Q&A: Fernandes pours out his frustrations

AirAsia chief executive Tony Fernandes let loose on his frustrating battles between his budget airline and government-linked agencies in this second of a two-part interview.

Malaysiakini: With the new KLIA East @ Labu you are racing against time. Though the cabinet has given the green light, it's not yet a done deal. Are you worried?

Tony Fernandes: Yes, I am worried about it. This whole thing has been done with a lot of time pressure. In 2010, we forecast we'll be four million passengers short in terms of terminal capacity and about 17 planes short of parking. Right now, we're a million passengers short in this terminal, and it's a nightmare. And four million is not even worth thinking about. I think it will come to a head, one way or another.

We're a point-to-point airline. We don't have night stops. All our Airbus A320 aircraft come back at night. The only planes that are flying around are the long-haul ones, the 25 Airbus A330s. They won't be there all at the same time. But the A320s will come back every night and need to be parked. We'll have some planes in Johor Bahru and we'll have some planes in Kota Kinabalu overnight. And hopefully we'll have a hub in Penang.

And the second part is charges. I need low charges to stimulate someone from China who never thought of going to Penang. Why have we developed Manado (North Sulawesi in Indonesia) and all these other weird and wonderful destinations? Because there's low fares. So people say 'come on let's try, I never tried Manado, let's go - RM50'.

In Kota Kinabalu, it's the other way around. They built us a low-cost terminal and now they want us to move out of there because they say the other terminal is empty. We didn't ask them to go build a massive terminal in Kota Kinabalu so it's not our problem. Why should we move?

Ask Malaysia Airlines (MAS) to do more flights. You're the airport authority. Go and attract lots of airlines. But if you charge everyone the same, if you don't do any marketing, if you don't work with the airlines, then who is going to come?

In your experience with government-linked companies, with all the monopolies that they have, is it stifling private enterprise?

I don't think it's fair. Look at where we are (Low Cost Carrier Terminal in Sepang)! Go ask the taxi drivers - it's RM35 to get to the main terminal (in Kuala Lumpur International Airport). There is no train here. You try taking the bus between the two terminals.

Now suddenly, everyone's concerned about connectivity. There was none here. We were like ostracised people thrown here and we've fended for ourselves.

If MAHB (airport operator Malaysian Airports Holdings Berhad) was so concerned about connectivity, why is there no airside transport? That is, you come off a flight from Sydney, and you don't want to go through immigration, your bag should be automatically transferred to this terminal and there should be a bus on the airside to take you to this terminal without having to go through passport control. But now you have to pay airport tax twice if you transfer. No one has even talked about that.

I was like a broken record saying, 'Train. Train. Train. Train. Train.' No one listened, so I said, 'Screw it'. We'll build our own long-haul airline - AirAsia X. MAS didn't want to work with us. MAHB didn't do anything for us. I could be in Timbuktu, and we'll survive.

Can I add one more point on this connectivity issue? Why is (MAS’) Firefly allowed to be in Subang? And don't tell me it's a turbo-prop. Turbo-props move human beings. If Khazanah is so worried about hubbing and connectivity, why aren't those passengers here? What's the connectivity between Subang and KLIA? There is none.

You’ve been fighting a running battle with MAHB. What are your major gripes?

My major gripe is we're overcharged. It's like saying my budget Tune Hotel should be charged like Mandarin Oriental. It's different. We don't have lifts here (LCCT). We don't have walkalators here. My passengers have to walk all the way to Phuket to get to the plane.

Passenger comfort here is seven meters per person. (The) main terminal (in KLIA) is 65 meters. This is a fact told by MAHB. MAS advertises that fact. You have a nice terminal. You don't get wet. If it rains really hard here, we can't board!

We accepted that because we said, 'give us low charges' and we will suffer. We don't mind because our passengers have never flown before. Give them low fares, they don't mind walking.

There's been lack of foresight and planning. We asked for this terminal's extension to be built by October 2007. Not done, because they requested money from the government, and the costs were high and the government kept saying it's too high, they have to bring it down. As of today, it's still not ready 18 months later.

And we're being overcharged. (The) passenger service charge, initially it was the same as the main terminal. How can you justify that? I fought really hard, and it came down to RM25. I still think it's too high for what we get.

What was the original charge?

RM51. When I go to develop routes like (between) Langkawi and Bangkok - I said, let's try, may be Thais are fed up with going only to Phuket, it doesn't cost you anything. If my plane comes down, there's no incremental costs because your lights are turned on, your security guards are all there... they said no. I still did it, though I failed. I needed low fares.

So who loses? The country loses. MAHB loses. That's the kind of frustration we've had all these years. We have developed 36 new routes in this airport. You want to go back to the hub principle? What hub? What airlines are available? You compare KLIA with Changi and Bangkok - there are so few airlines coming here.

