Richard Branson, chairman of Virgin Group, recalls meeting Tony Fernandes 25 years ago when Fernandes interviewed for a job at Virgin. Branson liked Fernandes and hired him. Their relationship has now culminated in Branson acquiring a 20% stake in AirAsia X, Fernandes' long-haul airline venture. The partnership combines Virgin's experience in long-haul flights with AirAsia's Asian reach and low-cost expertise. While long-haul low-cost flying has challenges, Branson is optimistic about the partnership's prospects given AirAsia's existing large passenger volume in Asia.

1. COVER FEATURE BIZWEEK, SATURDAY 11 AUGUST 2007BW12 BW13BIZWEEK, SATURDAY 11 AUGUST 2007 COVER FEATURE
By ANITA GABRIEL
Anita@thestar.com.my
E
VEN those days, he was a larger than life char-
acter,” says Richard Branson, chairman of
the Virgin Group, as he recalls his first
meeting with Datuk Tony Fernandes some 25
years ago. Fernandes had walked into Virgin
Group's office to be interviewed for a job by no
less than Branson himself.
Having scoured around for jobs in the music
business after a harrowing six-month stint as an
auditor in a London-based accounting firm, all
but one (Virgin Group) proved in vain for
Fernandes.
“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 in
the gaps on what is possibly the most high pro-
file ties a Malaysian businessman has forged
with a global icon (or rather iconoclast), one that
only this week has culminated in Branson's
acquisition of a 20% stake in another of
Fernandes' most daring venture yet – long-haul
no frills airline AirAsia X, operated by Fly Asian
Express Sdn Bhd.
“He must have been about 26 years old...young
and enthusiastic. I felt he would fit in well with
Virgin. And I believe his time at Virgin has taught
him ways of doing things that are a bit different
from conventional businesses. He proved himself
extremely good but sadly, we lost him to another
music company. But, we still kept in touch.”
The interview with the “legend” himself was a
major stroke of luck for Fernandes who laughs
and admits had remained a “great talk story” for
two years. Why wouldn't it? “In Britain then,
Branson was a hero. People just loved him,” says
Fernandes, who two years later, joined Warner
Music to pursue his dreams in the recording busi-
ness. Ironically, Fernandes' departure from Virgin
Group coincided with Branson's entry into the air-
line business.
With the most recent equity tie up involving
AirAsia X, it would mean that the Fernandes-
Branson ties have travelled a full circle.
Truth is, Fernandes is Branson's only link to
Malaysia. And he readily admits it: “Yes, surprising-
ly, Virgin has not had business in Malaysia. When
we had bands such as the Rolling Stones or Janet
Jackson, their records sold out in Malaysia. This
(FAX) would really be our first major investment in
Malaysia 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 Asia
and turn it around into a no-frills budget carrier –
indeed, a virginal concept then in Malaysia – many
had said, hung on a wing and prayer – and, for
awhile, it did.
Today, the carrier is touted as one of the region's
most successful budget carriers and Fernandes is
hailed as the poster boy of the region's low cost car-
rier (LCC) industry. As it stands, AirAsia flies to over
40 destinations, has carried over 23 million passen-
gers and aims to have an all-airbus fleet of 150 by
end year. The airline also just bagged the Skytrax
Awards 2007 for Asia's Best Low Cost Airline (inci-
dentally, Jetstar Airways won the world's Best Low
Cost Airline award).
His “celebrity status” persists. On a recent single-
day trip from KL to Kota Kinabalu and then Miri and
back, he had autographed close to 60 merchandises
and 70 photographs for “fans”.
It is not lost on Branson either: “What Tony has
achieved has truly transformed Malaysia. If you can
centre an airline with that many travellers out of
your country, it literally transforms the country and
it 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 lot
from it and still wants to work with us although he
had left us is flattering. It shows some of the
strength that Virgin has...that people can leave and
then return in a different guise, as partners...,” says
Branson.
Since Fernandes cut a swathe in corporate
Malaysia, market wags have frequently speculated
about Branson's potential entry as an investor in
AirAsia. 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 of
Branson's Virgin Blue tying up with AirAsia but the
lack of chemistry between Fernandes and the other
shareholder of the Australian discount air carrier
failed to see a deal materialise.
Later on, when the path was clear, Air Asia's
shares which were by then listed, had risen signifi-
cantly, which made it relatively less attractive from
the valuation perspective for Branson. Another pos-
sible tie up could have taken place with Branson's
British airline Virgin Atlantic Airways but there was
great reluctance as it is also 49% owned by
Singapore Airlines,
“But we always wanted
to do something together,”
admits Fernandes.
