Jetting Off


Economic News

22 Jul 2010
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All across Asia, rapid growth in the airline industry was noticeable in 2005, with Boeing and Airbus battling it out for market share. In Malaysia, Air Asia Bhd, the region's biggest low-cost airline, ordered 60 Airbus A320 aircraft and took options to buy 40 more - proving that 2005 had been a bumper year for the firm.

National carrier and rival Malaysia Airlines (MAS) also has new planes on the way and is due to take delivery of six mammoth Airbus A380s - despite struggling to stay out of the red throughout 2005.

However, overall 2005 was not such a productive year for MAS, which has become shrouded in political controversy.

Air Asia's success has been achieved despite some apparently unfavourable changes in market conditions too.

"When we started," Air Asia's CEO Tony Fernandes told OBG, as 2005 came to a close, "the market conditions were favourable, the price of aircraft was low, there were a lot of pilots and fuel was also running at a low cost." However, "now the market situation is very different".

This is something that MAS seems to have overlooked, as it posted a loss of RM650m ($172.79m) in the last six months. MAS has been criticised by industry insiders and politicians for not foreseeing the changing market and failing to restructure its cost base.

MAS is well known for having high staffing levels, which is great for travellers, but not for the bottom line. In early December a local member of parliament was quoted in the Malaysian media as suggesting that MAS should learn a thing or two from Air Asia.

Fernandes says that a number of key attributes contributed to the growth of Air Asia in 2005 - one them being the company's firm commitment to investing in people.

"People are the strength of any company these days, we like to stretch our people and that means investing in them," Fernandes said.

Air Asia's major landmarks for the year included agreement on 100 Airbus signature planes, which will, Fernandes said, guarantee low-cost for a long time.

In addition, the announcement that a new low-cost terminal is to be built at Kuala Lumpur International Airport (KLIA) - meaning that the company will no longer be forced to use aerobridges - is likely to keep the firm inline with its low-cost objective.

Fernandes is very determined to talk about Air Asia as a "low-cost", not "low-fare" airline. There is a difference he says. "We have the lowest cost in the world, although we are growing rapidly, this is achievable by a conservative approach to the way we do business. In other words we are growing within our means."

Fernandes describes the business culture of Air Asia as an open one. "There is no hierarchy, this is our main philosophy."

The firm looks set to continue growing in 2006, with its good international ties helping out here. These were demonstrated earlier in 2005 by the announcement of a joint venture between Air Asia and the Shin Corporation of Thailand to form a Thai-based low-cost carrier. The Thai telecommunications conglomerate concerned was founded by Prime Minister Thaksin Shinawatra - demonstrating Air Asia's local political reach.

The airline's growing system of air routes means that locals and tourists can now afford to travel around the region with ease.

"You can travel the region and see at least seven cultures for the same price as going to Spain," Fernandes said.

Strong branding has also helped the company take a firm foothold in the market. A famous international example of this is the airline's sponsorship of Manchester United.

Low cost does however have to overcome certain stigmas - with one in particular being that of safety. However, under the supervision of the Malaysian Department of Civil Aviation (DCA), which follows a strict code laid out by the US Federal Aviation Administration (FAA), Air Asia adheres to strict safety regulations.

This is particularly important for low-cost airlines, which often buy planes that have already been in commission elsewhere. Fernandes told OBG that some of the planes Air Asia first purchased had come from all over the world.

"The most important point when buying these planes is the safety records and some of the records were not so well documented," he explained. So, "Malaysia's DCA demanded a complete overhaul of these planes."

Malaysia's DCA has one of the best safety records in the world, and is known for producing pilots of a high calibre.

Fernandes says that with the new arrival of 100 planes direct from Airbus, safety and maintenance issues will be dealt with much more efficiently. The purchase will unburden some of the organisational stress and reduce the price of fuel by up to 12%, as the new planes burn fuel more efficiently.

Late in the year, reports carried in the Straits Times suggested that two executives who had previously worked for Air Asia would be joining the team over at MAS in 2006.

Yet whether or not the new team and new fleet can inject some new life into the troubled airline and bring an end to the controversy that is plaguing it remains to be seen. Certainly, Malaysia's aviation sector is likely to see some lively times ahead.

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