COVER FEATURE BIZWEEK, SATURDAY 11 AUGUST 2007 BW12 BW13BIZWEEK, SATURDAY 11 AUGUST 2007 COVER FEATURE

By ANITA GABRIELAnita@thestar.com.my

EVEN those days, he was a larger than life char-acter,” says Richard Branson, chairman ofthe Virgin Group, as he recalls his first

meeting with Datuk Tony Fernandes some 25years ago. Fernandes had walked into VirginGroup's office to be interviewed for a job by noless than Branson himself.

Having scoured around for jobs in the musicbusiness after a harrowing six-month stint as anauditor in a London-based accounting firm, allbut one (Virgin Group) proved in vain forFernandes.

“I liked him and on the spur of the moment,gave him the job (in Virgin TV),” says Branson.

In an interview with BizWeek, Branson fills inthe gaps on what is possibly the most high pro-file ties a Malaysian businessman has forgedwith a global icon (or rather iconoclast), one thatonly this week has culminated in Branson'sacquisition of a 20% stake in another ofFernandes' most daring venture yet – long-haulno frills airline AirAsia X, operated by Fly AsianExpress Sdn Bhd.

“He must have been about 26 years old...youngand enthusiastic. I felt he would fit in well withVirgin. And I believe his time at Virgin has taughthim ways of doing things that are a bit differentfrom conventional businesses. He proved himselfextremely good but sadly, we lost him to anothermusic company. But, we still kept in touch.”

The interview with the “legend” himself was amajor stroke of luck for Fernandes who laughsand admits had remained a “great talk story” fortwo years. Why wouldn't it? “In Britain then,Branson was a hero. People just loved him,” saysFernandes, who two years later, joined WarnerMusic to pursue his dreams in the recording busi-ness. Ironically, Fernandes' departure from VirginGroup coincided with Branson's entry into the air-line business.

With the most recent equity tie up involvingAirAsia X, it would mean that the Fernandes-Branson ties have travelled a full circle.

Truth is, Fernandes is Branson's only link toMalaysia. And he readily admits it: “Yes, surprising-ly, Virgin has not had business in Malaysia. Whenwe had bands such as the Rolling Stones or JanetJackson, their records sold out in Malaysia. This(FAX) would really be our first major investment inMalaysia and hopefully the first of many.”

Fernandes, the upstart

When Fernandes swash buckled his way into cor-porate Malaysia over six years ago, a flurry of excite-ment ensued – one typically reserved for celebrities.His audacious pitch to acquire loss-making Air Asiaand turn it around into a no-frills budget carrier –indeed, a virginal concept then in Malaysia – manyhad said, hung on a wing and prayer – and, forawhile, it did.

Today, the carrier is touted as one of the region'smost successful budget carriers and Fernandes ishailed as the poster boy of the region's low cost car-rier (LCC) industry. As it stands, AirAsia flies to over40 destinations, has carried over 23 million passen-gers and aims to have an all-airbus fleet of 150 byend year. The airline also just bagged the SkytraxAwards 2007 for Asia's Best Low Cost Airline (inci-dentally, Jetstar Airways won the world's Best LowCost Airline award).

His “celebrity status” persists. On a recent single-day trip from KL to Kota Kinabalu and then Miri andback, he had autographed close to 60 merchandisesand 70 photographs for “fans”.

It is not lost on Branson either: “What Tony hasachieved has truly transformed Malaysia. If you cancentre an airline with that many travellers out ofyour country, it literally transforms the country andit has put Malaysia on the map in a way that noth-ing else could have achieved.”

The Branson link

“The fact that Tony used to work with Virgin,enjoyed the experience enormously and learnt a lotfrom it and still wants to work with us although hehad left us is flattering. It shows some of thestrength that Virgin has...that people can leave andthen return in a different guise, as partners...,” saysBranson.