Perfect combo
Evidently, the Virgin
Group's style of doing busi-
ness has left its prints on
Fernandes' entrepreneurial
persona. “In many ways, it
formed a lot of what I am
today. The open and can-do
entrepreneurial spirit, going
up against oligopolies and
monopolies, rewriting gov-
ernment legislations and
really the people power that
drove a lot of the businesses.”
Little wonder then that Fernandes is occasionally
referred to as Asia's Richard Branson.
Both men are hip icons who have proven that
non-conventional and unorthodox business tactics
can trump dated, stuffy and bureaucratic establish-
ments; both have slick marketing styles and project
themselves as the consumers' champions although
one's legendary publicity stunts are a lot more
unnerving and at times, ludicrous (even so,
Branson's PR genius has worked, saving the group
millions of advertising dollars). There are other simi-
larities such as their deliberate positioning of them-
selves as underdogs standing up against the big
boys, a strategy that has clearly won the admiration
of the general populace. The media love them;
establishments and incumbent companies either
loathe or admire them.
Yet, naturally there are distinct differences that
set them apart as well. Branson's Virgin is involved
in panoply of businesses ranging from airline, con-
doms, bridal wear, healthcare, travel to mobile tele-
phony. Fernandes, as it stands, appears to be more
focussed with airline remaining his key business.
Even so, he has embarked in the recent year into
businesses such as budget hotel, financial products
and 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 to
raise funds to finance its operations. A clever
move indeed, for not many investors are likely to
walk away from betting on the success of such a
formidable tie up.
“We decided that it might be very exciting to
see if we can start a long haul airline out of Asia. It
would have been quite nice to use the Virgin
brand...Still, AirAsia is very well know in the region
and so we settled for a name that is similar –
AirAsia X,” says Branson.
The strengths from the equity tie up is crystal
clear. With Virgin in the equation, it dramatically
raises the brand of AirAsia X to a higher level.
Branson's far-reaching business
links can also be tapped to open
up doors for the airline.
“Together, we can attract
investors, suppliers, airports and
the whole industry rigmarole,”
says Fernandes.
AirAsia X is able to leverage
on the Virgin Group's over 20
years experience in long haul
while riding on AirAsia's reach
and expertise in Asia. “I think
this partnership can be very
strong. We both know the air-
line business and can turn it
into a success. I've launched
four 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 low
cost long haul carrier as it has not been tried before
in a “major way.”
Indeed, it must have been a hectic week, even for
Branson. On Wednesday, the global iconoclast
launched 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 its
first flight out of New York to San Francisco was
delayed by 15 minutes. On Friday, he arrived in
Kuala Lumpur for the unveiling of AirAsia X's global
strategic investor, him of course.
Nagging concerns
Still, there's no guarantee that AirAsia X's take off
is likely to be smooth as the travails and pitfalls of
long-haul no frills carrier is littered in the aviation
industry. Branson's fellow iconoclast and role model,
the late Sir Freddie Laker had launched Laker
Airways in 1966. The airline was the first to experi-
ment and adopt a no-frills business model in 1971
but went spectacularly bust in 1982 having buckled
under intense competitive pressures. It was tagged
one of Britain's greatest corporate failures at that
time.
Interestingly, in the early 80s when Branson was
set to embark on his maiden foray into the airline
business, it was Laker who provided some guidance
to him; he had stressed that it is crucial to focus on
low cost as well as quality and value offerings. He
also gave Branson a pointer or two on how to carry
out publicity stunts that would win the hearts of
consumers. Clearly, Branson took heed of the advice.
The British billionaire's wild publicity stunts – sky-
diving, cross dressing, jumping off buildings and
fetish for dangerous acts – easily makes him one of
the most revered, admired and colourful personali-
ties in the world corporate stage, a strategy that has
spectacularly met its objective – to build a recognis-
able, global life brand in Virgin.
It is then easy to appreciate the motivation of
naming AirAsia X’s first aircraft “Semangat Sir
Freddie” after the late icon. “He was put out of busi-
ness by the big airlines. But he was pioneer of this
concept and had done a phenomenal job,” says
Fernandes.
Nevertheless, there are lessons that AirAsia X will
be able to extract from Laker. For one, as Branson
himself, points out it may be necessary to have a
business 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 start
with 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 to
see. 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 he
incorporated that rather late. Personally, I would
argue that we should have a business class cabin
because that helps subsidise the low cost segment.
Anyway, it will evolve and we've got the resources
between us to allow it to evolve and adapt. It's one
of those things where the best way to find out is
“Oh, Screw it, let's do it,” he laughs. (`Screw it, Let's
do it' - is his maxim and the title of a book he had
authored, which emerged in the world's best sellers
list and has become a must-have for all wannabe-
entrepreneurs eager to learn from his lessons in life
and business).
