AirAsia’s Fernandes Speaks in Bloomberg Interview (Transcript)

AirAsia Bhd. Chief Executive Officer Tony Fernandes spoke on Bloomberg Television’s “The Pulse” with Guy Johnson at the World Economic Forum’s annual meeting in Davos, Switzerland.

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy. Mandatory credit Bloomberg Television)

FULL INTERVIEW TRANSCRIPT:

Guy Johnson (GJ): Welcome back, let’s talk to our next guest. It has been a tough month for Tony Fernandes, CEO of AirAsia. Tony, welcome to the program. The first thing to say is, obviously, a very difficult time for the business. You seem to be working your way through it. Is there anything you can update us on? Any kind of news that you can bring us from what has happened over the last twelve hours?

Tony Fernandes (TF): Not at the moment. We’ve been led to believe that some of our guests have been pulled out of the hull, which is important for me. The main drive is to get all of our guests back to their families. That was good news, that the divers were able to extract some of them. We are now hopeful that we can actually pull the whole hull out. I think there is word that sonar has picked up where the cockpit, although it hasn’t been positively identified. But the main thrust is to get our guests back to their families, so that there is some closure.

GJ: When do you think you’ll have an understanding of what happened?

TF: Obviously the FDR and the cockpit voice recorder are in a good condition. We are provisionally asked to be on standby on Friday to analyze the data and hear it for the first time. I would imagine over the next three to four weeks we will have a clearer picture of what’s happened.

GJ: A number of questions seem to have arisen about whether the aircraft should have been flying. Questionmarks raised about whether you actually had the authority to do so. I’ve seen in the last 24 hours that you said you thought that it was very clear that you did have the authority.

TF: Yes, I think that because some of these regulatory approvals come from many different ways and from many different types. Obviously, we had approval to fly to Singapore. We had approval from the airports, we had rights seven times a week. There was just one bit of an administrative issue, which some authorities don’t need, some do and it was a bit slack. In terms of the procedure, in fact, 60 other flights were involved in that, it’s been cleaned up. Indonesians [inaudible], that’s an issue of the past.

GJ: But there will be no issue with – there was some concern that maybe from a financial point of view for your business that may affect any insurance issues.

TF: No, no, the insurance has been paid out already. Our insurance brokers have done a fantastic job. It has already been paid. Insurance has been provided for our guests and their families.

GJ: Walk me through how this does affect the business. Your ongoing concern is this doesn’t stop the business. You carry on flying. How do you change your processes? Do you change your processes? Does this have a meaningful impact on people’s willingness to fly with you?

TF: You know I’ve gone on record and said the amazing amount of support we’ve had. The best way of quantifying that is actually also from your pocket. Sales are up from this time last year, which is a remarkable show of support. We haven’t been advertising, neither, out of respect for the families for the next 30 days. Come Monday, we will probably be making some announcements as we get back into a normal course of business.

GJ: Want to give us an idea what any of those are?

TF: No, not yet. My head of communications will execute me. But we are moving back. Even though we’ve been quiet for the last month, sales have been strong, which is good. Regarding ongoing processes we don’t know what went wrong. It would be wrong for me to speculate. But for me, safety has always been a marathon. It is not something that you can say you are safe now, because as soon as you say you are safe now you become complacent. From the day it happened, I’ve been with Airbus, with our pilots, and everything we do is by the book. We go through every authorized process. Everything is by Airbus’s methodology from training to how we maintain the planes. All the equipment we have on the plane is as good as you can get. As I said, I’m sure there are things we can keep getting better at. Until we know the full results from the investigation – but we haven’t stopped. This is now a crusade for me to make sure we keep improving and provide the best service.

GJ: Does it mean you now refocus on Indonesia. Does it change the way you position your markets?

TF: No, no change at all. We are an ASEAN-based airline Malaysia, Thailand, Indonesia and Philippines have been our core markets. We are now in India and we are about to start Japan. Doesn’t change the focus at all.

GJ: What’s next on the list?

TF: Next on the list – we’ve obviously have anyway in the past cut back capacity a little bit, because I think all the airlines have been a bit more sensible, we’ve got our core markets in there. For me, the next step is to try and get consolidation on the line, to try and push ownership up beyond our 49%. As the ASEAN economic region becomes an economic union and Davos has been very supportive and helpful in pushing those messages across – you know banks can own 100% of ASEAN telecommunications companies. Airlines are the next stage. We continue to push on infrastructure and on getting better infrastructure in terms of airports going forward. And obviously, oil has been a big, big plus. As you know I’ve always been an oil bear. We didn’t hedge very much. We are now a beneficiary of that.

GJ: That is feeding through already, is it? Literally, I was talking to Tim Clark yesterday from Emirates and he was saying full unhedged. He said he wouldn’t try and destabilize the market, because he had a tactical advantage, but nevertheless he was unhedged. That’s meaningful for his business.

TF: Yes, I mean we are not fully unhedged, but we are going to be effective oil at today’s prices at $76, which half of where it was before. We’re in a good position there.

GJ: And you use that tactically on the pricing side?

TF: Yes, obviously, we are a high-value low fare airline. We are all about stimulating demand. Obviously, whether fuel surcharges and prices remain where they are, I anticipate them to be going down, which obviously will stimulate more demand. Ancillary income has been a big, big plus for us and I’ve built that up. When oil prices were high, I saw that as a great defense mechanism. As a low-fare airline we are obviously limited in terms of – we are heard more. So we are a bigger beneficiary than airlines such as Emirates when oil goes down, because we don’t have the ability to raise fares as much. But we built a very good ancillary income business, which is now approaching 50 ringgit per passenger and getting towards 60.

GJ: You have deferred some 320’s and 330’s from Airbus. Does the lower fuel story change your expectations for capacity?

TF: No, I think we’ve always been very consistent about what we want to do. We had some competitors and they came into the market, we put a lot of capacity in the show kind of who’s boss. We are now beginning to say, well we can go back to a normal rate of growth going forward.

GJ: So you are not going to defer anymore.

TF: No.

GJ: But, you are kind of comfortable with where the plan is now.

TF: I think it is always better to be cautious than overambitious. Yes, the oil gives an opportunity to maybe add more capacity, but I’d rather take up a normal, steady path that we’ve kept consistent over the last few years.

GJ: Tony, we will leave it there. Condolences obviously for your passengers that lost their lives in the recent crash. I think everybody is very eager and there’s a lot of anticipation to find out what exactly happened, but also to follow the business and to see where it goes from here. Thank you very much. Tony Fernandes, CEO of AirAsia.

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