In Australia, apart from Singapore Airlines, we're voted as the most popular, most well-known, airline. We're above MAS, Cathay, Emirates, Thai. And we've only been going there for a year. We spend a lot of money promoting Malaysia.

If I live in a rented house, the landlord is good, the rate is cheap, why would I want to move out? The last thing I want to do is build an airport. It's desperation that we've reached this situation. I didn't want to start a long-haul low-cost carrier either.

Isn't building a new airport a very costly way of solving this problem?

It's like independence. You treat a country badly, they'll want to break away and secede. After three years with MAHB, now allow us to be a Republic of KLIA East. We control our lives. No more bitching. ‘You think you're so good at running an airport, you go run it yourself.’ You think I really want to do it?

You know that there will be people who will be fighting against this act of secession?

Of course. I dare say that if Khazanah (government-linked company which owns MAHB and MAS) was in its present structure when I started AirAsia, we would have been dead. Very direct, but very true.

Khazanah may have said, as they're saying right now, there's no need for AirAsia. MAS can do a low-cost carrier. Would the people have benefitted?

What Khazanah and MAHB have been saying is that you should be following the National Airport Masterplan (which included the plan for a new LCCT terminal). AirAsia was consulted, they say, the plan was recently reviewed.

So why are you suddenly changing? Haven't you been consulted?

As of last week, we've just been given diagrams of what their terminal would look like. If you've looked at the terminal that they've come up with, it's a three-level airport. We would never ever go with something like this.

I disagree on the consultation. There is generally a one-way discussion with MAHB. Except with the (existing) LCCT, there was a lot of consultation - there was a good partnership - but with this new one, we don't know anything about it. We disagree with the area. There is no infrastructure in the area.

Only when we started with KLIA East @ Labu did this National Airport Plan suddenly come out. What is the cost of this? Have you heard any number on the cost.

I've been transparent: RM1.6 billion. Has MAHB come up with a figure for their new low cost carrier terminal? Who's going to pay for it? Ultimately, the airlines will have to pay for it. That's why we are objecting.

The National Airport Plan that we saw will be a disaster. Has the Express Rail Link (ERL) been built? Has it been agreed to? I spoke to ERL, and they don't know.

So, what consultation? I think you should at least say - this is what it's going to cost, this is what it's going to look like, what are your views? None. Their consultant, we heard, said that our passenger forecast is never going to happen. What do you mean? We're the ones that bought the planes. We've beaten the forecast every time.

I have letters to show you that when they built this terminal, we said it's too small. MAHB has said that we said we wanted 10 million (passengers). But I can show you the letter that says it's too small. So I don't agree with that statement for one bit. They haven't consulted us. Partnership is about consultation. Why should we be leaving if we're happy? Why? Why should we want to leave?

I mean this is the last thing we want to do. Yes, there will be detractors. There have been detractors from AirAsia from Day One. I've had to fight to get Kuala Lumpur-Singapore (route). Cars can go there. Buses can go there. But AirAsia cannot. Explain that to me.

An airport is critical to an airline for growth, especially if we have global competition. Tiger Airways gets everything it wants from (the) Singapore (government) straight away.

What does it take for AirAsia to continue their operations in KLIA?

What would make us stay? Low charges and an airport we believe can be done at the right time, (and) on time.

We have the worst financial crisis in the history of mankind so do you think I really want to go out and take on another challenge? I think we will die if we don't resolve it. There won't be an AirAsia. It's that serious. So what do you do? You take things into your own hands and you try and do something.

It's when I discovered that the other terminal was scrapped and they talked about this being ready in 2014, I panicked. I literally panicked. I was on a flight coming back from Hyderabad. I went round looking all over the place for land.

We looked here (at KLIA), this was our first port of call. We talked to the government about can we build something here? We couldn't really find anything that we thought could be efficient. It was just swamp land and it would take one year to fill it up and RM400 million.

Then suddenly Labu came along. So we thought: great, the government can't object to that. It's right by KLIA so there's connectivity. We'll privately fund everything. It was wonderful, Labu as we were saying.

You can open up so much tourism because of Malayan Railways (KTM). We can get people up to Gemas now and up to Perak. People from Seremban can come and not pay RM35 on the ERL.

No low-cost terminal has been built throughout the history of aviation. They have always been adapted. So we have a full, complete, wonderful airport plan. We've got a whole new system. It'll be like a shopping arcade. Less check-in desks, etc. Easier passenger flows.

If we have a tropical kind of airport with trees, it would be cooler. We used solar technology a lot. And lots of people want to use it as a showcase. We can get a lot of the technology for free. From General Electric Corp and all these guys, solar panel guys want to do it. They know 20 million people will fly through this terminal.

We're going to have a major bus transport network. So that when you touch down, if you want to go to Malacca, bus there. You want to go to Kuantan, bus there. You want to go to Taman Negara, bus there. You need good ground infrastructure.

