AirAsia Berhad

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AirAsia strives to maximize profit and provide low fares and quality service. The airline has optimized costs by operating a faster turnaround time, improving aircraft utilization and crew efficiency, providing a "no frills" service, using one type of aircraft to save training costs, all of which result in savings which are passed back to consumers in the form of low fares.
Key Dates
1996: AirAsia is launched in Malaysia as a small, alternative airline.
2001: Tony Fernandes acquires AirAsia, relaunches it as a privately owned, low-cost carrier.
2003: AirAsia is first airline to book tickets via mobile phone text messages.
2004: AirAsia forms local ventures in Thailand and Indonesia, holds public offering.
2007: A second airline, AirAsia X, begins long-haul flights, starting with a Malaysia-Australia route.

Type: Public Company
Address: Mezzanine Floor, LCC Terminal Jalan KLIA S3, Southern Support Zone, Kuala Lumpur International Airport, Sepang, Selangor Darul Ehsan, 64000, Malaysia
Telephone: (+603) 8660 4330
Fax: (+603) 8775 4373
Web: http://www.airasia.com
Employees: 3,000
Sales: $458 million (2007)
Stock Exchanges: Malaysia
Ticker Symbol: AIRASIA 5099
Incorporated: 1996 as AirAsia Berhad
NAIC: 481111 Scheduled Passenger Air Transportation; 481112 Scheduled Freight Air Transportation; 561510 Travel Agencies
SIC: 4512 Air Transportation - Scheduled; 4724 Travel Agencies

AirAsia Berhad claims the title of Asia's first low-cost carrier. Using a business model pioneered by Southwest Airlines in the United States and Ryanair and easyJet in Europe, AirAsia does away with amenities such as frequent flier miles in favor of low fares. It boasts the lowest operating costs in the industry.

Based in Kuala Lumpur, Malaysia, the airline flies a fleet of five-dozen aircraft to more than 70 destinations in Southeast Asia. In 2006 about 18 million passengers traveled via AirAsia, including joint ventures in Thailand and Indonesia. Another affiliate, AirAsia X, was established in 2007 to apply the no-frills ethic to long-haul flights.

Relaunch As No Frills Airline in 2001

AirAsia Berhad was but a tiny airline when an investment group acquired it in 2001. Its new leader, Tony Fernandes, would take AirAsia to unprecedented heights by restyling it as a no frills airline.

Born in Malaysia to an Indian father, Fernandes attended boarding school in the United Kingdom and studied at the London School of Economics. He worked in high level accounting positions at Virgin Communications London and Warner Music International London before returning home in 1992 to lead Warner's operations, first in Malaysia and later the entire ASEAN region.

An article on EasyJet plc got Fernandes thinking about launching his own budget airline. This U.K. carrier had stormed the European market by applying the low-cost business model that had brought Southwest Airlines such success in the United States. Ireland's Ryanair was another popular exemplar of the concept; its operations chief, Conor McCarthy, was hired to run things at AirAsia.

Fernandes felt certain Asia was ripe for the low-cost, low-fare formula, but there were skeptics. According to Air Transport World, some industry observers were dubious since Hong Kong-based Cathay Pacific and Singapore Airlines had reputations as two of the most efficient carriers in the world.

Fernandes was not deterred. He formed a holding company called Tune Air Sdn Bhd, and entered the airline business by buying a tiny, struggling carrier called AirAsia. He acquired it for little more than a song: one Malaysian ringgit (a little more than an American quarter dollar), plus assumed debt of $11 million (MYR 40 million; this was only half of the total net liabilities). The DRB-HICOM auto manufacturing group was the seller in the deal, which closed in December 2001.

AirAsia had originally been launched in November 1996 and had operated under the name Pacific Eagle Airlines. It flew charter routes to international vacation spots, beginning with Pattaya, Thailand. However, at the time it was controlled by Malaysian government interests and prevented from competing directly with newly privatized flag carrier Malaysia Airlines (MAS). Ambitious expansion plans were dashed by the Asian financial crisis of the late 1990s.

AirAsia already operated two of the Boeing 737s that had become the standard low-cost carrier workhorse. Fernandes added another 737 when the carrier was relaunched; keeping to a single aircraft reduced maintenance and training expenses.

The reborn carrier was an instant success, thanks to its extremely low fares. Passage on the Kuala Lumpur-Penang route could be had for MYR 39 ($10), less than half what MAS was asking and a little less than bus fare for the equivalent journey.

Rapid Growth

AirAsia carried 611,000 passengers in its first full fiscal year. Within three years it was carrying nearly three million people a year. As it grew, it opened a training center to maintain its flow of flight crews, and to train pilots for other airlines.

