Tony Davis: Attention seeker

Singapore
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Singapore's Tiger Airways and its chief Tony Davis have been grabbing the media spotlight in South-East Asia as they gear up to export their pure low-cost business model to Australia

Tony Davis and his airline Tiger Airways stir up violent emotions among his competitors. Which is ironic, for Davis is a mild-mannered man and the airline he runs is still a relative minnow, with only nine Airbus A320s to its name. Having Singapore Airlines as its biggest shareholder, in addition to backing from the Singapore government, has more than a little to do with the animosity Tiger generates.

Davis began attracting controversy as soon as he arrived in Singapore in January 2005. At a local low-cost conference he essentially told many of the new Asian carriers that their business model was wrong. Davis was, and remains, unapologetic that in his view low-cost players need to truly differentiate themselves from full-service incumbents by cutting out complexity and adopting the Ryanair business model.

The response was vicious. Davis, who before joining the bmi Group worked for British Airways and Gulf Air, was attacked by several of the region's airline chiefs. Labelled an outsider who didn't know Asia, he was told the market was different and travellers would continue to demand frills.

But Davis has stuck to his guns. Time has shown him to be right, he believes, with the winners in Asia indeed those who think like him. "Whenever a new model comes into a mature and existing market, there is always resistance and push-back from the incumbents. When I was at BA we had the same pushback towards the Ryanairs and easyJets. We thought it was a fad and a passing trend, and the European travellers expected something different from their airlines," he says. "What we have demonstrated over the past two or three years is the market in Asia is no different from markets like Europe or North America. Consumers want to get the best value for their money, they want to see affordability and they want to see a bargain.

"The issue is whether you are going to try and be slightly cheaper than the incumbents with a slightly different model, or whether you are going to be radically different and therefore achieve a cost base that enables you to be significantly lower in price," says Davis. "The really successful companies are the ones that are [positioned at] either end of the spectrum. The people in the middle, who have a slightly mixed model and a cost base that is too high to compete with the pure low-cost airlines, but with a product not good enough to compete with the really high-quality airlines, they are the guys who are struggling."

So far, this has essentially proven correct in several Asian markets. Out of Singapore, for example, Valuair found the going difficult. It was launched in 2004 with slightly lower ticket prices and a few frills. It was eventually taken over by the owners of Jetstar Asia, another low-cost carrier based in Singapore that like Tiger has also been losing money. In the Philippines, meanwhile, Cebu Pacific saw its market share dive when it started adding frills and in turn cost, and has since returned to its roots by following the strict low-cost carrier model with great success.

Tiger Airways at a glance

Base: Singapore

Destinations: 16

Fleet: 9 A320s

Aircraft on order: 11 A320s

Passengers 2006: 1.2 mill

Airline Business 2006 low-cost carrier traffic ranking: 39

Early turbulence

Tiger itself has had its fair share of ups and downs in its short existence. Davis is the airline's second chief executive, having joined after its September 2004 launch. His predecessor, Patrick Gan, came from the pharmaceuticals industry, and the carrier, which is 49%-owned by Singapore Airlines, lacked direction in the early stages. Tiger's other shareholders are Temasek Holdings, the Singapore government investment arm, with 11% US-based Indigo Partners, the US investment firm founded by ex-America West chairman Bill Franke, with 24% and the family of Ryanair's founder, Tony Ryan, with 16%.

Davis will not discuss the time before he joined, but growth since then has been impressive. Just over two years ago it only served three destinations. Now it flies to 16 in seven countries. Costs have been slashed and Tiger is a frugal operation behind the scenes. Its offices are hardly the most plush, and Davis points to used furniture that he says was bought at bargain prices.

Operationally, aircraft utilisation is impressive. Greater efficiency has been achieved in ground operations, partly thanks to the fact that Tiger is now flying out of a purpose-built, low-cost airline terminal in Singapore. Still, it has a staff base of just 250, only 40 of them ground employees.

