CEO Interview with AirAsia, Group CEO, Tony Fernandes

Transcript

Peter Harbison

A very warm CAPA Live welcome to Tony Fernandes. Great to see you Tony, CEO of AirAsia group, as if anybody didn't know that, but great to have you back. 

Tony Fernandes

Good to see you Pete, you're looking in fine form, I've got to say. Lock down has done you well. 

Peter Harbison

Thank you very much. I don't think it's doing me that well, I've got to say it. I could do without it, but you're in the same boat, aren't you? Probably a lot more, let's start there. 

Tony Fernandes

Yeah. 15... Well, more than 15 months, I mean, this thing started in February, so February, March, April, May, June, July, well, we're kind of 18 months into this thing, and we're still in lockdown, cases are record high, but I am ever the optimist, that there is an ending in that the vaccines are coming in and we can see from our brothers in Europe and America, that life is becoming to go back. Now, due to the inequality, I don't know, however you want to look at it, of vaccines, we're about five months behind everybody, but we'll get there in the end. 

Peter Harbison

Yeah. I mean, how's that comparing with the cases? Are your cases sort of stabilising a bit now, because you did have this surge a couple months ago? 

Tony Fernandes

No, no, no. They've- 

Peter Harbison

No. 

Tony Fernandes

... surged a bit. I mean, we kept factories and all open, and so around the country where there isn't industry, it's gone down to 50s and 100s. But in KL, it's about 1000. In know, Selangor, which is the main industrial state, it's about 4000. But, I mean, and cases will go down, we'd been on the third week of a lockdown, but it wasn't a very strict lockdown, but now they've made it pretty strict. But as I said on the other side, vaccinations are going, so I hope within a month or so, things will be a little bit more Europe. 

Peter Harbison

And your vaccine rollout is being pretty efficiently done? 

Tony Fernandes

Very efficient, in Malaysia, very efficient. We had another record day, 350,000. If you think, China's doing a million a day, that's impressive for a country our size, about one percent of our population. And Thailand, Indonesia, Philippines are all moving, I mean, Indonesia being the biggest problem, because that's a massive country. But it's moving in the right direction. 

Peter Harbison

Yeah. I mean, let's start domestically in Malaysia. What's the level of operations there now? Are you able to fly? 

Tony Fernandes

Oh, very small. Very small at the moment. I'd say, overall on the fleet, would be maybe 10% of our fleet flying right now. So we've probably got another six weeks of this and then I think things are going to start beginning to open up permanently. 

Peter Harbison

That's domestically, what about internationally? 

Tony Fernandes

International, we've seen Thailand kind of talking about opening October. Indonesia wanted to make a go of Bali a few weeks ago, but that may have slowed down, but I was with the Filipino government the other... everyone wants to open up tourism. It's kind of a big thing. So I think those with two vaccinations will start to be allowed to fly, but I think probably towards the end of the year, October, November, we'll start seeing it. 

Peter Harbison

What are the provisions that Malaysia is using now for the people who do come and go? Do you have- 

Tony Fernandes

No, we have quarantine at the moment. Everyone- 

Peter Harbison

Two weeks? 

Tony Fernandes

Two weeks at the moment for those countries, in the sub-continent three weeks. I'm arguing that for those with double vaccines, that that should go, but I'm in no rush. Let the numbers go down a bit, and then we'll start advocating for that. 

Peter Harbison

Yeah. What about testing? Is that something that's done on arrival? 

Tony Fernandes

Yes, it is. Yes, it is. 

Peter Harbison

Because- 

Tony Fernandes

They ask you to do a test three days before you leave, then when you arrive, you do a test. 

Peter Harbison

Because some of the experts we deal with are saying, starting to say, now, that while vaccination is very important, it's going to be so long before sufficient numbers of people are vaccinated that it's really going to rely on testing to get markets opened up effectively on a wide scale. 

Tony Fernandes

Yeah. I mean, I think... Yeah, I'm not sure if I said it on the last time we met, but while vaccine is the main thing, I've been a big advocate of testing and newer technology. And Malaysia has just... In fact, I go on a call tomorrow on production of it, but Singapore's come out with two great testing pieces of apparatus. Both are based on breath, and one's 15 seconds, the other's 10 seconds. And I saw some videos in Abu Dhabi or Dubai where they're just using a hand phone, so I think testing is equally as important as vaccine. 

