every extra seat we sold would make a difference, so on the day we took over operations I ceremoniously padlocked the business class lounge at Subang Airport, and then over the course of six months we converted the planes.
Our fares were aggressively low. The normal fare to Kota Kinabalu was MYR 400, but we were offering seats at MYR 149.99. However, we made the tickets non-refundable. They were so cheap that we decided it was up to the passenger to turn up.
At that time, passengers still claimed refunds if they couldn’t fly but we made it clear that unless the passenger informed us within forty-eight hours of buying the ticket, we would not refund the purchase.
If they did tell us within forty-eight hours, we agreed that we would try to do a credit swap and issue the ticket for another time – but the passenger would have to pay the difference if the new ticket was more expensive. The swap would also attract an admin fee. After a few weeks, we were ready to make our first low-cost flight.
(Excerpted with permission from Flying High: My Story: From AirAsia to QPR authored by Tony Fernandes and published by Penguin Random House.)
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