Since Fernandes cut a swathe in corporateMalaysia, market wags have frequently speculatedabout Branson's potential entry as an investor inAirAsia. Truth is, both men have long toyed with

such a possibility. During one of Fernandes' sojourn in Necker Island

a few years ago, both men bandied the idea ofBranson's Virgin Blue tying up with AirAsia but thelack of chemistry between Fernandes and the othershareholder of the Australian discount air carrierfailed to see a deal materialise.

Later on, when the path was clear, Air Asia'sshares which were by then listed, had risen signifi-cantly, which made it relatively less attractive fromthe valuation perspective for Branson. Another pos-sible tie up could have taken place with Branson'sBritish airline Virgin Atlantic Airways but there wasgreat reluctance as it is also 49% owned bySingapore Airlines,

“But we always wantedto do something together,”admits Fernandes.

Perfect combo

Evidently, the VirginGroup's style of doing busi-ness has left its prints onFernandes' entrepreneurialpersona. “In many ways, itformed a lot of what I amtoday. The open and can-doentrepreneurial spirit, goingup against oligopolies andmonopolies, rewriting gov-ernment legislations andreally the people power thatdrove a lot of the businesses.”

Little wonder then that Fernandes is occasionallyreferred to as Asia's Richard Branson.

Both men are hip icons who have proven thatnon-conventional and unorthodox business tacticscan trump dated, stuffy and bureaucratic establish-ments; both have slick marketing styles and projectthemselves as the consumers' champions althoughone's legendary publicity stunts are a lot moreunnerving and at times, ludicrous (even so,Branson's PR genius has worked, saving the groupmillions of advertising dollars). There are other simi-larities such as their deliberate positioning of them-selves as underdogs standing up against the bigboys, a strategy that has clearly won the admirationof the general populace. The media love them;establishments and incumbent companies eitherloathe or admire them.

Yet, naturally there are distinct differences thatset them apart as well. Branson's Virgin is involvedin panoply of businesses ranging from airline, con-doms, bridal wear, healthcare, travel to mobile tele-phony. Fernandes, as it stands, appears to be morefocussed with airline remaining his key business.Even so, he has embarked in the recent year intobusinesses such as budget hotel, financial productsand more recently, telecommunications.

In Fernandes' own words: “It's a perfect combina-tion”. And this very combination will soon be pitch-

ing its appeal to draw more investors into FAX toraise funds to finance its operations. A clevermove indeed, for not many investors are likely towalk away from betting on the success of such aformidable tie up.

“We decided that it might be very exciting tosee if we can start a long haul airline out of Asia. Itwould have been quite nice to use the Virginbrand...Still, AirAsia is very well know in the regionand so we settled for a name that is similar –AirAsia X,” says Branson.

The strengths from the equity tie up is crystalclear. With Virgin in the equation, it dramaticallyraises the brand of AirAsia X to a higher level.

Branson's far-reaching businesslinks can also be tapped to openup doors for the airline.

“Together, we can attractinvestors, suppliers, airports andthe whole industry rigmarole,”says Fernandes.

AirAsia X is able to leverageon the Virgin Group's over 20years experience in long haulwhile riding on AirAsia's reachand expertise in Asia. “I thinkthis partnership can be verystrong. We both know the air-line business and can turn itinto a success. I've launchedfour airlines and two more soon(Virgin America and AA X). It's

going to be very very exciting,”says Branson adding that it's

going to be an interesting challenge to have a lowcost long haul carrier as it has not been tried beforein a “major way.”

Indeed, it must have been a hectic week, even forBranson. On Wednesday, the global iconoclastlaunched Virgin America Inc, a low-cost airline part-ly backed and fully branded by him. The take off,unfortunately was bumpy due to a storm and itsfirst flight out of New York to San Francisco wasdelayed by 15 minutes. On Friday, he arrived inKuala Lumpur for the unveiling of AirAsia X's globalstrategic investor, him of course.

Nagging concerns

Still, there's no guarantee that AirAsia X's take offis likely to be smooth as the travails and pitfalls oflong-haul no frills carrier is littered in the aviationindustry. Branson's fellow iconoclast and role model,the late Sir Freddie Laker had launched LakerAirways in 1966. The airline was the first to experi-ment and adopt a no-frills business model in 1971but went spectacularly bust in 1982 having buckledunder intense competitive pressures. It was taggedone of Britain's greatest corporate failures at thattime.