Peter Harbison

Right. Yeah. Well, it seems that it's going to be that way. Just going back to the movements, I mean, you're now talking about and going ahead with, I think, a 73-800 freighter. Has the idea... I mean, I can still see pictures of you in my mind of you lugging boxes into the belly hold of an aircraft going back to the old days. So you've always done a bit with freight, but is this accelerated plans to diversify like that? 

Tony Fernandes

Yeah, very much. I think two things. One is, we're a passenger airline. My first argument with Conor McCarthy was, should we do cargo? And I pushed to do cargo, but we were kind of prostituting, we were just selling our belly space to the highest bidder, right? 

Peter Harbison

Mm-hmm (affirmative). 

Tony Fernandes

Prior to COVID, I began to see the e-commerce revolution, and I started building a separate company for Teleport, and I wanted to keep more of the share, more of the upside. I wanted to understand the whole pie, so to speak. And we started that process, said, "Why can't we do to cargo what we did to passengers? I eliminated the middleman," et cetera. So we started that process. First thing is we got rid of all of the GSAs, and we started dealing more with freight forwarders. And now we're beginning to deal more with direct customers. 

And then, you've coupled that with, and we consolidated all our space across all the airlines. We built a blockchain to deal with that. So it was one airline as opposed to five different airlines, and five or six other airlines have joined us now in selling space together. So it was quite [inaudible 00:09:23]. We also actually won award for that blockchain. 

And then COVID hit. So we accelerate the plans, and obviously, COVID has driven e-commerce to another level, and hence, air cargo now as become much more expensive or much more valuable. So what was kind of a nice to have, has become something that could be as powerful as our passenger services, and is a bit of a diamond in the rough. But the work was done beforehand, what is accelerated is, I never thought we'd have freighters. 

I never thought we'd be taking seats off the plane to do cargo. There is a false market out there, so you shouldn't all get carried away, because [crosstalk 00:10:12]- 

Peter Harbison

A temporary one. 

Tony Fernandes

... passenger... Yeah. I mean, airlines are fantastic at screwing it up and charging in and buying hundreds of freighters, and then suddenly, you've got the global airline fleet coming in with their belly space, and that's going to change the economics again. So we're cautious, but we do think it's going to be... It's no more a stepchild, it's now... I mean, but it's still, it's interesting to change the perception of the staff. So when a budget plan is put in front of me, I'm like, "Well, where's the cargo routes? Where are the cargo only routes? Where is the capacity..." Because everything is based on passenger numbers, right? 

Peter Harbison

Yeah. 

Tony Fernandes

And cargo's stuck in it. And so, models have to be redone, changing the ship. Now it's easier in AirAsia, because we're very nimble, even though we're big, numbers wise, but I've always been a change agent, so the staff are used to that, but, yeah, it's still a change. But, yeah, it's going to be a big part of our business. 

Peter Harbison

So you're also dealing in sort of the last mile stage of that freight delivery. 

Tony Fernandes

Yeah. Yeah. So I'm going- 

Peter Harbison

That's more complex, isn't it? 

Tony Fernandes

Yeah. I'm going full on mate, as you would say in your part of the world. 

Peter Harbison

As I would expect from you. Yeah. 

Tony Fernandes

Right. No half-hearted, no dipping my toes in it. If you're going to do it, throw your whole frigging body into it. So it's just like you Aussies, you don't have one beer, I mean, you have 20. If you're going to go to the pub, make sure you maximise your time there. 

Peter Harbison

Not me, Tony. Just gin. 

Tony Fernandes

And you got water. Yeah. I've got water as well. Well, I don't know whether that's gin, Pete, or vodka. 

Peter Harbison

Vodka. 

Tony Fernandes

So anyway, I want to be part of the whole logistics chain. So what is that? That's the first mile, last mile, that's mid mile. Airlines are mid mile, but trains are mid mile. Big trucks are mid mile. And I also want to be in the warehouse game, so we're going to cover everything. So we're throwing ourselves in, and what are the products we're going to come out with? We're going to come out with, what we've been doing all the time, air cargo, but be more of a direct source to the freight forwarders, be a freight forwarder ourselves for some companies. 

