Business

Saturday November 7, 2009

All fired up


There’s nothing like a new goal to get AirAsia’s boss Datuk Seri Tony Fernandes all fired up. His latest project – to do for Malaysian sports what he’s done for the region’s low cost airline business. Yes, you can call it Fernandes’ second revolution. But this one could prove to be a lot tougher. You think? He talks at length about his new and old passion in a lengthy interview with the StarBizWeek’s ANITA GABRIEL, CECILIA KOK and LEONG HUNG YEE.

STARBIZWEEK: In the past, you built the AirAsia brand through direct marketing but in recent years, you’ve upped the ante of raising your brand value through sports. Why sports?

Fernandes: Look at your life – what do you spend most of your time on? Food is quite a large part of it obviously. There’s entertainment and then, there’s sports. We can’t possibly cover all of those. Sports is the most homogenous mass market. Music is too fragmented. If you sponsor Manchester United, you’ll get a huge audience but if you were to sponsor Beyonce, the reach is fragmented and merely concert-related. If you were to sponsor a movie, it’s just one off.

Even food has some issues because of religion. Sports has no religion, no language, no racial barrier, you can abuse or cheer someone in any language. Sports is a social contributor.

So far, you’ve tapped several channels – football, F1, basketball and Moto GP. Is there one or two things you’d rather focus on instead?

You will see the evolution of my involvement in sports from the branding aspect for AirAsia to now, content creation, which is not really AirAsia-related. There is no local brand to brand ourselves. There’s no local Asean sport. So, you will see AirAsia getting involved in content creation for example, the Asean Basketball League.

I get a lot of requests to create more teams. Hopefully, that will evolve into an Asean Football League.

Content creation means creating more talent, more of our stars and heroes. Moto GP was a huge success because it garnered one of the largest audiences ever for the sport. Our own drivers did very well.

People want to touch their own stars. They want their own heroes. They want to go and see live entertainment. They can’t be sitting around waiting for Astro for the rest of their lives to watch Manchester United play.

I hope one day, we can have our own football teams and have our own fan clubs. We have our own F1, our own basketball team.

The other advantage is that AirAsia has a huge database that can be monetised.

By using our database, we can give them more content. Now, you can travel on AirAsia, stay in a Tune hotel and watch a basketball game. Or travel on AAX and follow the Malaysian F1 team.

Dare to dream

Is it fair to say that your marketing strategy would only be successful if you found winners?

It’s also a little bit about CSR (corporate social responsibility). You can’t rent other people’s culture, sports or heroes. It’s not just about making money. For instance, I never knew the Asean Basketball League was going to be a success. I thought it was going to fry. But we can’t be Boston Celtic fans, or MU fans or Ferrari fans for the rest of our lives.

We should create our own stars.

As a marketing strategy, is there a downside risk to this sports venture?

No downside risk. There is nothing there anyway. We may get a bunch of people who’d say we failed. So what? There wasn’t anything there in the past anyway.

Would it matter if this whole thing fell flat and people start to say everything was merely your piped dream?

Well, it is okay. So what? I should just do the normal Malaysian thing and be safe and not do anything, and wait for someone else to do it? That’s not life.

God gives you a chance to go and do something, maximise it, make a difference. You got to try, if you fail, fair. But I’d rather try than not.

You have said this before – it doesn’t matter if we win the F1 race, what matters is that we’ve made it to the grid. Do you mean that?

Oh, one must be realistic. You can’t go around town saying we’re going to be world champions tomorrow. This is the first time that we’re going to be on the grid. When you are competing against a team like Ferrari who’s been in F1 for 80 years, or McLaren since the 60s ... we’ve got to be realistic.

We’re not going to be up there in year one, but we’re there. But we can dream because we are there.

Lots of country and people entered to get a slot but we got it. That, in itself, is a victory. It’s a massive step forward. In South America, there is no Brazilian team, no Argentinian team. And they have a much far, higher pedigree in racing. It is a huge accomplishment for us.

But to woo the sponsors, the Malaysian F1 team needs to show some results, correct?

Sponsorship is not necessarily about winning. Sponsorship is about giving good returns to your sponsors. Let’s just take one example – Resorts World. If we can bring in a few more millions people into their resorts through our activation programmes, Resorts World is going to be happy. If we can make some interesting rides for them within Resorts World, you know, Lotus experience in Resorts World – which draw more people into their resorts, why not?

