Malaysia's AirAsia has seen phenomenal growth since new owners took over at the end of 2001 and transformed the carrier into a low-cost operator. Chief executive Tony Fernandes speaks with Leithen Francis about the future of the low-cost market in Asia, and the challenges.

Q: Do you think low-cost travel will become as big in Asia as it is in Europe and the USA?

A: I don't really know - it all depends on the management. It has been a lot of hard work to get to where we are today. Nothing has come easy for us. Because we do things differently, we upset people.

In the US heaps [of low-cost airlines] started but today you can only say that two have been successful. Southwest Airlines is a success. Air Tran Airways is moderately successful. JetBlue is still growing.

In Asia there is only us. Cebu Pacific in the Philippines were the first to adopt the low-cost airline business model but they have changed their business model to full service now.

Asia has the [market] ingredients [to sustain low-cost airlines] but it has some disadvantages. Southwest prospered in the USA because the major US carriers charged some extremely high fares for flights between certain cities in the US. Cathay Pacific Airways and Singapore Airlines are not that high.

Q: What is your opinion of Asia's regulatory environment?

A: Governments were very protective and still are. We have seen some elements of protectionism in Singapore, for example, that are contrary to what Singapore stands for such as the policy on buses [preventing a bus link to Malaysia's Senai airport near Johor Bahru].

We are looking for ASEAN countries to embrace the low-cost business and embrace travel. Throw away your national identities and do what is good for your people and your national economies.

Q: How supportive has Malaysia Airports been to your business?

A: They have been tremendously supportive. They have allowed us to park our planes so we can power in and power out [quickly]. They allow us to use steps rather than insisting we use aerobridges. This allows us to get many flights per day.

Q: What about Singapore's Changi Airport?

A: I think Singapore is a bit confused at the moment but its heart is in the right place. We are having a lot of discussions.

Q: A few years ago you were planning to have a low-cost long-haul carrier connecting with another low-cost carrier for travel within Europe or the USA.

Do you still think this idea could work?

A: Phuket Air is trying to do it. You don't get the same flip on costs as you do with shorter haul routes. You can't turn around a long-haul jumbo jet in 25min and if you do, so what? The flight is 14hr.

Q: How important is the Internet to your business?

A: It provided us with a completely new distribution system. We shut down the Global Distribution System [a few years ago], which was a brave move at that time. Instead we put a lot of marketing effort into building up our Internet [sales] and call centre, which had never been done in Malaysia. Everyone said we needed GDS but I thought it was just too expensive.

Q: Why did you decide to quit your job as Southeast Asia managing director of Warner Music and establish an airline?

A: I wasn't very happy at Warner Music. I didn't think it was doing the right thing with the AOL merger so I quit and sold my share. Then I spent two days at UK's Luton airport [a major hub for budget airlines] and bought a handicam and called up my wife and said 'I am going to start an airline'.

We had no finance - we couldn't even get a cup of coffee in a bank. I put my house up and with the Time Warner shares that is where the money came from.

Q: How profitable is AirAsia?

A: We just came out of a month [January 2004] where we had a net margin of 32%.

Source: Flight Daily News