So we handle everything from first mile to last mile, including warehouse. Be a courier, get all our planes up in the air, there's no one that can really match us in terms of speed in Southeast Asia, and be an e-commerce provider. So it's a fascinating business. It's the rebirth of me. I mean, they're three of my lives. First life was selling music. Well, first life, I actually was being an accountant, which has always been there, because you got run away from numbers. Second life was a rock- 

Peter Harbison

People always pick you as an accountant Tony? 

Tony Fernandes

Yeah. I know. Second life was rock and roll. Third was airline, but really passenger airline, and so this is a fourth incarnation of me, which is logistics. And then, I suppose the fifth is this whole digital kind of journey we're going on. 

Peter Harbison

Well, I mean, the latter part of it is a fairly natural evolution, isn't it? As technologies change, and also as sort of this combination, as you say, with having such a massive network of operations across Asia- 

Tony Fernandes

Yeah. 

Peter Harbison

... that really come together. 

Tony Fernandes

I dare say that most airlines, even the legacy airlines, who have had freighters for a long time, it was still the stepchild in business plans. Even when I come to a CAPA conference or in very rare time that I'm invited to an IATA conference, they're only talking about passengers, right? 

Peter Harbison

Yeah. 

Tony Fernandes

They talk about their freighters. You never hear the CEO saying, "I've just bought 20 Freighters." They're all talking about their passenger, and their first class seat, and the best business class seat, and we've got the best food in the world, et cetera. So I think this COVID will change a little bit on that. And it's not seen as a glamorous side of the business, but it's going to be a very important part of the business, and we're going to take it to another level. 

Peter Harbison

It's very big business in its own right, isn't it? And nobody's ever really put- 

Tony Fernandes

This freight- 

Peter Harbison

... the two together. 

Tony Fernandes

Yeah. I mean, I'm working with shipping companies. I'm working with trains. So as I said, if we're going to do it, we're going to do it properly. We don't just want to be a piece of it, we're going to be all of it, so that we can provide an integrated solution. So someone could send a million cars into a port in Malaysia, we're not going to move those million cars, but they might want to move spare parts around, and that's great for us, especially for fast moving goods. They might want to move somewhere on the train. So they want to move a bit of it on the road. So we want to be totally integrated. And apart from DHL and FedEx, who really made their money from courier stuff, as opposed to a lot of stuff, there's no one really in it. 

Peter Harbison

Well, it sounds interesting. And you'll need another few months before that starts getting reconstituted, if you've got 90% of your fleet on the ground of course. What's- 

Tony Fernandes

Yeah. Sorry, most of that fleet that is on the air is probably doing mostly cargo flights anyway. [crosstalk 00:16:04]- 

Peter Harbison

Yeah. Well, that's a common reframe. 

Tony Fernandes

Yeah. Yeah. Sorry. I interrupted you, Pete. 

Peter Harbison

I was going to say, how's it looking with the other joint ventures, presumably- 

Tony Fernandes

Yeah. Well, we kind of closed Japan. I mean that just wasn't going to work with two planes, which is a shame, because I think we could have done a really good job in Japan. We've virtually out of India, and I'm just going to be focusing on Southeast Asia. We've got a Filipino operation, that's probably looking better than it was. The Thai operation's got clarity of purpose now. And the Indonesian operation was doing well, and is taking a back seat now because of the huge number of cases. But capacities come down there dramatically for all the airlines. So the leanness and the nimbleness... Where I could never see myself being number one, I have a shot now. It's like, all bets off. It's like, we're back in the ring, right? 

Peter Harbison

Mm-hmm (affirmative). 

Tony Fernandes

So gives us an opportunity. 

Peter Harbison

Let's talk about the financial end of things. I mean, a lot of governments have come to the party with their flag carriers and with sort of more general support for the industry. How have you been positioned in that? Have you missed out [crosstalk 00:17:39]- 

Tony Fernandes

Well, our governance team... Yeah. Well, we haven't got it yet. I mean, it's 15 months on... I mean, the problem is the government guarantees there in Malaysia. That's the only where there is, where I operate. And there have been various little sources of support elsewhere, but really Malaysia is probably the best. But it's getting banks comfortable with guarantees there. The bank's got to give the loan, right? 

