Air Asia arrives to offer low fares, not to challenge

The Jakarta Post, Jakarta

Malaysian no-frills airline Air Asia launched on Saturday its maiden flight from Johor Baru to Jakarta, which will be followed by flights from Kuala Lumpur to Bandung today (Monday) and from Kuala Lumpur to Surabaya on Thursday. In less than two years since commencing operations, Air Asia has become a major player in the regional market with 100 international and domestic flights per day. Air Asia Chief Executive Officer Tony Fernandes recently spoke to a number of reporters, including The Jakarta Post's reporter Fitri Wulandari, about the business.

Question: How did Air Asia get off the ground? Answer: We took over the airline two years ago. Initially, it was a fully serviced airline and we changed it into a budget airline. We started with two planes and now have a fleet of 15 planes. By October, we will have 24 planes.

Initially, we operated as a domestic airline and only opened international flights four months ago. We started out with two destinations in Thailand, Phuket and Bangkok, and now have routes to Indonesia.

Why was it changed into a budget airline?

You can never compete with the big airlines -- they are like five-star hotels, they have all the services. But not everyone can afford it. We decided that it was time to open up the market so more people can fly.

We are not targeting the existing market, but people who have never had a chance to fly.

Airlines in Asia have always been one type, the full-service airline. But most people cannot afford this. What we are doing is bringing the price of the product down, but maintaining high quality.

What do you think of the Asian market?

I think it is a fantastic market. When we started two years ago in Malaysia, everyone doubted us. Now, everyone wants to buy our shares. I think there is a market. Time will tell.

You can just see the reaction. The first few days since we opened in Jakarta, the phones at our call center haven't stopped ringing. We are taking about 4,000 calls a day. There is a lot of excitement.

I believe it can work -- it worked in Malaysia and Thailand. I don't think it is very different here.

Some experts have said that budget airlines would not work in Asia because consumers here prefer full services, as opposed to U.S. air travelers. What is your response to this?

No. Our service, just because it is a low fare, doesn't mean it is of low quality. We have great cabin crews and great cabin interiors. We sell food.

All we do is take out things that customers don't want. If you fly with full-service airlines, you are charged for the food, whether you want it or not ... We take out things that you don't need and we give you a low fare.

To answer this question, we carried 4 million people in Malaysia over the past two years. Our load factor in Thailand for the first few months reached 85 percent.

What other things do you do to keep the fare low?

We don't print tickets, just give a reference number. [Air Asia Indonesia Country Manager Nasser Kasim said printing a single ticket cost about US$1.] It saves $3 million a year by not printing tickets. We generally use the Internet to try and keep costs low.

We are always looking out for ways to use technology to increase our turnover or to reduce costs. We are launching an SMS booking service next week in Singapore and Thailand. We expect to generate 5,000 to 6,000 ticket sales from this.

We don't have a frequent flyer program -- it is expensive to manage. Those who fly only once a year would not benefit from a frequent flyer program.

We don't have televisions on the plane because you may not want television. We are always looking for ways to fly cheaper, more efficiently and more fun.

How about the safety?

We use B737-300s. Our planes are very young, with an average age of 10 years, and we are monitored by the civil aviation authority in Malaysia, which applies the same high standard for all airlines.

People think that since we offer budget fares, we are cutting maintenance costs. We are very careful. So far, we have carried 4 million passengers with zero accidents. If an accident happened, that's it... We would close shop. We cannot take any risks.

Boeing provided us with the best reliability with the B737- 300s last year. Our partners are Boeing, GE for engines, Singapore technology for maintenance. So we have good partners.

Our on-time reliability is 97 percent, one of the best in Asia. The key to safety is how well you look after the plane.

But more important are the pilots. Nine out of 10 accidents happen not because of the planes but the pilots, because of human error. We have our pilots authorized by Boeing. Some of our pilots were trained in the Garuda simulator -- we use Garuda and Malaysian Airlines training facilities. We are building our own simulation facility as well.

How safe is booking through the Internet, particularly in Indonesia, which has a notorious cybercrime record?

Cybercrime is everywhere, but particularly in Indonesia and Malaysia. But our customers are protected 100 percent. We run a risk sometimes, but we have a lot of internal security.

Why did you choose Jakarta, Bandung and Surabaya for your Indonesian routes?

We want to develop a new market, and no one has done Johor Baru (Singapore)-Jakarta before. As for Kuala Lumpur-Bandung, no one has done this before. Kuala Lumpur-Surabaya, the same thing.

We don't normally take the easy option. An easy option would be Medan, but we see a lot of opportunities in these markets. We will be here for a long time; it is not just about doing it for today.

Hopefully, in two or three years, we will be flying to Medan.

How is the competition with other airlines in Indonesia?

I think competition is not something we need to worry about. We worry about our costs. As long as we can have the lowest fares in the world, someone will board our planes.

There has been a lot of criticism saying that our lowest-cost claim is just a promotional gimmick. That is not our style. Our style is to give you a good product, friendly and efficient services and low fares.

You be the judge -- you are the consumer. We give you the choice.

We are not here to attack Garuda, Lion Air or Malaysian Airlines. We are focused on our commitment.

But we do have the lowest cost in the world -- we have no debts and make a good profit, so we can compete quite confidently.

We can go very low if someone wants to challenge us, but we believe there is a big enough market for everyone. We are not here to attack.

What are the challenges of doing business in Indonesia?

The problem we face is the fiscal fee. [The government charges outbound travellers a fiscal fee of Rp 1 million ($117).]

Our fares may be very low, but the fiscal is sometimes 10 times our fares. We hope the government will review the fiscal policy for ASEAN countries in due course.

I think if we want to develop more ASEAN tourism, Indonesia should look at its fiscal and maybe reduce it for ASEAN countries -- or get rid of it.