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After getting approval from the Government of India to launch a low cost Airline, for the first time AirAsia's Group CEO Tony Fernandes started touring the country from Saturday. His first stop was in Chennai, which will be the headquarter for AirAsia India, for which the Malaysian Airline joined hands with Tata Group (AirAsia India is a joint venture of Air Asia, Tata Sons and Arun Bhatia of Telestra Tradeplace with 49:30:21 holding). In a brief interaction with three business Newspapers, including Business Standard, Tony Fernandes spoke about his vision for the India and the reasons why Indian aviation industry was failed. Edited excerpts;
When the DGCA figures are showing Indian aviation industry going down, how you are bullish about India and what according to you went wrong in Indian Aviation industry. Is this right time for you to enter Indian skies?
Yes, it is a perfect time, because no one is doing it right here.
Fundamentally their was no true low cost carrier in India and I said this for a long time, the closest was Deccan, which had right fare but wrong cost structure, so it was unsustainable. I have been saying lots of these guys will not be around and they wont actually stimulate the market.
The most important thing is right cost structure and then right fare. While this was promised here for many years, but was not delivered, which is what we will be delivering.
So our key is really low fare. We want to stimulate the market and create new traffic flows, 50% of the AirAsia's routes will be the routes which were not there before. Our markets are SMEs, businessmen, tourist trade and migratory work force.
Was their any delay in commencing the operation?
Actually the project is pretty fast. Even the Tatas could not believe that the FIPB clearance came so fast. It’s pretty good.
How AirAsia will be different?
Aviation business is a tough and hard business. People in India who have started low cost Airline, particularly richer than me, looked at me (with my T-shirt and hat) said if this guy can do it, we can also do it. But its hard and the key thing failed in the Indian aviation industry is cost management.
When we started 11 years before we were the lowest cost airline and we continue to be so its our religion, DNA and essence and that is what our Airline is all about and they are the differentiators.
To be low cost, you can read all the books you want, but its the culture and thousands of little things which end up with final product, which Airlines in India did not understood and they gave up very quickly.
If you cannot make an Airline work in a 1.2 billion population then something is wrong. India is no different from other country. We operate very successfully in other markets. In India we have been operating successfully and profitable also.
Our model is straight forward and democratic, will charge as low as we can and if you want to add on things we will add on.
Keep it simple and stupid (kiss)....
Can you explain about being democratic?
The guy who is not carrying bags actually subsiding the guy who is carrying five bags because and we need more people to carry those, even the plane becomes heavier it means will burn more fuel so invariably if you charge the same, some of the people who travel with no bags actually are the low cost to me. So we trying to make things democratic as possible as we can.
We will charge only where you have an option like in bags and food.
But, with high airport charges and fuel prices, will you be able to be a low cost airline?
We dont have to go all the airports, in some airports I wont be going including Delhi and Mumbai.
Its like having a Taj hotel, which Mr Tata likes, and a budget hotel, which I like. So some airports are out of our league and we wont go their. Mr GVK got an expensive airport I wont go their, too expensive not for my market.
As far as fuel, when we started the business 11 years before, fuel price was $30 and now it is $130 but our margins are better.
Fuel is not a big problem and taxes for the fuel in India is a challenge, which we can manage and we we will talk to the Governments.
In Malaysia after lots of lobbying we could get low cost terminal and got 50% reduction in the passenger service charge. Other countries like Thailand, Philippines and Indonesia have started the same.
It will take time, it wont be over time. My belief is, state governments will earn more from tourism and economic activities than aviation tax fuel. Whether we can persuade them towards this we have to see.
What are the challenges you forsee?
Getting right cost structure. May be ATF. Labour force is good and high quality, which is key. People is our key. But again because of our size in many ways we can reduce the cost beyond Indigo and others.
We have 150 plane operating and we own, most of the other lease. We have brand new planes, which makes fuel efficient, utilisation is also high. So we can lower structure. Landing price in some places government and airports are open, but let us see....
Challenges of brining in culture of low cost?
India is a culture of low cost, from the food distribution system to lots of things. I don’t think it will hard to adopt. Productivity is high.
How important having a right partner and what kind of role can Tata play? In Japan you have to pull out because of your JV partner....
Pulling out of Japan is nothing to do with the market, it is because of the partner. They were the highest cost airline in the world, and I am the lowest. They say opposites attract, but not in the airline business. For instance, that’s the difference between me and Naresh (of Jet Airways), he is a premium man. That’s why I told him, it will be a disaster running a low cost carrier, and it was a disaster with JetLite. There is a little bit of Jet and Lite on that. So, it is nothing to do with the market, which is fantastic. We still want to be in Japan.
Having the right partner is very important. I can safely say, I will never partner with another airline.
Tatas have lot of other areas. I drive around Tata here their, its benefit. Dont know their full wealth and breadth as we get to know them we will leverage. Our decision to enter India, not because we had Tata as JV partner.
I came from a conglomerate before starting AirAsia. It is never easy to work in those system. They are interested in their own P&L. I am not putting too much on it. It is cream, and it would be nice if some of it works. But, it is not underpinning our model.
Will you be looking for another partner in India including code sharing?
No and code sharing definitely not. That does not work, and adds to the cost. Code share, time tables and losing utilisation adds to the cost.
When the India venture will see profits?
In Thailand, it took us two years, in Indonesia it took three years, in Philippines it took us one year. In India, particularly in South, we have been operating for a while, and I hope we can get back our money in a year, but it has never gone as planned.
You selected someone outside the Aviation industry and someone is fresh as CEO for Indian business what is the logic?
I would never pick up a guy from the aviation industry here. Why would I hire someone who was in the industry, which was failed in my opinion.
I want someone who got new ideas, lots of energy and excited and good people person. He was someone fresh, and did not come with any pre-conceived idea.
He (Mittu Chandilya the new CEO for AirAsia India) was the head hunter for us actually, he supposed to find someone and then we said why you dont take the job and he was surprised.
Different thinking and approach.
Will you be roping in brand ambassador?
Branding is important for us, we wont be shy away for roping in a brand ambassador, while Ratan Tata himself is a good brand ambassador. Music, movies and sports.
