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Culture Shock To MAS says Tony Fernandes

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ONE of the key characters embroiled in the Malaysian Airlines  – Air Asia Bhd saga is the colourful Tan Sri Tony Fernandes.

His detractors say his dominance in MAS, after the share swap agreement was inked last August, was too much of a culture shock to MAS. The deal has also been seen as one that was more beneficial to Fernandes and AirAsia. And then there were also concerns of it transgressing competition laws But Fernandes’ proponents say he was probably the only hope of saving MAS.

Fernandes himself admits to being nave about how the whole share-swap-inspired tie-up had been so negatively perceived by the public. Neither did he expect the amount of resistance to change from MAS.

In his defence, Fernandes enthuses that the deal didn’t favour AirAsia over MAS. He strenuously also denies another allegation: now that both parties are walking away from the share swap, is Fernandes and AirAsia in an unfairly advantageous competitive position now that they have seen the inner workings of MAS?

“What operational secrets do I need to learn from MAS? Conversely, we have shared many aspects of our business plans with MAS’ management, so they know just as much about us as we know about them,” he tells StarBizWeek in a recent interview.

The conspiracy theorists also have it that Fernandes was making inroads into controlling the Malaysian airspace with the MAS deal by having MAS under his wings, so to speak.

Conceptually though, it is hard to knock the rationale for the deal. With increasing competition in the global airline space, MAS and AirAsia should collaborate where possible. This is a mantra that Fernandes had been preaching for a long time and he had on many occasions expressed his displeasure at MAS wanting to take AirAsia head on, explaining that such a strategy was wasteful from a national perspective.

But then there was also the QPR thing, which stoked the flame for those unhappy with Fernandes’ involvement. Just about a month after the share swap agreement, MAS and and Air Asia signed a jersey deal with then recently-promoted Queens Park Rangers (QPR). Both signed a two-year sponsorship allowing the MAS logo to adorn the QPR jersey on home games while the AirAsia logo was to be used on the team’s away games. Note that Fernandes had then only recently acquired his 66% ownership in QPR. The sponsorship deal naturally cooked up a storm of protest.

Fernandes, unsurprisingly, retains the view that the deal was a great one for MAS’ branding and believes that it led to more sales for the national carrier’s KL-London route. While declining to reveal the exact price for MAS’ sponsorship deal, he says its closer to 10% of the 18 million pounds per year that was widely speculated.

The sponsorship amount, Fernandes points out, is less than what QPR pays for buying a single football player, emphasizing the view that QPR didn’t gain enormously from the MAS sponsorship deal.

When pressed further on questions as to the benefits AirAsia was to get out of the share swap deal with MAS, Fernandes posed the question back to StarBizWeek. “Tell me how exactly?” he asked. What about favourable route rights for AirAsia? Fernandes said that AirAsia had already fought and won all the major battles, especially route rights, before they entered into the share swap with MAS. What about Air Asia X getting its Sydney route?

“If you think Kamarudin and I had invested RM1bil into MAS (via Tune Air’s giving up its 10% in AirAsia for a 20.5% stake in MAS) for a Sydney route, which incidentally AirasiaX had deserved, then I will shut up from now on,” quips Fernandes.

Another concern was that Fernandes was looking to kill off Firefly. His retort: “But that’s an airline with 8 planes. We have 100. We are not worried about Firefly. We have been fighting with the big boys.”

And as far as any allegations of transgressions of competition law is concerned, Fernandes view is that AirAsia only really competes with the customer, who has a choice of not flying if fares are too expensive. And taking the opportunity to delve in competition, Fernandes laid out this fact: Before AirAsia existed 10 years ago, “anyone could charge anything.”

“I’m sad that the swap is being unwound only because I feel (Datuk) Kamarudin (Meranun) and myself could have made a much bigger difference. But the collaboration is being strengthened. And that’s a good thing,” says Fernandes.

Excerpts from the interview:

Did you feel the tie up favoured AirAsia more than it did MAS?

No, that’s a ridiculous scenario. That’s one of the frustrations of being in Malaysia. People tend to look at things as someone winning and someone losing in a tie up. The deal favoured both. Every day there’s increased competition in the global airline space, it seems silly and wasteful for these two companies to compete.

Why did AirAsiaX close certain routes after the deal with MAS?

The closure had nothing to do with MAS. That model didn’t work for AirAsia X, it didn’t make economic sense. There were not enough seats on the Airbus A340s for the prices we charge. We will look at London and Europe when the Airbus A350s come out, which have 349 seats with 2 engines so it will be more economical. These are some of the myths that have been propagated, that we closed those routes down for MAS to benefit. But we did it because the routes were just not making us any money.

You said you are leaving the tie-up with MAS with unfinished business. Where does this leave AirAsia?

Yes, I feel I have tremendous energy now, and revitalised. We’ve got Japan coming up and Philippines has just started and we’re listing Thailand. I have more energy and focus on these things now. I think Indonesia and Thailand can double their growth. Then there are three or four more new countries that will be announced in the next 12 months that will keep me occupied. So the future for AirAsia is phenomenal. Our first quarter growth is unbelievable in this economic climate. Our margins are pretty good despite oil prices being where they are.

