Covid-19 brings Tony Fernandes global empire back to earth

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Tony Fernandes is one of Asia’s most avid marketing entrepreneurs, often drawing comparisons to Richard Branson, the British entrepreneur behind Virgin and his former mentor and boss.

The Malaysian tycoon bought AirAsia for less than $ 1 in 2001 and made it one of the largest budget carriers in the region.

He built his empire using many advertising tactics for which Sir Richard became famous. In 2013, it made headlines when the Virgin boss dressed as an AirAsia flight attendant – in lipstick and fishnet stockings – after losing a bet. Announcements of new aircraft orders at air shows often resemble variety shows featuring flight attendants in red AirAsia uniforms.

But now Mr Fernandes faces one of his toughest challenges as the coronavirus pandemic crushes his business.

AirAsia X, its long-haul airline, is grappling with 63.5 billion rupees ($ 15.3 billion) in debt and earlier this month unveiled a restructuring plan to deal with “severe constraints liquidity ”. AirAsia X’s vice president told local media over the weekend that the unit was “strapped for cash,” adding that it was liquidating its Indonesian business and reducing its 49% stake in Thai AirAsia X. The long-haul industry’s share price has fallen 77 percent this year.

AirAsia, the heart of Mr. Fernandes’ empire, is facing its own struggles, and the airline’s share price has fallen 65% in 2020. The company has pulled out of Japan and its airline India, a joint venture with the Tata Group, come under further scrutiny after reports that the Malaysian company had stopped funding it. Mr. Fernandes denied the request.

The crisis forced AirAsia to seek financial support from the Malaysian government for the first time. “In 19 years, we have never [had] any need to apply for a government guaranteed loan, ”Fernandes told the Financial Times. “It’s only outside of Covid, where we’ve lost a lot of our sales.”

Fernandes’ struggles are indicative of the existential challenge facing the airline industry, with travel restrictions wiping out passenger traffic around the world.

But some analysts also suggest the group has overworked itself, though a collapse is unlikely.

AirAsia left Japan months after EY, the group’s auditor, said the pandemic had cast “significant doubt” on the carrier’s ability to continue to operate. EY said that in fiscal year 2019, AirAsia recorded a net loss of Rm 283 million and its current liabilities exceeded current assets by Rm 1.84 billion.

Mr. Fernandes’ business is owned by an umbrella company called Tune Group, with divisions ranging from airlines to insurance, professional football and hotels.

Mr. Fernandes and Kamarudin Meranun, his long-time business partner, jointly own 32.18% of AirAsia’s shares through Tune Live, an investment holding company, and Tune Air, the airline division of Tune Group.

Tune Group is AirAsia X’s largest shareholder with a 17.83% stake, followed by AirAsia at 13.76%. Mr. Fernandes owns a 2.69% stake in AirAsia X.

Mr. Fernandes is now focused on the airline after years of high profile forays into different industries. “AirAsia is the most important baby for me so this is where I will mainly focus,” he said.

The mogul – who is rarely seen without his red AirAsia baseball cap – bought the Lotus Formula One racing team in 2010 and a year later the Queens Park Rangers, the English football team, were acquired by Bernie Ecclestone, the former boss of F1.

Tony Fernandes has made high profile forays into the sport, including acquiring England football team Queens Park Rangers, but has had limited success © Reuters

QPR was relegated from the Premier League in 2013 and after winning promotion to the highest level in English football, was relegated again in 2015.

Mr Fernandes left F1 in 2014, when he sold the team before it collapsed into administration.

“F1 and football are both highly speculative. At the end of the day it’s not how much effort and money you put into it, everything has to fall into place and you have to be lucky, ”said Mr. Ecclestone. “He was probably trying to do too much. Bad people take advantage if you have the money and I think in his case [that] is what happened. He is by no means an idiot when it comes to business. ”

The current crisis has highlighted three underlying challenges for Mr. Fernandes’ business: the chronic underperformance of the long-haul unit; the company’s huge fleets of aircraft; and the difficulty of supporting the international network.