Peter Harbison

Yeah. 

Tony Fernandes

So it's been tough, because every time you're just about to do something, another virus or an outbreak or vaccine supply, but I think all the news is out. There's another strain coming out, sounded like a dance music, Lambada. I suppose there'll be a Macarena one next, but- 

Peter Harbison

At least it'll be funny. 

Tony Fernandes

Lambda. 

Peter Harbison

Lambda. 

Tony Fernandes

Lambda. I've forgotten my Greek. Yeah. I've forgotten my Greek from Peru. 

Peter Harbison

You missed that class, I think. You probably skipped that class. 

Tony Fernandes

Yeah, I did. I skipped... Well, I did, ancient history and classics, and we had to do Latin and I did something wrong in my life to be sent to school where they did Latin. 

Peter Harbison

I got punished with that too. 

Tony Fernandes

Yeah. Reading Chaucer. But, yeah, I mean, it's a matter of just being patient and grinding out. We've waited so long, it's not going to take forever. It's got to sort itself out. There were much worse situations with the Spanish flu and all these other things, right? 

Peter Harbison

Yeah. 

Tony Fernandes

So we've lived through AIDS, we've lived through many of these things, and this is the toughest for sure, but we'll come back stronger. So in a nutshell, Malaysia and Thailand look the strongest, Philippine next, and Indonesia is the weakest. But there's a silver lining there that we may be able to grow quicker afterwards. 

Peter Harbison

Going back to the banks, though, Tony, I mean, effectively, we're all in this together, as they say. I mean the lessors, the lenders, the airlines, I mean, nobody can pull the plug at this stage. Can they? They can't afford to sort of pull out that apple from the bottom of the pile. 

Tony Fernandes

No, I mean, we were unfortunate that we didn't have much bank. We didn't have any debt, so- 

Peter Harbison

Well, that's one [crosstalk 00:19:59]- 

Tony Fernandes

... there was no plug to pull. But the lessors also been fantastic, not every lessor, and I've been very... I think one of the great lessons, and I'm sure my fellow brother CEOs feel the same way, what's my most important lesson from this is, you could be paying someone 19 years, you could have grown their business from 200,000 to 19 million, and they've made so much money from us, but they forget that in one week, when you miss a payment. And that is something, Pete, I don't know what anyone else is going to say, but I'm very outwardly spoken about it. I will not forget the guys who have treated us badly, after we've treated them so well, and I'm so motivated. 

And on the other side, I will not forget the guys who have treated us great. We're a very emotional airline, and we remember our friends, and we will certainly go deep on this. Because AirAsia is a fantastic airline, pre-COVID, nothing I can do when you can't fly. And it's amazing we're still alive after 16 months. So it is painful to see how we're treated sometimes, and that won't be forgotten. 

Peter Harbison

Right- 

Tony Fernandes

I'll turn that negative energy into a positive. 

Peter Harbison

Yes. 

Tony Fernandes

To motivate me to come back stronger- 

Peter Harbison

Good. 

Tony Fernandes

... and make them want me. I think the lessors and people like Airbus have been great. GE have been great. Those that are really in the aviation community have been great. Maybe the reservation systems have not been as great, but I got to say, the aviation community has been pretty damn good. 

Peter Harbison

That's good. And from the government side, though, are you getting, basically in crude terms, a fair deal? Are you getting the same sort of treatment as the flag carriers that you operate in the countries you operate to? 

Tony Fernandes

No. No. I mean, we've never got a... It's hard- 

Peter Harbison

Leading question. 

Tony Fernandes

... to kind of say we're getting a fair treatment, because their shareholders are the government, so if their shareholders are prepared to put one more money in and lose, then what can I say? Is it fair? Is it unfair? Their shareholders have bigger pockets than my shareholders, so they're willing to do it, but this is an old tune that's gone on for a long time. Is the Australian government treating Virgin the same as Quantas? I don't think so. 

But, yeah, when I retire Pete, I'm going to do a PhD on flag carriers and politics, it's phenomenal. In most industries, most of these airlines should not exist. I mean, you've seen big companies, and America doesn't have a flag carrier. Yet, it's still bales out it's airlines- 

Peter Harbison

Yeah. 