It’s about the returns on investment that we give the sponsors. It’s not just about writing a cheque.

Fuelling a risk?

Fuel prices are expected to rise, going forward. AirAsia has not hedged its fuel requirement. Doesn’t that make the airline somewhat vulnerable?

Fuel price is a fake price. Eventually it will settle on real demand. There’s still a lot of speculation and a lot of bubbles.

Yeah, oil could go up but as long as we’re competitive we’ll be fine. If it’s a booming economy and people are going to fly anyway, we’ll get better yields.

Are you saying the airline will not hedge its fuel requirement for as long as oil prices are below US$150/barrel?

I think we would. The pain of hedging is when oil prices go down, as many have discovered. The prices are so volatile right now. We will hedge in the short-term market, say for about 3 to 12 months.

I get a great hedge for one year but what happens next year when I haven’t hedged? Hedging is a short-term benefit.

I just know right now it’s very dangerous to hedge. When the volatility drops, then we will hedge.

Wouldn’t you rather hedge to avoid the volatile oil prices from distracting management from true blue operational issues?

It’s fine if hedging were in a band but one moment, it’s US$40/barrel and the next it’s US$150, then it’s US$40 and up to US$80/barrel again.

How does anyone get hedge in that kind of market? People have to learn to build real business – not build business on speculation.

Pundits say that given the visible signs of economic recovery, oil prices are likely to trend upwards. Do you agree?

No. I am not convinced it is. All these may be false hope. A lot of people are still losing their jobs.

You’re not convinced by the green shoots of economic recovery?

There are green shoots but they are fragile. I still see speculation which concerns me. It is scary how we’ve gone through the world’s greatest depression in one year. The 1930 recession was huge and this is worst but everything is fine again a year later. We haven’t cleaned up the mess yet.

How do you expect AirAsia to fare in terms of passenger loads, next year?

We’re going through a fabulous period right now. Business is great and our passenger numbers are 19% higher in the third quarter which included the puasa period.

Fourth quarter is also very good. Revenue is good and ancillary income is growing at a very fast pace.

We’re also going into a new virgin area which we’ve stayed away from for seven years, which is India.

We are very careful about how we expand - first Malaysia, then Asean and China. Now we’re doing India.

What are the new exotic destinations apart from the Asian destinations that travellers can look forward to from AirAsia?

In years to come, not now, we’d love to go to places like Hawaii, West Coast ...

AirAsia is not only a Malaysian company. We’re an Asean company. We’re going to have a big presence in China and India.

Gearing up for growth

One of the main concerns about is its high gearing level. How do you plan to tackle this?

It’s been addressed, to a certain extent. Gearing is down to 2.6x. We’re a high-growth company, not an airline that has been around for 30 years. So, do you want us to be a three-plane airline and have 0.5x gearing or an 80-plane airline with 2.5x gearing which generates higher profits?

Of course, we’re going to have high gearing as we’ve grown from two to 80 planes. We still have more than RM1bil cash at the end of the year.

If we had low gearing and 10 planes, Tiger Airways would have crushed us by now. But we are big now. If you go to Singapore, you’d notice that there are more AirAsia flights than Singapore Airlines! We have 34 flights a day.

Our cash cover and interest cover is very good. But I don’t want to sacrifice market share. You can have great gearing but no market share and be easily crushed out of business.

No one asks me about competitors anymore. If my gearing was low and I had only 10 planes, your whole interview will be like – “oh, how are you going to deal with Firefly, how are you going to deal with MAS, or Tiger Airways”.

You’re so associated with the brand AirAsia. Do you find that rightly or wrongly, it’s something that makes AirAsia vulnerable?

I think there’s a natural process where you go from an entrepreneurial company to an institutionalised company. I’m already going through that process. You’ll see more of Azran, Kamaruddin and others, instead of just me. No way you can grow a company on one person. Good leadership is to know when to go.

There will come a time, when Kamaruddin and myself will be extinguished. We have built a succession plan. I can’t go anytime soon because I want to build a company that is one of the best in the world. I don’t want to hand over a half-baked company.

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