Interestingly, in the early 80s when Branson wasset to embark on his maiden foray into the airline

business, it was Laker who provided some guidanceto him; he had stressed that it is crucial to focus onlow cost as well as quality and value offerings. Healso gave Branson a pointer or two on how to carryout publicity stunts that would win the hearts ofconsumers. Clearly, Branson took heed of the advice.The British billionaire's wild publicity stunts – sky-diving, cross dressing, jumping off buildings andfetish for dangerous acts – easily makes him one ofthe most revered, admired and colourful personali-ties in the world corporate stage, a strategy that hasspectacularly met its objective – to build a recognis-able, global life brand in Virgin.

It is then easy to appreciate the motivation ofnaming AirAsia X’s first aircraft “Semangat SirFreddie” after the late icon. “He was put out of busi-ness by the big airlines. But he was pioneer of thisconcept and had done a phenomenal job,” saysFernandes.

Nevertheless, there are lessons that AirAsia X willbe able to extract from Laker. For one, as Bransonhimself, points out it may be necessary to have abusiness class cabin in front to subsidise the low-cost segment.

“Whether it (AirAsia X) will evolve into some-thing a bit more like Virgin Atlantic, where we startwith a low cost and then evolve into the best busi-ness class in the front or whether it stays as a one-class no-frill airline is something that we have tosee. These are issues Tony and I will debate on.

“For instance, Freddy Laker realised that he need-ed a business class cabin in order to survive but heincorporated that rather late. Personally, I wouldargue that we should have a business class cabinbecause that helps subsidise the low cost segment.Anyway, it will evolve and we've got the resourcesbetween us to allow it to evolve and adapt. It's oneof those things where the best way to find out is“Oh, Screw it, let's do it,” he laughs. (`Screw it, Let'sdo it' - is his maxim and the title of a book he hadauthored, which emerged in the world's best sellerslist and has become a must-have for all wannabe-entrepreneurs eager to learn from his lessons in lifeand business).

The advantage, as Branson himself recognises isthat AirAsia already transports millions of passen-gers and as such it may be a lot easier to make itwork: “That's something people like Freddie Lakerdidn’t have the advantage of.”

Branson's entry into AirAsia X lends credence tothe fact that air passenger traffic is expected to grow

robustly. “As prices of other airlines go up and upand up, I think there's a massive market out therewhich is price conscious. So, if we can keep the costto a reasonable level and undercut others quite sub-stantially, we should.

“You know, why should people fly in the old flagcarriers that have had50-60-70 years of costgoing up and up and up.That's painful. They arepaying for inefficiencieswhen they can fly in acarrier that is muchmore cost effective.” Thecombination comes withsome red flags however.Some of Branson's criticshad earlier pointed outthat he can't resist theurge to meddle andinterfere in decisions hehad supposedly delegat-ed. Closer to home, somesay Fernandes too sharessimilar traits. If it's true,the tie up, like most others, will have toendure some adjustment issues.

Battling the flag carriers

In the mid 80s, Branson made his maiden forayinto the airline business through the launch ofVirgin Atlantic Airways. His penchant of positioningVirgin Atlantic as a David-slaying-Goliath crusadewon the hearts of many as he spent many yearsbattling the then incumbent British Airways, whichhad resorted to block the airline through under-handed tactics and political influence. Bransonemerged victor and Virgin Atlantic successfullywrested a significant slice of market share from theentrenched player.

Branson had also sued British Airways for libel inend 1992. The latter offered the highest uncontest-ed libel payment in British history. By end of 90s,Virgin Atlantic became the third largest Europeancarrier and the most profitable company in theVirgin Group.

In different ways, Fernandes has faced a similarbattle with flag carrier Malaysia Airline Systems.Fernandes is facing off with Malaysia Airline again

on another major issue – he wants two KL-Singapore flights a day and he wants it now,before the ASEAN open sky policy kicks off in thestart of 2009. Access to this route is crucial forFernandes but it has not been easy going.