Tony Fernandes

... regularly. 

Peter Harbison

Big time, yeah. 

Tony Fernandes

They're big employers. There's a myth that they add so much to the economy, sometimes, but I can't really complain. I went into it with my eyes wide open and the government is a big shareholder, and the government will support the flag areas more than us. 

Peter Harbison

Part of where I was heading there, Tony, was, I mean, this is a bigger jolt than usual, and governments coming out of this, they're going to have a lot of other things to support. On the one hand, are they really going to prop up failing carriers? And you've got two or three of them around you in, in Southeast Asia, are they going to be able to afford it? 

Tony Fernandes

Yeah. I mean, I think there's a hard answer. Yeah. I mean, Thailand seems to be quite firm in really sorting out Thai International, and Indonesia put Garuda into bankruptcy. Malaysian Airlines are restructuring. I can't really answer that question, but pockets are needed, because it's not just the aviation industry, there's a lot of people that need help after this. So I can't answer you how governments will treat this, but definitely it will tighten. I don't think there's that unlimited supply of finance that happened before. 

Peter Harbison

I guess once you get out of the domestic markets, you, as an airline, are very different from the full service carriers in the region who had predominantly, other than being point-to-point, are very much in the long-haul hub roles, which are going to be very difficult in the future. In a couple of ways, does that mean that the LCC model will come out of this looking better? 

Tony Fernandes

Yeah, I think so. I mean, I think business travel... I was on a panel with James Riley at Mandarin Oriental, and he said, "Prior to COVID, business travel was already going down." But it's going to take a while before conventions happen, and then people have gotten used to Zoom, right? Just it's- 

Peter Harbison

Lovely, yeah. 

Tony Fernandes

Which is scary. And then, travelling intercontinental required, I mean, let's take Europeans and Americans coming to Asia, it's going to be painful. Less painful for Asians going to Europe and America, to be honest. But after 9/11, it was hard to get visas and stuff. And yeah, I think intercontinental travel is going to take a hit for a while, it will come back. But I think long-haul hub carriers will not recover as quickly as low-cost carriers, not because we're better, but just the market is going to change. 

And I think people would rather jump on a plane to Phuket, or even domestically, than schlep all the way to Australia. 

Peter Harbison

Well, that's what I was getting at- 

Tony Fernandes

I mean, I can't imagine... I mean, Australia is going to be a hermit kingdom. I mean, it's like, it's going to be the latest Lord of the Rings movie, Middle Kingdom, right? 

Peter Harbison

Feels a bit like that now. 

Tony Fernandes

Because I think it's going to be really hard to get into Australia. I mean, look, you can say Australia is managed itself very well, from a health perspective, but no one wants to take a vaccine in Australia, because there's no cases. There's no incentive to take one, and there's now an overreaction. You have two people with COVID and Perth goes into a lockdown for four days. There's a fantastic article in The Economist, actually, that those countries that are locking down longer are going to be really hit hard economically. 

Peter Harbison

Well, I think the problem, though, is that they haven't looked at phase two, which is actually getting the vaccinations done, so you can [crosstalk 00:27:33]- 

Tony Fernandes

Yeah. I know. Correct. 

Peter Harbison

... in transition. Obviously, you have to open up. 

Tony Fernandes

Correct. 

Peter Harbison

Yeah. 

Tony Fernandes

Yeah. And I think lockdown is a prescriptive medicine. It's very easy to lock down, and it's very hard to unlock down. [crosstalk 00:27:47]- 

Peter Harbison

Yeah. Exactly, until you get those jabs. 

Tony Fernandes

Yeah. 

Peter Harbison

Let's get back to the... I've been fascinated by the way Southwest has as lifted its promotion of business travel, well, as a low priced carrier, not really a low-cost carrier anymore. And it's doing that on the premise that full service carriers are, probably, not going to have a differentiator, there's not going to be as much business travel. It's going to be more cost sensitive. Do you see that as a line of business, above the freight, for you?

 

Tony Fernandes

Uh-huh (negative). 

Peter Harbison

Don't want to be in that market? 