In financial terms, Tiger's performance is harder to judge accurately. Its last filing with Singapore's Accounting and Corporate Regulatory Authority showed a loss for the year to March 2006 of S$37 million ($24 million). It also showed an unsecured short-term bank loan of S$15 million. However Davis reveals the airline now has "no cash debt" and has had no shareholder injections for more than 18 months, meaning it paid off the loan from its own cash flows in the last financial year.

Davis has hinted that Tiger has begun making money at an operating level, in some quarters at least, and is edging closer to profitability. While further financial details are not forthcoming, Davis is happy to boast that Tiger is already one of the key players in the Asian marketplace. This is a market where Malaysia's AirAsia has a major lead on its competitors with secondary bases in Thailand and Indonesia.

Since Davis joined, Tiger has been seeking to emulate the AirAsia expansion model by establishing bases elsewhere in the Asia-Pacific region, where restrictive air services agreements and a lack of a common aviation market similar to Europe's make it much more difficult to compete on a pan-regional basis. Davis says Tiger will look for joint ventures in other countries where it can have the maximum foreign ownership allowed, as AirAsia has done with 49% stakes in its Indonesian and Thai associates, or through non-equity franchise arrangements.

Last year Tiger announced its first franchise deal, with Philippine operator Seair, under which the smaller carrier will lease two A320s from Tiger and operate services using the Tiger brand and distribution channels from Clark airport, outside Manila. It was to have been launched early this year, but has been delayed due to regulatory and political issues in the Philippines. The government there is proposing to turn the secondary Clark and Subic Bay airports into "open-skies" hubs but the incumbent airlines are opposed to giving unlimited rights to foreign carriers. Tiger is delicately playing politics behind the scenes, lobbying Philippine president Gloria Macapagal-Arroyo for liberalisation measures to be adopted.

Tiger's managers are also taking a bolder step into the Australian market by launching a new carrier there - something that is allowed under Australia's liberal foreign ownership regime. The airline will be based at Melbourne and fly A320s on domestic routes from later this year. It is a gutsy move in a market that has seen its fair share of airline failures, and where the Qantas Airways Group and Virgin Blue have an effective duopoly.

"We are looking at the expansion into Australia as an expansion of our existing business. Australia is unique in that it allows 100% foreign ownership of a domestic airline. [Plus] we are already operating to two major gateways in Australia internationally. It's been a logical expansion for us to expand the business into domestic services," says Davis.

"Tiger is one of the few Asian low-cost carriers that can enter the Australian domestic market successfully, and it cements our geographical coverage into being Asia-Pacific as opposed to being exclusively South-East Asia. The market and the time are right. Consumers in Australia, to be quite frank, are sick and tired of the high air fares imposed on them by the duopoly."

Media savvy

Those kinds of words keep Davis's name in the press regularly. He is generally soft spoken and friendly, helping to underline the irony that some of his competitors dislike him so much. In private they wonder out loud why an airline that flies only nine aircraft gets so much attention. The reason is that Davis is a master of dealing with the media. He sometimes manipulates it, but is generally adept at keeping the Tiger name in print by being accessible to journalists, frequently criticising the competition and publicising everything positive Tiger does. This is something some of his competitors have not understood, for in many Asian cultures boasting about one's achievements is still frowned upon.

"My apprenticeship in low-cost airlines was in the UK low-cost sector. We had very strong competitors and that has enabled the team - a number of my former colleagues from Europe are here at Tiger now - to hone our skills in terms of the low-cost model. Making sure you are active in public relations is a good way of embellishing your marketing spend - provided you have things to talk about, and that is often about growth and about routes and about strategy. Aviation is still a subject that gets a lot of media attention. What we are always trying to do is stretch our spending dollars as far as we possibly can and make sure that we get as much awareness for the business as possible."

Competitors also accuse Tiger of being part of the Singapore institution, given that it is majority owned by government-backed companies. But Davis rejects this, saying it gets no special treatment and is independent from Singapore Airlines. "We have a strategic investment from a major airline but we are not part of the SIA Group, and that means we don't fall into the trap that so many airlines fall into that are part of a group structure," he says.