Tune Air, AirAsia's holding company, sold stakes in the airline in its first few years of ownership in order to finance the acquisition of new aircraft, one or two at a time. By June 2003, the once worthless company was valued at $100 million, given the 26 percent stake acquired by foreign investors for $26 million (MYR 99 million).

In spite of its youth, or perhaps because of it, AirAsia was a quite innovative airline. In August 2003 it became the first to book tickets via mobile phone text messages. Another unique initiative was inserting advertisements in its annual reports.

Expanding Territory

AirAsia was unable to immediately fly into Singapore, but in late 2003 started a service to a city just inside Malaysia's border with its neighbor. In fact this town, Senai, was designated a second hub for AirAsia.

The company expanded into other countries in 2004 by setting up joint ventures with local partners. These were executed via its AirAsia International Limited (AAIL) subsidiary. The first, which began flying in January 2004, brought AirAsia into Thailand. It was a 49 percent partner in the venture with Shin Corporation. It launched with just a pair of planes but grew rapidly, adding international flights to Singapore and Macau, a center for tourism and gambling on the coast of southern China. AirAsia's enterprise in Indonesia took over an existing operation, PT AWAIR. AirAsia bought a 49 percent holding in it in November 2004 and refashioned it as a low-cost carrier within a month.

2004 Initial Public Offering

The company went public in November 2004 in an offering that raised MYR 717 million. This was a bit less than planned, but respectable given the state of the world airline industry, which was beleaguered by record fuel prices. It was also one of the largest Malaysian initial public offerings (IPOs) to date. The offering placed 30 percent of shares on the market and lowered Tune Air's stake to about 45 percent.

In December 2004, AirAsia strayed from its loyalty to the Boeing 737 by ordering up to 80 of Airbus's midsize A320 model. The reason was mainly due to lower cost. A global lull in the aviation business attributed to SARS and the war in Iraq kept aircraft prices down, intensifying the pricing pressure on manufacturers. The original order was quickly expanded to 100; AirAsia made a similarly large order just three years later.

AirAsia X

AirAsia had come a long way as a strictly short-haul carrier. In January 2007 it announced plans to tackle the long-haul market. It was aiming to extend its reach as far as the United Kingdom by the end of 2008. The plans for long-haul routes were a departure from the typical low-cost carrier business model, and they were being handled by a separate company, Fly Asian Xpress (FAX).

FAX had been formed in 2006 to take over some regional routes once operated by Malaysia Airlines, which was undergoing a massive restructuring. FAX attracted substantial venture capital interest. Fernandes owned half the stock; one of the minority shareholders was none other than legendary globetrotter Sir Richard Branson.

Fernandes was involved in a number of other side ventures besides AirAsia X. By 2008, his Tune Air Sdn Bhd holding company was involved in hotels, music, credit cards, and education, each project operating with a no-frills ethic, which Fernandes described in Malaysia's Business Times as "low price but of high quality and taking out things one [doesn't] really want."

There was more to AirAsia X than the long-haul flights themselves. Fernandes was attempting to forge marketing links with other low-cost carriers such as Ryanair and easyJet. This had the potential, observed Airline Business, of creating the first international alliance of budget airlines. However, the others first had to take him up on the deal, which, as originally envisioned, offered merely exchanged website links, rather than the seamless integrated travel experience of the major world airline cliques. "I don't think you'll ever see a Star Alliance of budget airlines," said Fernandes.

The long-haul idea had been Fernandes's original plan for AirAsia before he bought it in 2001. However, advisers convinced him to focus instead on the local market. Just a few years later, the new long-haul, low-cost concept was no longer unique: a handful of new budget airlines were trying their wings from bases in Asia and Australia.

Room to Grow

The growth of open skies in the ASEAN (Association of Southeast Asian) countries and an increasingly affluent customer base were expected to bode well for the region's airlines, particularly low-cost carriers, noted BusinessWeek. AirAsia's massive aircraft orders put it in good stead as the industry began to show signs of recovery. Other, less ambitious carriers were finding their growth constrained by a lack of new aircraft on the market. AirAsia was looking to establish more joint ventures in Vietnam and the Philippines. Another area with growth potential was increasing use of the cargo space inside the company's aircraft.

Principal Subsidiaries

AirAsia Go Holiday Sdn Bhd; Crunchtime; AirAsia International Limited (99.8%); AirAsia Mauritius; AirAsia Philippines; AirAsia (B) Sdn Bhd.

Principal Competitors

Tiger Airways Pte Ltd; Malaysian Airline System Berhad; Singapore Airlines Limited.