AirAsia X was in trouble before the pandemic hit, analysts say, who point to the difficulty of making a low-cost strategy for a long-haul airline viable. Since listing in Kuala Lumpur in 2013, the unit has recorded full-year net profit barely twice.

Net Debt Column Chart (RM Billion) Showing Debt Jumps for AirAsia X

” And [Mr Fernandes] stuck to the short-haul and even just stuck to Malaysia. . . then he would be a formidable force, ”said a banker who previously worked with the airline.

AirAsia is also crowded with a huge fleet of aircraft and has some 350 narrow-body Airbus planes on order. This is the second customer of the famous Airbus A320 single-aisle aircraft.

“We have been skeptical about [the] the number of orders they’ve placed over a period of time, ”said Sash Tusa, analyst at Agency Partners. “Anytime an airline gets so big that it starts placing much larger orders than comparable airlines, it’s time to be very, very concerned.”

Mr Tusa predicted that only 60 devices would be delivered until the end of 2027.

Mr Fernandes said earlier this month that he plans to return as many AirAsia planes as possible and cut the fleet by a quarter to 180 aircraft.

The pandemic has also renewed questions about the carrier’s aggressive overseas expansion. “AirAsia at its peak. . . was arguably Southeast Asia’s largest low-cost carrier, ”said Paul Yong, analyst at DBS. The units in Malaysia and Thailand were the most successful, but “entering Indonesia and the Philippines was a more difficult proposition because there were already other leaders”.

Mr Fernandes admitted that the company could exit more markets. “For our other five airlines, we may need to leave one, but it’s not [arisen] again, ”he said.

Analysts point to India, where the company needs a recapitalization.

Neelam Mathews, a New Delhi-based aviation analyst, said the airline’s outlook was “pretty dismal”, adding that the competition would become more aggressive after the pandemic.

Line graph of passenger occupancy factor (%) showing that Covid-19 meets the demand for air travel

Fernandes, however, sees signs of hope in Asia. Domestic travel to Thailand and Malaysia respectively, for example, reached 80% and 60% of AirAsia’s pre-pandemic levels, he said.

He also hopes AirAsia’s new super app – a one-stop travel, e-commerce and fintech platform – will be a way to better insulate the company from the blows typically suffered by airlines.

“It’s a cyclical affair between volcanoes and tsunamis,” he said.

The services provided on the app will be extended from Malaysia to the rest of Southeast Asia over the next three months.

Either way, analysts say the airline is unlikely to collapse.

“The post-Covid low-cost carrier model will be as resilient as before and even stronger compared to full-service carriers,” Yong said.

Mr. Fernandes will no doubt also rely on the guiding business principles he described in his memoirs to find a way out of the quagmire.

“I’m a black and white person, which can get me in trouble. . . You have to lead by clarity and not by manipulation, ”he wrote.

Tony Fernandes: from music to airlines

1992

Tony Fernandes appointed CEO of Warner Music Malaysia at age 28

2001

Fernandes buys AirAsia for less than $ 1, begins building what will become one of the region’s largest budget carriers

2007

The carrier’s long-haul unit starts operations under the “AirAsia X” brand

2010

Fernandes buys Formula One Team Lotus, sparking a legal fight for naming rights with a separate team called Lotus Cars, before buying Caterham Cars and renaming his team after the sports car maker

2011

Fernandes buys Bernie Ecclestone majority stake in UK football team Queens Park Rangers

2014

Sells ailing motor racing team to an anonymous consortium of Swiss and Middle Eastern investors, ends costly Formula 1 foray into

Jul 2020

AirAsia auditor said coronavirus pandemic casts ‘significant doubt’ over company’s ability to continue operating, causing share price to drop 18%

October 2020

AirAsia closes the Japanese unit after six years of operation, citing the fallout from the pathogen. AirAsia X vice chairman later said the unit was “strapped for cash”, adding that it would liquidate its Indonesian operations and reduce its 49% stake in Thai AirAsia X

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