I wanted to have a free taxi system - not coupons - so that anyone who comes in, any taxi can come in. They don't have coupons anywhere else in the world. If you want to come in - it will be much cheaper - you can come in and pick someone up, just join the queue. But you got to be in the queue, to be fair to everyone. Great bus, great train, it will spur tourism.

And then the Vision Valley (a project to be developed by Sime Darby Bhd next to Labu), to me is fantastic. I've already bought in because education is a passion for me. My dream is that we have an education city that has Chinese universities, European universities, Indian universities and Malaysia becomes a centre because of our language capabilities, which is another topic for another day.

I believe we should push our brand that we're multicultural and I think every kid should learn Malay, Chinese and Indian. That was my dream and having a low-cost carrier you can fly and it becomes much easier.

What do I have in KLIA? But if I had the Vision Valley there and some control of our own to make it, there would be an extra reason to come to Kuala Lumpur.

Look at Singapore. They have cinemas in their airport, swimming pool, golf club next door. Taxi service is impeccable. You come in, the taxi driver is standing there with the boot open. I can do that. I can do Singapore. We have.

Tiger Air has eight planes, we have 75. Tiger Air has Temasek, Singapore Airlines, TPG - the biggest private equity house - and the Ryan family. You cannot get better shareholders than that. Yet with all the obstacles put in front of us here they have only got eight planes and we have 75.

We want to be charged fairly. We want the owners of MAHB to be objective - not to wear two hats, an MAS hat and an MAHB hat. Objective to what AirAsia wants and will disaffect MAS.

Talking about privatising infrastructure, couldn't AirAsia abuse its monopoly or go bust leaving Malaysians with another white elephant airport?

That's a fair concern, but the question is: is there a choice? (MAHB) is a monopoly. Ultimately, if I'm overcharging at KLIA East @ Labu, who the hell is going to come? There is a choice. There are two choices. There is Firefly and there is MAS here.

What I'm saying is, as opposed to toll roads, etc, people have a choice. But if ultimately we try to rip off everyone, people can walk across to KLIA.

In terms of bailout, we've seen a lot of that. The entire banking industry in America (was bailed out) and America is virtually a socialist economy now. So it is all about if you have faith in a company and its ability to manage itself. I can't guarantee you that this is the case. But I'll just let our track record speak for itself. MAS has been bailed out three times.

And when you have a terminal that we believe we can build at less than RM1.6 billion because steel prices now have come down with our own runway and we think about the ancillary income.

We got a hotel right across the road. I forgot, there is another attraction here (LCCT), a hotel. (laughs). Hey, I own that hotel yet I'm prepared to move out of here. So my CEO of hotels is like: 'what am I going to do?' I don't know. You got to be creative, right? (laughs)

We've been able to make an airport hotel work at RM30 a night. Where in the world could you ever do that? Tune Hotel (in Kuala Lumpur), which is a former hospital, it's full every night. They say they got ghosts in there, so free entertainment also! (laughs) What's wrong with that?

Let’s talk about the AirAsia's balance sheet. You’ve suffered your first losses (RM465.5 million in the third quarter) due to (global oil) hedging.

We’re looking very good for the fourth quarter and I think all that we did is realise losses that every airline has been sitting on. I think we were smart, to be honest. When we hedged at US$77 it looked fantastic. They were all talking about oil being at US$200 (a barrel).

So when it all started coming down, I said to (AirAsia director) Kamarudin (Meranun), let’s get out of this. Otherwise, we could have a real problem coming if oil goes down to US$40. That was my target. He said no, no way. I just said, get out of it. Take the pain.

So we paid US$21 odd million to get out of one trade and another US$21 million to get out of another trade. Other airlines are still paying oil at $95.

So I just recognised the losses, which is a lot less then if I continue to pay for oil at US$77. I’d have a huge mark-to-market loss. Cathay Pacific had mark-to-market loss of US$1 billion. Southwest Airlines, one of the most successful airlines, has hedging losses of US$700 million. So we took the hit. But we’re clean now.

It’s a crazy market out there. But we took a little short-term pain. We have a little more pain in the fourth quarter. Then we’re clean. We’re transparent. Many companies here don’t have mark-to-market. You don’t have to report mark-to-market. So there are some companies here who have huge mark-to-market losses.

According to Malaysian accounting standards, there is no need to report mark-to-market. So if every airline and other company reported mark-to-market, they would be sitting on a massive loss. But we just took a hit, cleaned it up and we’re being transparent about it.

Part 1

My 'biggest mistake' was to sponsor Khairy's MyTeam

&A: Blogs getting 'sick and twisted'

Part 2

AirAsia seeks 'secession to form own republic'

Q&A: Fernandez pours out his frustrations

Related report

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VIDEOS l Part 1 (10 mins) l Part 2 (14 mins)