Covid-19 brings Tony Fernandes’s global empire down to earth

Tony Fernandes is one of Asia’s most marketing-savvy entrepreneurs, often drawing comparisons with Richard Branson, the British entrepreneur behind Virgin and his one-time mentor and boss.

The Malaysian tycoon bought AirAsia for less than $1 in 2001 and turned it into one of the largest low-cost carriers in the region.

He built his empire using many of the publicity-friendly tactics for which Sir Richard became famous. In 2013, he 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 cabin crew in AirAsia’s red uniforms.

But now, Mr Fernandes is facing one of his toughest challenges as the coronavirus pandemic pummels his business.

AirAsia X, his long-haul airline, is saddled with Rm63.5bn ($15.3bn) of debt and earlier this month it unveiled a restructuring plan to cope with “severe liquidity constraints”. AirAsia X’s deputy chairman told local media at the weekend the unit had “run out of money”, adding it was liquidating its Indonesian business and writing down its 49 per cent stake in Thai AirAsia X. The long-haul arm’s share price has plunged 77 per cent this year.

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

The crisis has forced AirAsia to seek financial support from the Malaysian government for the first time. “In 19 years, we’ve never [had] any necessity to ask for a government-backed loan,” Mr Fernandes told the Financial Times. “This is solely out of Covid, where we lost so much of our sales.”

Mr Fernandes’s difficulties are indicative of the existential challenge facing the airline sector, with travel restrictions wiping out passenger traffic worldwide. 

But some analysts also suggest the group has overstretched, even if a collapse remains unlikely.

AirAsia quit Japan months after EY, the group’s auditor, said the pandemic had cast “significant doubt” on the carrier’s ability to continue as a going concern. EY said that in the 2019 financial year, AirAsia registered a net loss of Rm283m and its current liabilities exceeded current assets by Rm1.84bn.

Mr Fernandes’s businesses sit under an umbrella company called Tune Group, with divisions ranging from the airlines to insurance, professional football and hotels.

Mr Fernandes and Kamarudin Meranun, his longtime business partner, jointly hold 32.18 per cent of AirAsia’s shares via Tune Live, an investment holding company, and Tune Air, Tune Group’s airline division.

Tune Group is AirAsia X’s largest shareholder with a stake of 17.83 per cent, followed by AirAsia at 13.76 per cent. Mr Fernandes holds a 2.69 per cent stake in AirAsia X.

Mr Fernandes is now concentrating on the airline after years of high-profile forays into different sectors. “AirAsia is the most important baby to me so that’s where most of my focus will be,” he said.

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

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

QPR were relegated from the Premier League in 2013 and after winning promotion back to the top tier of English football, were relegated again in 2015.

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

“Both F1 and football are highly speculative. In the end it’s not how much effort and money you put into it, everything has to fall in place and you’ve got to be lucky,” said Mr Ecclestone. “He was probably trying to do too much. The wrong people take advantage if you’ve got money and I think in his case [that] is what happened. He’s not an idiot as far as business is concerned by any means.”

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

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

Column chart of Net debt (RM bn) showing Debt leaps for AirAsia X

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

AirAsia is also encumbered by a huge aircraft fleet and has some 350 Airbus narrow-body aircraft on order. It is the second biggest customer for Airbus’s popular A320 single-aisle aircraft.

“We have been sceptical about [the] sheer number of orders they placed for some time,” said Sash Tusa, an analyst at Agency Partners. “Any time an airline gets so big that it starts placing orders which are much bigger than comparable airlines, it is time to get very, very concerned.”

Mr Tusa forecast that only 60 aircraft would be delivered until the end of 2027.

Mr Fernandes earlier this month said he planned 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 height . . . arguably was south-east Asia’s largest low-cost carrier,” said Paul Yong, an analyst at DBS. Units in Malaysia and Thailand were the most successful but “going into Indonesia and the Philippines was a tougher proposition because there were already other leaders”.

Mr Fernandes admitted that the company could exit more markets. “For our remaining five airlines there may come a point where we have to maybe exit one but that point hasn’t [arisen] yet,” he said.

Analysts point to India, where the company is in need of recapitalisation.

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

Line chart of Passenger load factor (%) showing Covid-19 hits air travel demand

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

He also hopes AirAsia’s new super app — a one-stop travel, ecommerce and fintech platform — will be a route to better insulating the company from the blows typically suffered by airlines.

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

Services delivered on the app will be expanded from Malaysia to the rest of south-east Asia in the next three months. 

Regardless, analysts say the airline is unlikely to collapse.

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

Mr Fernandes will no doubt also fall back on the guiding business principles he described in his memoir to find a way out of the morass.

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

Tony Fernandes: from music to airlines


Tony Fernandes is named CEO of Warner Music Malaysia at the age of 28


Fernandes buys AirAsia for less than $1 and starts building what will become one of the largest budget carriers in the region


The carrier’s long-haul unit kicks off operations under the branding ‘AirAsia X’


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


Fernandes buys Bernie Ecclestone’s majority stake in British football team Queens Park Rangers


Sells struggling motor racing team to an unnamed consortium of Swiss and Middle Eastern investors and ends costly foray into Formula One

Jul 2020

AirAsia’s auditor says the coronavirus pandemic cast “significant doubt” on the company’s ability to continue as a going concern, triggering an 18 per cent share price drop

Oct 2020

AirAsia shuts Japan unit after six years in operation citing fallout from the pathogen. Later AirAsia X’s deputy chairman says unit has “run out of money”, adding it would liquidate its Indonesian business and write down its 49 per cent stake in Thai AirAsia X

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