Malaysian airline tests Asia's resistance to no-frills flights AP

Malaysian airline tests Asia's resistance to no-frills flights AP

Sean Yoong, Associated Press, Kuala Lumpur, Malaysia

Tony Fernandes, chief executive of Malaysian budget carrier AirAsia, has a theory about flying in this region.

"Air travel is made for Asia," Fernandes says. "You can generally drive from one end of Europe to another, or take a train, but that's not the case here. You want to try driving from Kuala Lumpur to Bangkok? Good luck, mate! We don't have the land infrastructure that Europe has."

After a year of buoyant earnings silenced skeptics who claimed a cut-price airline wouldn't cut it in Malaysia, Fernandes plans to turn his theory into what industry analysts say could prove a profitable practice soon by transforming his airline into Asia's first no-frills, cheap fare international carrier.

Modeling itself on successful budget airlines in Europe and the United States, AirAsia is getting ready to spread its wings to neighboring countries sometime early next year.

"Many people would say Asia isn't ready for the classic, no- frills airline model," Fernandes said in an interview. "There must be a founder, an airline to drive the change. We'll start dipping our toes in other countries and see what it's like."

Low-fare carriers have been a distant blip on Asia's radar partly because most countries have their own full-service, flagship airlines - often partly owned or backed by the government - that are entrenched on international and domestic routes.

Moreover, Asian business travelers generally don't like to fly coach or make bookings on the Internet, a competitive platform for low-cost carriers to draw passengers, analysts say.

But experts say there are substantial opportunities for a no- frills, no-meals operation in Asia.

"With one or two bits of fine-tuning, there could be a dramatic growth in this sort of model," Peter Harbison, managing director of the Center for Asia-Pacific Aviation, a Sydney-based consultancy firm, told The Associated Press.

According to a September study released by the center, low- cost carriers could thrive in Asia by providing short-haul services relying on secondary airports - instead of national flight gateways - that serve holiday destinations and high-growth towns outside of capital cities.

Noting that incomes are rising rapidly in several Asian countries, no-frills carriers such as AirAsia would help encourage tourism and stimulate air traffic growth by making flights accessible to more people, without undermining flagship carriers, the report said.

Indeed, Fernandes said the airline's biggest triumph has been getting less affluent Malaysians off the ground.

"I get a real kick out of people coming up to me and telling me - hey, we've never flown before, but thanks to you and your company, this is our first flight and we're so excited," Fernandes said.

Fernandes, 37, who resigned as Warner Music's vice president for Southeast Asia to help revive AirAsia, an eight-year-old carrier that had never made a profit. With two other former music executives and another partner, Fernandes bought the airline and its two planes for 1 ringgit (26 U.S. cents) and assumed debts of 70 million ringgit (US$18.4 million).

Since relaunching in January, AirAsia has cleared the debts, added three planes to its stable and currently enjoys a gross cash inflow of about 18 million ringgit ($4.7 million) monthly.

Fernandes says low ticket prices have enlarged the market, meaning AirAsia can happily coexist with national carrier Malaysia Airlines.

Nevertheless, government-controlled Malaysia Airlines recently discounted fares on limited seats on domestic routes, where it has reportedly been losing up to 300 million ringgit ($79 million) annually.

"We are certainly pleased AirAsia has done well," Malaysia Airlines' managing director Mohamad Nor Yusof said recently.

"It's spurred us into thinking there are opportunities" in offering low-fare flights.

AirAsia only serves domestic routes so far. But Fernandes said the airline would start international flights in early 2003, probably starting with Indonesia and Thailand.

The airline hopes to mirror the success of budget carriers such as Dallas-based Southwest Airlines and Dublin-based Ryanair, which flies across Europe. Fernandes has enlisted Ryanair's former director of group operations, Conor McCarthy, as his chief adviser.

"We have been delighted at the similarities we have found between the consumer market in Malaysia compared to Ireland, Britain, Germany or any other country Ryanair entered," McCarthy, now an aviation consultant, told the AP.

"People the world over like to travel and want to pay a low fare."