The advantage, as Branson himself recognises is
that AirAsia already transports millions of passen-
gers and as such it may be a lot easier to make it
work: “That's something people like Freddie Laker
didn’t have the advantage of.”
Branson's entry into AirAsia X lends credence to
the fact that air passenger traffic is expected to grow
robustly. “As prices of other airlines go up and up
and up, I think there's a massive market out there
which is price conscious. So, if we can keep the cost
to a reasonable level and undercut others quite sub-
stantially, we should.
“You know, why should people fly in the old flag
carriers that have had
50-60-70 years of cost
going up and up and up.
That's painful. They are
paying for inefficiencies
when they can fly in a
carrier that is much
more cost effective.” The
combination comes with
some red flags however.
Some of Branson's critics
had earlier pointed out
that he can't resist the
urge to meddle and
interfere in decisions he
had supposedly delegat-
ed. Closer to home, some
say Fernandes too shares
similar traits. If it's true,
the tie up, like most others, will have to
endure some adjustment issues.
Battling the flag carriers
In the mid 80s, Branson made his maiden foray
into the airline business through the launch of
Virgin Atlantic Airways. His penchant of positioning
Virgin Atlantic as a David-slaying-Goliath crusade
won the hearts of many as he spent many years
battling the then incumbent British Airways, which
had resorted to block the airline through under-
handed tactics and political influence. Branson
emerged victor and Virgin Atlantic successfully
wrested a significant slice of market share from the
entrenched player.
Branson had also sued British Airways for libel in
end 1992. The latter offered the highest uncontest-
ed libel payment in British history. By end of 90s,
Virgin Atlantic became the third largest European
carrier and the most profitable company in the
Virgin Group.
In different ways, Fernandes has faced a similar
battle 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 the
start of 2009. Access to this route is crucial for
Fernandes but it has not been easy going.
Branson, indeed a seasoned industry combat-
ant, offers his take:
“I think the incumbent airlines or so
call flag carriers will fight very hard to
avoid competition. But the
Government should have none of that.
The government represents the people
and 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 no
part with the argument that competi-
tion is bad for consumers.
“Competition is always extremely
good for the consumers. The
Government should create competi-
tion and that's what their job should
be. 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. If
they don’t reduce their fares and offer consumer
good value for money, then like any old dead tree,
the old tree will die and new saplings will take
their place.
He doesn't mince his words on the role of civil
servants in moulding a competitive airline indus-
try either: “Aviation civil servants should say that
it’s role is defunct and they should leave it to peo-
ple who are willing to invest hundreds of millions
of dollars to offer consumers good value for their
money. Civil servants should not be getting in the
way of competition and therefore all skies should
be opened and there should be no control. This
should apply globally.
“Any carrier that is willing to fly anywhere in
the world should be allowed to fly.”
Classic Branson, you say? Sure is. And he has
landed on Malaysian soil. It will be interesting to
watch how the British legend, who doesn't mince
his word and loathes stuffy establishments will
adapt to the local landscape. Or will it be the other
way around?
Branson
and
Tony
unplugged
Of life, business
and restful nights
BIZWEEK: What would you refer to as your conspicuous failures
and successes?
Branson: Well, starting on the negative, we've never had any
massive failures because we never bought companies. We've always
started them from scratch. If something doesn’t work quite as well
as we hoped, we just don’t spend as much money on it. So we were
hoping 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 successful
as we hoped. We still have Virgin Cola in over 45 countries around
the 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 its
certainly one of our less successful companies.
In terms of our successes, the airline, music, mobile phone and
health businesses have done really well. What's interesting about
Virgin is that we've created a US$7bil dollar business in completely
different sectors which makes us quite unique in the world. And
we'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. Taking
on Coca Cola was irresistible.
I love taking on the big guys and shaking them up. We definitely
worried them, which is flattering. The trouble with soft drinks is
that we couldn’t end up with a product that is radically different
because 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 new
business 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 the
world. What do you make out of that?
Well, obviously it's flattering. There have certainly been
moments in my past where I could have easily been sitting here
talking about what went wrong. But we managed to survive and
thrive and I appreciate the position if find myself in enormously.
I certainly don't want to waste that position in not just creating
new businesses but in actually trying to make a difference in the
world...
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 family
and I hope I brought up two special kids.
On the business front, I hope that people will say we created
one 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 other
people and their lives can be better by the fact that Virgin existed.
»Whether AirAsia
X will evolve into
something like
Virgin Atlantic ... is
something we have
to see«
RICHARD BRANSON
»We’ve always
wanted to do
something
together. It’s a
perfect
combination«
TONY FERNANDES
> TURN TO PAGE 14