Air Asia arrives to offer low fares, not to challenge

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.