An AirAsia wake-up call to the BN crony-infested business model

In what many see as a blow to Prime Minister Najib Razak’s grandoise economic plans to create a high-income nation, AirAsia’s decision to move their headquarters to Jakarta may spell the acceleration of an exodus of businesses out of Malaysia, though not many will be as big or as shiny a jewel in the crown as the homespun low-cost air carrier.

When interviewed by the media, Tony Fernandes was rather guarded in his comments as to why Jakarta was picked. But the AirAsia group chief executive, confirmed the decision in Tokyo, saying the move is an effort to upgrade his company’s image as a regional Southeast Asian airline rather than just a Malaysian carrier.

Fernandes characterized the move as a simple business decision to take advantage of Indonesia’s vastly larger economy and population. This is nearly 10 times that of Malaysia’s, although Malaysian annual per-capita gross domestic product of US$14,700 by purchasing power parity is much higher than Indonesia’s US$4,200.

However, the sheer size of the country's populace means that the Indonesian economy is at towering US$1.03 trillion versus Malaysia's US$414.4 billion, based on estimates in the CIA Factbook for 2010.

Business is business

Business is business and Fernandes' decision seems timely. For years, AirAsia has been battling for more rights to fly in Malaysian air-space with the government-backed MAS jealously throwing obstacles in its way. But again, in business, this is to be expected.

Even so, every decision to fly within Malaysia has to be scrutinized by the government, often-times favoring MAS and at AirAsia's expense. It is a small miracle that Fernandes has stuck this long with Malaysia, so when opportunity knocks, it is not unfitting for AirAsia to put aside sentimental feelings and allow good business sense to take charge.

AirAsia may well among the more visible Malaysian brands besides the state-owned energy giant Petronas to have made an international impact – and Petronas gets its profile by advertising extensively during Formula 1 races and by sponsoring a car – which Fernandes does as well. Launched in 2002 as a regional no-frills carrier with just two planes, AirAsia now flies 93 planes all over Asia. In addition, a long-haul service, AirAsia X, flies to Europe, Japan and Korea. The company earlier ordered 300 Airbus A320neos.to expand its routes across Asia and beyond.

Despite being a homegrown Malaysian start-up, Fernandes has had to contend with bias - yes, racial bias of not being tied to an UMNO crony. Malaysia's business circles are largely controlled by the UMNO-led government. This form of control by the government playing favourites is irritating, degrading and most of all makes Malaysia uncompetitive. It can only hinder firms from becoming the best in the region or even the world, and Air Asia is no different.

Asked why he chose to move the fast-growing airline’s principal corporate base to Jakarta from Kuala Lumpur, Fernandes said: “Asean is based in Jakarta, and Indonesia will be the largest economy in ASEAN in time to come. And I like it there."

Riding on a resurgent Indonesia

According to AirAsia, the move is also a bid to take advantage of access to the ASEAN secretariat, which is based in Jakarta, ahead of an open skies agreement expected to go into effect in 2015 and which is designed to lower barriers for air travel between the region’s capitals.

The Indonesia National Air Carriers Association forecasts passenger growth at 10 percent to 15 percent this year. Indonesia’s Central Statistics Agency reported that domestic air traffic grew 22 percent to 53.4 million passengers in 2010 on growing demand from the middle class for domestic flights. That is higher than the 9 percent average increase recorded by Asia-Pacific carriers, according to data from the International Air Transport Association.

Indonesia’s economy is also poised to grow and with it a growing interest in domestic low-cost airlines which will benefit AirAsia. However, local customer confidence in its own low-cost carrier has been hampered by poor maintenance, which has led to some of the worst airline crashes in Indonesian history.

AirAsia, with their service record, has a good chance to win people over; the potential for profit on just the Indonesian domestic routes alone, would grow AirAsia’s profits in folds. Yet, AirAsia’s move to Indonesia is the story of most Malaysian start-ups that have had to diversify and move operations out of the country just to see their businesses grow due to the suppressive conditions at home.

There was also Genting

Another Malaysian start-up and successfull business entity is Genting Berhad, which has a market capitalisation of US$13.6 billion as of 31 May 2011, making it the leading Malaysian corporation to date. Fearing a shift to Islamic puritanism in the 1990s and it’s affects on his Genting Highland’s operations, Lim Goh Tong, the late company founder, diversified Genting Berhad’s business ventures.

From its initial leisure and hospitality activities, the Genting Group has since expanded and diversified into other activities including plantations, properties, power generation, oil and gas, e-commerce and the development of information technology.

Genting Group is the founder of Star Cruises the third largest cruise liner company in the world and largest cruise liner in Asia and its headquarter is based in Hong Kong. As of December 31, 2010 Genting Malaysia now owns the the largest number of casinos in the UK with 46 casinos. Lim’s business empire have interests in Singapore, United Kingdom, Philippines, USA and Australia.

The feared curbs on the Genting Highlands' expansion never came to pass, but Lim's relationship with the government was odd. He was forced to renew his business licence every three months, while the sin of gambling was constantly denounced in the run-up to every election.

In other words, Lim had to live in fear his business empire could be closed down any day and any time the religious extremists in UMNO decided to do so. His son, Kok Thay is now in charge and has diversified the Genting franchise beyond recognition into Singapore, Europe and US.

Before Genting, there was sugar-King Robert Kuok who reinvested his money in Hong Kong and China in the 1980s. Even the YTL group has diversified the eggs in its baskets by acquiring stakes in utilities in the UK, Singapore and other parts of the world.

Not that AirAsia, Genting, Robert Kuok or YTL have not benefited from the BN model. For example, Robert Kuok and YTL's Francis Yeoh are frequently reported as being close to former premier Mahathir Mohamad and Genting got its first break from Tunku Andul Rahman, the first prime minister. But in the case of Genting and Kuok, their overseas success is very much their own effort and overshadow their Malaysian assets.

Ineffective GTP, ETP

Najib, for all his grand-sounding Economic Transformation Programmes, would do well to study what makes true businesses work. It is not wild pie-in-the sky figures that scare potential investors at the mere mention of the zeroes involved in his grandoise plans but sheer savvy and enormous hard work.

There is also such a thing called level-playing-field and rewards based on merit, rather than, "I help you, you help me". If Najib wants to spout such philosophies, he would do better to the treasurer of a community hall in a remote village collecting rents for the badminton court and ping-pong tables, rather than be the Finance minister of Malaysia.

In bid business - without corruption that is - recognition must be given to the best talent, to best bid and to the most productive venture. As the Robert Kuoks, Gentings and AirAsias fly off for greener and fairer pastures, the BN's Government Transformation Programme is still stuck and left to languish amid regret for not being able to retain Malaysian start-ups destined for global glory because of its fatal mistake of over-politicising business.

- Malaysia Chronicle