"The infancy and childhood is a bed of roses, the new carrier is given the opportunity to change business models and create lower-cost structures than the parent and that leads to initial success. But then there is a point where it changes and the group wants to recover some of that efficiency and cost reduction back into the parent. That seems to be when things start going wrong. We have avoided that kind of pressure by being a strategic investment for the SIA Group and we have demonstrated our independence."

Davis backs this up by noting that Tiger has dropped Singapore Airlines subsidiary SATS for ground handling and now uses rival Swissport at its base at Singapore Changi airport's Budget Terminal. Tiger also competes with Singapore Airlines and its full-service regional arm SilkAir on several routes, the latest being Singapore-Perth, which Tiger recently started serving.

Davis insists Tiger has no communication with Singapore Airlines on a day-to-day basis, which allows his team to run the business without interference, reporting only to its own board.

Tiger's growth path

The board will soon be presented with proposals for further fleet expansion as Tiger continues to grow and establish more bases. When Davis joined it had just four leased aircraft, but soon after placed an order for eight A320s, five of which have now been delivered. This was followed by orders for another eight.

All of the 11 aircraft remaining on order are due for delivery by 2010, and five are earmarked for the Australian operation while two will go to the Philippines base. Davis says there is "always a temptation to over-extend and over-commit [but] we think the business is at a point in its evolution where it's appropriate to consider the next phase of growth". He also says it is important in the unpredictable Asian market to have several projects in play. "What we learnt early on is the only way you can ensure that you keep moving forward is to have a lot of projects on the go at the same time, on the basis that you can't anticipate exactly which ones are going to come to fruition at what time because of the uncertainties involved in the regulatory process."

Market watchers expect growth will be funded in the near future by an initial public offering. Davis is uncharacteristically coy when it comes to questions about this, saying only that "our job as management is to set the foundation". He is also guarded with operational figures, saying his shareholders wish to keep them private for competitive reasons.

But it is clear that Tiger is rapidly attracting new customers, having sold 1.5 million seats in the financial year ended March, as opposed to 800,000 in the previous year. Ancillary revenues are also rising.

Financials aside, Davis firmly believes that given the Asia-Pacific region's enormous population and rising income levels, there are plenty of growth opportunities, even though it is based in a city state that has no domestic market and strict bilaterals with its two closest neighbours. It does not serve any points in Malaysia, for example, and is barred from serving all but secondary destinations in Indonesia. But things will change as Malaysia and Singapore are talking about a new air services pact and South-East Asian nations have pledged to adopt an "open-skies" regime for flights between their capitals from late 2008.

"What we have had to do is adapt our operating model to meet the geographical and regulatory constraints, and we have managed to do that and still have pretty robust financials, particularly in terms of cash flow," says Davis. "We are currently operating at a sub-optimum seat production level because of the longer sector lengths. But as the regulatory process improves, both in a Singapore context and as we are successful in establishing more operations outside Singapore, the only direction the sector length is going to take is to shorten. It really has been a case of starting with the worst possible scenario in the expectation that it keeps getting better."

Aviation junkie

Tony Davis describes himself as an "aviation junkie". Starting with full-service carriers, he says that "going from full-service to being in the low-cost game was a bit of a religious conversion. There was the day when it just hits you and you think the traditional guys just don't get it".

Now 41, he jokes that he can finally call himself an "industry veteran" as he recently passed the 20-year mark in the business.

Davis spent the first nine years of his career at British Airways, holding jobs in marketing and strategic alliances in London and New York. He left to join Gulf Air in Bahrain, after which he worked at British Midland.

Between 1997 and 1999 he was bmi's general manager, industry affairs and pricing, after which he was director of corporate affairs.

He then was named managing director of new low-cost subsidiary bmibaby, and steered the carrier through its launch up to the point where it had 14 aircraft serving 26 destinations. He left late in 2004 to take over as president and chief executive of Tiger Airways.

Davis enjoys the theatre and symphonies.