‘India does not have a true low-cost airline’

AirAsia, the Kuala Lumpur based low-cost carrier, is one of the most profitable airlines in the world. The airline, which started operations in 2001, has 72 aircraft, an extensive network in Asia and is the only low-cost airline to start a long-haul service, KL-London.

AirAsia’s group CEO Tony Fernandes says a consistent desire to offer lower fares and, in turn, reduce costs structures is what drives the airline’s profits. Fernandes, who plans to add four more destinations in India, feels the LCC model is sustainable for a market like India. Excerpts from a telephonic interview with DNA :

At a time when most airlines globally are struggling just to survive, how is AirAsia making profits?
It’s based on two things — a massive desire to lower the costs over time and eventually lower fares. This becomes the unique selling proposition that there is an airline which is never happy with the fares and is consistently looking at lowering them to stimulate demand. We have struggled hard to get costs to the current low levels and in reducing fares. And this has enabled us to continually grow, and grow at decent margins.

How does AirAsia manage to remove all surcharges?
We charge a minimum administrative fee, which includes the cost of maintaining the web portal, transactions that occur online and remuneration to resources maintaining the system. There is no hidden cost, you’ll only pay for what you see. In fact, we are not increasing our base fare. The economies of scale are accomplished through our ever increasing route network, fleet and ancillary income, supported by operational efficiencies.

How does AirAsia deal with rise in operating costs?
Costs are all same but how you use the assets is what is important. How efficiently you burn your fuel, how light is your aircraft, etc. There are many ways to save and many ways to do it better. And we analyse every single way to try to make it as efficient as possible and low cost.

Indian carriers tried their hands at low fares but failed, yields were falling and load factors did not improve…
The word yield is banned for us. We are yield passive, load active! And one can do this only if you have a very low-cost structure. The problem with Indian carriers is that they never had a low-cost structure. They did not have the discipline to get to low costs and that is why low fares were not sustainable. Air Deccan was very successful when the Indian market was booming, but was not sustainable. They then entered in price competition rather than dealing with the core problems of costs.

Which are the other Indian destinations you are looking at?
Kochi, Thiruvananthapuram and Coimbatore this year. This will take us to five destinations along with Chennai and Trichy in India. We will do Kolkata as well this year, which will be an emotional destination for me. My father, who was an Indian, spent most of his years in Kolkata. We will connect Kolkata to Kuala Lumpur and Bangkok. My father also wanted us to fly to Goa, the possibility for which we will explore shortly.

Is a LCC model sustainable for India?
With a billion people in India, this is definitely sustainable. That’s where the mass of the market is, affordability that a low cost can give comes there. But India does not have a true low-cost airline. Probably SpiceJet comes closer to efficiently run. Jet and Kingfisher have two airlines and the services and brands get confused.

What is your strategy for India?
No strategy, just low fares and high frequencies. You must remember that for an Indian arriving in Kuala Lumpur, we can connect him to numerous destinations owing to our network. After the downturn, which saw premium passenger numbers falling, most Indian carriers opted for low cost. Jet started Jet Konnect, Kingfisher increased flights for economy service and LCCs increased capacity.

Will you look at taking stake in Indian carriers, if it is approved?
No. I think it’s best to start your own. Instead of buying others’ problems, I like to start fresh with no other culture contamination.