Tony Fernandes

No. I think business market comes with... I mean, Southwest for awhile, has been changing its original model. It's almost reminiscent of Virgin Blue, right? 

Peter Harbison

Mm-hmm (affirmative). 

Tony Fernandes

And in some ways, the full service carriers in America have been bringing down their model- 

Peter Harbison

Yeah, they've had to. 

Tony Fernandes

... to be more low-cost. So I think America is a very unique market, but, in my case, I don't want to change my model, because we know what we do and we know customers. But if you try to get too many different types of customers, we'll end up screwing ourselves, basically. So stick to what we know best. 

Peter Harbison

Well, if- 

Tony Fernandes

There's always someone who says you can do it, and yeah, you'll get this, yield, and you'll do this. And you don't settle, but I think for 19 years, I follow the Ryanair model. 

Peter Harbison

Yeah. Well, because- 

Tony Fernandes

I'm trying to be nice [crosstalk 00:29:38]. 

Peter Harbison

... Ryanair has compromised a bit in that respect too. But yeah, I hear what you're saying, and I think, to some extent, that's reinforced by the fact that there isn't going to be as much business travel for quite a while, as you say, within this region. 

Tony Fernandes

Yeah. I mean, I think local business travel will flourish because of the e-commerce, because of trading, I think it will. And I think the SME, I think, America business travel will be as robust as possible. So maybe Southwest and JetBlue made a little bit of money to flying to San Juan and Mexico, et cetera, and maybe they're looking at that. Maybe they've just hit a cost structure and they need to get their yield up. They can't get their cost structure down. So I can't answer that. But at the moment, no, never say never, but at the moment, no. 

Peter Harbison

Well, we've got a minute left, give me some really good news. Give me some really nice outlooks. 

Tony Fernandes

Hey, good news is I'm alive. If I had told you or if you had thought when we first met in February of last year, that in July of this year, I've still got temps on my fleet, you'd say, "You're not going to be around Tone. Come and join CAPA." And so- 

Peter Harbison

That'll be fun. 

Tony Fernandes

The good news is most airlines are still alive. That's impressive. I mean, a few have gone into bankruptcy protection and stuff, but most airlines are still alive. All LCCs in Southeast Asia are still alive. From Nok Air to Lion Air and stuff. So that's good news. Second good news is, I don't know about you Pete, but every single person I see, and they're not just saying it for me, is, "I can't wait to get on a plane." I never had that before, right? 

Peter Harbison

Yeah. 

Tony Fernandes

I mean, everyone said, "I can't wait to travel. I want to go for a holiday." Everyone's like, "I can't wait to get on a plane to see my parents, to see my kids, to go on holiday, to get drunk," whatever, so those are good news'. After this horrific thing, which were social distancing, don't travel, borders closed, the good news is people are robust. They want to travel. That's good news, as far as I'm concerned, because travel could have been eradicated from all the pain of being tested, but, nope, people are ready to do it. It's just like 9/11. I've been very consistent and I've been right that, it was a pain in the ass going to America after 9/11, but we went, and we went through being interrogated, et cetera, et cetera. 

And some of my friends being detained for hours as suspected terrorists. And we got used to it. We got used to the fact that we should travel semi-naked, because they take all your clothes off anyway, when you're going through a security line, right? 

Peter Harbison

Yeah. 

Tony Fernandes

And we didn't stop travelling. And so we'll get used to this people sticking things up our nose or breathing or whatever. But that's the good news. I'm happy competitor or no competitor, the airline industry is still more or less, in the state. It's good news, United's buying planes again. It's good news that Airbus is talking about uplift orders. So number one, we're alive, and number two, people who want to travel. We're not the stagecoach industry, we're still very much alive. 

Peter Harbison

That's a nice line to finish with Tony Fernandes. Great to see you. Thanks for coming on. 

Tony Fernandes

Good to see you mate. And I hope to see you in the flesh in Australia without being detained, in Middle Kingdom. 

Peter Harbison

I'll make sure- 

Tony Fernandes

Bye. 

Peter Harbison

... you get safe passage. Cheers, Tony. 

Tony Fernandes

Take care. Bye. 

Peter Harbison

All the best everyone. Take care. 

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