Tell us about the whole QPR sponsorship saga.

Firstly, the figure (that MAS is speculated to have paid) is not 18 million pounds a year. That’s far from accurate.

So what’s a more accurate figure?

I’m not at liberty to say. But it is closer to only 10% of what was speculated. MAS has had phenomenal branding from that. If there’s one thing AirAsia has been good at it has been branding. We’ve built a brand from nothing to one that’s known throughout the world and we did it using a lot of sports. Lets look at things in perspective. One QPR player costs more than the advertising paid by MAS. It’s not like the shareholders of QPR benefited immensely from this. In any case, AirAsia had wanted to do it all in the first place. And there were two other sponsors. But we went with MAS in the spirit of collaboration, we were all in a euphoria. I never expected the negativity that has been surrounding this transaction. I thought it would be welcomed universally. I can put my hand on my heart and say that MAS got great value in that sponsorhip deal and it shows in their London load factor.

But can you tell if the London load factor was a direct result of the QPR branding deal?

You can never tell exactly but you can say that the deal certainly gave it a much higher profile. This whole transaction has been distracted by noise. If I was MAS (management) I would have activated this sponsorship deal more. It is wrong to say that the QPR sponsorship was a waste of money. You have to brand to get the topline. Why are so many airlines branding football clubs? The question then is why don’t pick a top team but if picked say Manchester United, you would paying closer to 20 million pounds. The detractors have won in creating so much noise that it has distracted MAS’ management from effectively putting in a good business model. It is silly to say that MAS can’t afford the QPR sponsorship. If you don’t fix the brand how are you ever going to fix the top line? How did AirAsia grow from 200,000 passengers to 33 million in ten years? We grew by sponsoring sports and continue to do so. No Malaysian company has done this or built a brand like this. It came out of hard work and a lot of investment. This is where the negativity in Malaysia frustrates me sometimes. It took us seven long years to get the Kuala Lumpur-Singapore route. We had nasty battles with MAS. So if an idea is mooted that lets not fight against each other but work together, then I’m all for that. I am an idealist. But sometimes my ideas don’t’ make sense and sometimes they don’t work, as in this case.

Do you think you were nave about the whole thing?

Yes I was, as to the public perception of the deal and the resistance to change.

But when you entered into the deal, surely you must have had a sense that AirAsia or yourself would benefit form the deal?

Yes of course we would have benefited. Collaboration rather than slugging it out against each other would benefit both airlines in this globalised world. So we thought both our share prices would rise. But we now have a scenario in which both airlines can prosper because we are still collaborating and sticking to our respective strengths. We went into the deal without doing a due diligence and did it because we thought of “Team Malaysia”. We are idealists. It has been hurtful being victimised in the media as we have been from this deal. We did this deal as Malaysians first and profits second. If personal wealth came first, we would have done a thourough due diligence. But we still beleive that collaborating is much better for both partiesin this tough globalised world

But with the share swap, wasn’t it going to be easier for AirAsia to do what it wanted to do?

Lets take a step back. What has AirAsia not got now? All the battles were done and all the route rights we wanted had been won before we entered into this transaction.

What about the Sydney route?

Sydney is AirAsiaX. If you think Kamarudin and I invested RM1bil into MAS for a Sydney route, which AirasiaX deserved, then I will shut up from now on.

What about Firefly?

Firefly has eight planes. We have 100. We are not worried about Firefly. We have fought SIA, Lion Air, Thai Airways and even the subsidised MAS. We put in RM1bil into MAS. Could that really be for say the Sydney route or to kill off Firefly?

Did you see there being any downside to you or AirAsia in going into the share swap agreement?

No, because I’m an optimist. Everyone thought it was a great idea. Up to that point, so many people had said to me, “Why don’t you get into MAS and fix it. So I thought everyone would support this, from a country perspective. This was to be Team Malaysia.

Were considerations of the Competition Act looked into when this deal was structured?

In the Competition Act, ultimately the consumer decides, right? Firstly, there was no AirAsia ten years ago and so theoretically, people could charge whatever they wanted, as there wasn’t any real competition. Competition in terms of international routes, there’s plenty of it. At AirAsia, we survive on low fares. Our competition is really the consumer. If we charge too much, consumers have a choice of not flying. And AirAsia survives on volume. It does not suit our model to charge high rates simply to make more money. Our model is we want to stimulate the average Joe into flying.

Another related issue to competition, having gone into the MAS board and been part of its management, haven’t you seen the inner workings of MAS, which could put you in an advantageous position to compete with MAS?

But honestly, what operational secrets do I need to learn from MAS?

What about the AirAsia personnel who had joined MAS after the share swap. Will they stay?

It’s a free market. They can choose to stay or leave as they please.

Collaboration without equity participation. Would it be as meaningful?

Equity interest was an idea from the financial guys. But it still can work without equity. We are in a far, far better place than before. Collaboration with or without equity is critical in a very competitive global place.

(Source: The Star)