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Irish-piloted airline begins its ascent in Asia
John Mulligan



THINGS keep going 'ping' in Conor McCarthy's nondescript office on Dublin's northside. If it's not his Blackberry, it's his mobile. If not that, it's his PC's email.

The former Ryanair executive and Aer Lingus employee, who over five years ago began working as a consultant to Malaysian low-fares start-up AirAsia, is certainly in demand.

AirAsia's chief executive, Tony Fernandes, is on the mobile asking McCarthy to sort something out. Contacts at Boeing are emailing him to see how he's getting on. The affable and down to earth McCarthy finds it funny that they're enquiring after him.

"They're disappointed, " he says.

AirAsia has just announced a deal worth up to Euro4.5bn at list prices to buy 50 aircraft and take options on another 50 from Airbus.

AirAsia drove a hard bargain, says McCarthy, which was sealed on a Kuala Lumpur Hilton hotel bar order form he produces.

Appropriately, the hotel's stationery is headed 'Captain's Order'. The deal brings AirAsia's current orders and options with Airbus to roughly 200 aircraft.

In a bit of a PR coup, AirAsia will take delivery this week of the 3,000th Airbus A320 to be manufactured since deliveries began in 1988. The airliners will be used as AirAsia continues aggressive expansion that by next year is likely to see it carry more passengers than successful legacy operators such as Cathay Pacific or even Singapore Airlines. AirAsia is adding about two aircraft a month to its fleet, which stands now at 51 - a blend of Airbus and Boeing that will eventually evolve towards one manufacturer.

"We should carry about 16 million passengers this year, " says McCarthy, who reiterates Fernandes' forecasts that the figure could rise to 23 million in 2008 and 29 million in 2009. It's an ambitious target. In 2006, for comparison, Ryanair carried just over 40.5 million passengers, while Easyjet carried 33.7 million.

McCarthy, whose initial 5% stake in AirAsia has been reduced to roughly 2% (currently worth in the region of Euro15.6m), brushes aside some analyst and fund manager concerns that the airline may be biting off more than it can chew.

AirAsia has already expanded operations beyond its traditional Malay base, and now flies to Thailand and Indonesia, he says, and growth is rapid.

In its five years as a low-cost operator, it has also managed to weather storms in the guise of high fuel prices, a coup in Thailand and the 2004 tsunami that devastated areas of Indonesia, Thailand and other countries to which AirAsia flies.

"AirAsia is extremely profitable, " he says.

"Our costs work out at about 2.5 US cents per seat kilometre. That is by a country mile the lowest unit cost for any low-cost carrier in the world."

In the last financial quarter, publicly-quoted AirAsia posted net income of US$1.6m, down 35% on the previous quarter as higher fuel prices bit and financing costs rose following aircraft purchases. Still, even as its average fare costs fall, its management is confident of a rise in profitability this year.

McCarthy points out that there is a huge large base that can be served within Asia, even if the two largest nations, India and China, to which AirAsia already flies, are excluded.

Indeed some of the next big moves are likely to come on a wider global front.

Last week AirAsia said it has linked up with a domestic Malaysian operator, Fly Asian Xpress, in which Tony Fernandes has a 50% stake (McCarthy owns 5%), to offer cheap long-haul flights to India, China and, perhaps most surprisingly, Europe.

Other long-haul low-fares airlines have begun popping up around Asia, such as Oasis, which flies from Hong Kong to London, while Qantas low-cost subsidiary JetStar (headed by Dubliner Alan Joyce) has announced a Hawaii-Australia route and already operates a subsidiary called JetStar Asia (which merged in 2005 with Singapore rival Valuair), that flies to destinations such as Bangalore in India from Singapore.

McCarthy agrees the low-cost, long-haul model will be a testing one, but is confident it can be done. He says there will be tough aircraft scheduling to ensure they're used as productively as possible, while a compressed seat configuration will allow more bums on seats.

Smaller jets such as the Airbus A330 or the Boeing 777 will be employed initially, but in the longer term McCarthy says wider-bodied aircraft such as the long-range mid-sized Airbus A350 XWB or the Boeing 787 Dreamliner will be used. He adds that the company is looking at an orders size of "about 20 aircraft". The A350 isn't due to be launched by Airbus owner EADS until 2013. The Boeing 787 is scheduled for market introduction next year.

The long-haul operator, which will be known as AirAsiaX, has earmarked July for launch and is currently in discussion with a couple of Middle East airports - including Dubai and Abu Dhabi - to use those locations as stop-off points on the way to Europe.

"The comfort levels will be lower than on legacy operators in terms of seating, but the pricing will be lower too, " McCarthy explains.

"We have an opportunity to offer customers a lot of options, such as a meal, entertainment or a comfort pack with a blanket or whatever. Incumbent airlines offer these as a matter of course and use them as a competitive selling tool for their product, but we'll be channelling all our competitive advantage into pricing."

It's expected that AirAsiaX fares to London from Malaysia will cost less than half of what is currently available.

McCarthy also confirmed that Dublin is being lined up as a destination, although negotiations have not yet begun with regulatory authorities here, as well as the Dublin Airport Authority.

"Dublin is definitely on the map for this service, " says McCarthy, emphasising that it's not just on a wish list, but is a serious destination consideration for AirAsiaX. "I'd say we'd be looking at 2008 for that."

Ireland's links to Malaysia have foundations in the Dublin Royal College of Surgeons, where many Malay medical students train, while stronger commercial ties and a growing Asian population in Ireland could also make a Dublin-Kuala Lumpur route an attractive proposition. Aer Lingus has often touted Asia as one of its prime expansion targets, and should AirAsiaX muscle in first, Aer Lingus could struggle to gain any meaningful market share.

Just in case AirAsia isn't enough to keep him and his staff at PlaneConsult busy, McCarthy is also involved in the Tony Ryanbacked Mexican low-fares start-up, Aerobus.

Ryan is believed to have stuffed Euro40m into the venture, which recently inaugurated flights using two leased aircraft. McCarthy, who has a 5% stake in the carrier, says it is going well and believes the region holds significant potential for the low-cost model.

Ryan is also an investor through his family's investment vehicle Irlandia in Singaporebased low-cost airline Tiger Airways, which includes cities such as Guangzhou in China among its destinations.

McCarthy is now planning to ease back on the throttle as he hits cruising altitude.

"At the moment I'm in Malaysia about once every four weeks and also in Mexico about once a month. I travel an awful lot, " he says.

"Most of PlaneConsult's clients require a bit of personal involvement from me, so it's trying to strike a balance that is the challenge."

That challenge could be tougher than ever as AirAsiaX takes to the skies this summer.

CV

Name: Conor McCarthy
Position: Managing director, PlaneConsult; nonexecutive director, AirAsia
Age: 44
Marital Status: Wife Ann; four children.
Background: McCarthy spent 18 years with Aer Lingus, first working as an apprentice aircraft electrician. He then did an engineering degree and afterwards worked at the airline's economic planning unit. He was chief executive of Aer Lingus Commuter before he left for Ryanair, where he was director of operations for four years.
Why he's in the news: McCarthy helped to turn Malaysian low-cost carrier AirAsia into an operation that will carry 16 million passengers this year.

Last week it announced a Euro4.5bn order with Airbus and also said that it will lend its name to a new long haul low-cost carrier, AirAsiaX, that plans to begin flights to Europe this summer. It is also eyeing up flights to Dublin, possibly next year.




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