* AirAsia spreads its wings

The view from the 45th floor at AirAsia’s new office in the Indonesian capital is spectacular, and even better when the smog lifts. If the airline’s executives occasionally feel masters of all they survey, perhaps they could be forgiven the moments of hubris: they are, after all, at the helm of Asia’s great aviation success story.


While older Asian airlines such as Malaysian and Qantas struggle, AirAsia, just ten years old, continues to conquer the skies. Last year it carried 30m passengers, yet their numbers are still growing at around 10% a year, and profits are healthy. It claims to be the fourth-largest airline in Asia despite lacking the huge, captive domestic market of China’s big carriers.

The opening of the office in Jakarta marks the start of the next phase of its expansion plans. The airline is still registered in Malaysia, home to its boss, Tony Fernandes, but the Jakarta office is the new base from which it hopes to dominate South-East Asia, with its 600m people, and beyond. It is ideal terrain for airlines: a region dominated by sprawling archipelagoes, where planes therefore face little competition from roads and high-speed trains, as they do in Europe or America.

To this end AirAsia has bought into the Indonesian domestic market by acquiring a local carrier, Batavia Air (the deal still requires regulatory approval). With a booming economy, a growing middle class and 240m people spread over 17,000 or so islands, Indonesia’s potential is obvious. Batavia’s 32 planes, added to the 18 flown by Indonesia AirAsia, make for a sizeable fleet. And beyond South-East Asia the airline has just broken into the Japanese market, teaming up with All Nippon Airways to launch a new domestic carrier. The service started on August 1st. Next stop, probably, is South Korea. To fly all these people around, AirAsia is amassing an enormous fleet of new planes. It is now the biggest customer for Airbus’s single-aisle A320, with 375 on order, and is expected to order a further 100 planes from Airbus soon.

AirAsia’s fares are lower than those of the region’s older “legacy” carriers. But they are not rock-bottom cheap like those of the European no-frills airlines that originally inspired Mr Fernandes. Fortunately for him, Asian customers are prepared to pay a bit more for the privilege of not being treated like European cattle. Cabin crews are well-trained and smartly turned out in red uniforms. Check-in is easy and flights are usually punctual—and don’t all leave at three in the morning.

One day AirAsia may face a serious challenge from one of the region’s other young and ambitious carriers, such as Tiger Airways or Jetstar Asia (both operating out of Singapore), the Philippines’ Cebu Pacific or Indonesia’s Lion Air. But for now they are trailing in its wake. The main impediment to AirAsia’s continued expansion, as with other low-cost carriers, is the region’s highly regulated and expensive operating environment. Politicians are fond of building extravagant showpiece airports that end up adding about 15% to the cost of a ticket. What is needed are more cheap-and-cheerful terminals and fewer “Taj Mahals”. As Mr Fernandes notes, “Thailand has the highest airport tax, and the slowest passenger growth.”

At least Thailand, together with Malaysia and Singapore, has deregulated its market. Other countries have not, limiting the number of flights between and within them. Even in liberal Singapore, Mr Fernandes has been rebuffed in his attempts to win a licence to set up an operating base.

AirAsia has had other disappointments. The long-haul unit of the business had to axe its flights to London and Paris earlier this year because they were losing too much money. High fuel prices were mainly to blame but the EU’s new carbon tax was the “nail in the coffin”, says Mr Fernandes. Other opportunities beckon, however, such as India. Its vast population, enormous size and new middle class dwarf even Indonesia’s. On September 14th, as part of a big package of economic reforms, the Indian government said it would let foreign airlines invest in Indian carriers for the first time, albeit limiting their stakes to 49%. AirAsia is “very interested” in India, says Mr Fernandes, but will wait until its fiercely competing local airlines have killed each other off.