Branson, indeed a seasoned industry combat-ant, offers his take:

“I think the incumbent airlines or socall flag carriers will fight very hard toavoid competition. But theGovernment should have none of that.The government represents the peopleand the people's interest is competi-tion. The people's interest is not pro-tecting the flag carrier. Tony's compa-ny is just as much Malaysian, repre-senting the people as the flag carrier.So, the Government should have nopart with the argument that competi-tion is bad for consumers.

“Competition is always extremelygood for the consumers. TheGovernment should create competi-

tion and that's what their job shouldbe. Of course, Tony should be able to fly

between Malaysia and Singapore. The more peo-ple who are willing to fly, the better.

“If the flag carriers do a good job, they will sur-vive and the competitor will survive as well. Ifthey don’t reduce their fares and offer consumergood value for money, then like any old dead tree,the old tree will die and new saplings will taketheir place.

He doesn't mince his words on the role of civilservants in moulding a competitive airline indus-try either: “Aviation civil servants should say thatit’s role is defunct and they should leave it to peo-ple who are willing to invest hundreds of millionsof dollars to offer consumers good value for theirmoney. Civil servants should not be getting in theway of competition and therefore all skies shouldbe opened and there should be no control. Thisshould apply globally.

“Any carrier that is willing to fly anywhere inthe world should be allowed to fly.”

Classic Branson, you say? Sure is. And he haslanded on Malaysian soil. It will be interesting towatch how the British legend, who doesn't mincehis word and loathes stuffy establishments willadapt to the local landscape. Or will it be the otherway around?

Bransonand Tony

unpluggedOf life, businessand restful nightsBIZWEEK: What would you refer to as your conspicuous failuresand successes?

Branson: Well, starting on the negative, we've never had anymassive failures because we never bought companies. We've alwaysstarted them from scratch. If something doesn’t work quite as wellas we hoped, we just don’t spend as much money on it. So we werehoping to topple Coke's seat as No 1 soft drink brand in the world,and they came all guns blazing.

Although it started really well, it hasn’t proven to be as successfulas we hoped. We still have Virgin Cola in over 45 countries aroundthe world but it's certainly not the dominant soft drink in the world.We've got a profitable company and it's worthwhile having but itscertainly one of our less successful companies.

In terms of our successes, the airline, music, mobile phone andhealth businesses have done really well. What's interesting aboutVirgin is that we've created a US$7bil dollar business in completelydifferent sectors which makes us quite unique in the world. Andwe've had fun in the process

Were some of the business decisions aimed at making commer-cial statements rather than commercial sense?

I think there's some truth in that. I love to give things a go. Takingon Coca Cola was irresistible.

I love taking on the big guys and shaking them up. We definitelyworried them, which is flattering. The trouble with soft drinks isthat we couldn’t end up with a product that is radically differentbecause people didn’t want a product that's radically different.

With airlines, mobile phone or music, we can make a real differ-ence. The principle thing is that there's no point creating a newbusiness unless we can make a real radical statement or make a dif-ference.

Indeed, you are one of the world's most researched men in theworld. What do you make out of that?

Well, obviously it's flattering. There have certainly beenmoments in my past where I could have easily been sitting heretalking about what went wrong. But we managed to survive andthrive and I appreciate the position if find myself in enormously.

I certainly don't want to waste that position in not just creatingnew businesses but in actually trying to make a difference in theworld...

What would you like to be remembered for?I think there are many aspects to one's life. Obviously, I'm a

father and proud of my two children. We're a very close familyand I hope I brought up two special kids.

On the business front, I hope that people will say we createdone of the most successful brands in the world and made a differ-ence in a number of different sectors.

I hope the resources we've created can change the lives of otherpeople and their lives can be better by the fact that Virgin existed.

»Whether AirAsiaX will evolve intosomething likeVirgin Atlantic ... issomething we haveto see«RICHARD BRANSON

»We’ve alwayswanted to dosomethingtogether. It’s aperfectcombination«TONY FERNANDES

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