Cover Story / March 2018

AirAsia: Disruption for Future Growth

In an exclusive interview with GlobeAsia’s Eko Prasetyo, Group CEO of Indonesia AirAsia Dendy Kurniawan explains how he is leading the company in tackling issues surrounding infrastructure and regulations to assist the government and create more innovation for the airline industry.

PT Indonesia AirAsia, operator of prominent low-cost carrier (LCC) Indonesia AirAsia, strives to be one of the main supporters of Indonesia’s struggle to bring more tourists to the country. As CEO of the group, Dendy Kurniawan says that while the government is happy to cooperate to achieve its goal of boosting tourism, it should also be prepared to help the airlines in mitigating various issues in the industry.

“The main issue is whether the infrastructure is sufficient to accommodate our plan to increase our capacity, including airports,” said Dendy, adding that there is a crucial need for Indonesia to have its own special terminals for LCC.

“Jakarta as the main tourist gateway needs a special terminal for LCC. We do not have any LCC terminals right now. We have domestic LCC airlines, but only a few. If you see the number of foreign LCCs coming into Indonesia, it is very limited. We need a special terminal for LCCs with a different design so that costs could be lower,” he said.

LCC terminals would help promote Indonesia and encourage more foreign LCCs to venture into the country, while reducing the cost associated with terminals intended for full-service flights.

An example is Soekarno-Hatta’s Terminal 3, which is not designed as an LCC terminal. “What we have been trying to tell the government is, if let’s say you give AirAsia the chance to be recruited in developing an airport, then we are more than happy to do it.”

With the grand plan of Angkasa Pura II to build Terminal 4 by taking over the Soewarna Golf Course, Dendy said AirAsia would be happy to assist the government in creating a dedicated LCC terminal, with capacity of 30 million to 40 million passengers annually.

By comparison, the capacity of Terminal 1 and 2 is only 18 million passengers each, while Terminal 3 can serve 25 million. A new terminal would also be capable of lowering the service charge by 50% below the current charges imposed by PT Angkasa Pura II.

Together with the Ministry of Tourism, AirAsia has also called for collaboration to boost promotions in order to expose new routes and destinations in Indonesia in correlation with AirAsia’s international flights.

“I have even said I would not mind doing this promotion along with Garuda, for example, to have a travel fair, as we are going to sing the same song anyway. Let the passenger choose whether they want to fly with the full-service airline Garuda, or whether they want to fly with us.”

Disrupting the industry

In addressing the disruption of online bookings, LCC growth and the sharing economy in the tourism industry, Dendy believes that all of these factors can become a positive catalyst.

“The government should not see disruptive technology in a very traditional and conservative way, but should promote it,” he said, while stating that there are various ways to gain from this new industry to generate income for the state aside from taxes.

Referring again to the airline industry, he said the government now seems to understand the needs of LCCs compared to its previous lack of comprehension of the changes occurring in the industry. But there were still certain areas of debate with the government, such as the bottom limit of airfares to certain domestic destinations.

“My argument is that there is no need to impose a bottom airfare limit to these destinations, since our average break-even point — despite the cost of our promotional gimmicks — is still higher for these destinations,” he said, adding that any limitations would be a negative catalyst in promoting more people to fly. “Our tagline is how to make everyone fly, and that is what we do to promote it.”

As an LCC, AirAsia’s biggest challenge at the moment is to educate people in changing their view of the LCC industry. “The general perspective is that an LCC airline will strip down every bit and cost to make it efficient. This is not true at all. I do not say ‘misleading’, I say it is not true at all,” he said.

An LCC, as a no-frills airline, means that a person does not have to pay additional charges when they do not need special preferences such as seating, in-flight meals or even checked baggage. This is basically the fundamental definition of an LCC, which creates affordability compared to the full-service flights that require people to pay everything up front as the default model.

“Often people will say that they do not want to fly with an LCC because these companies squeeze down maintenance costs, which is totally not true,” he added, noting that every airline, regardless whether it is an LCC or full-service carrier, uses the same type of aircraft, which is usually leased.

“Usually, an airline does not purchase. We lease aircraft through an operating lease, as purchasing one would be expensive, where we would need to find the financing and — last but not least — if there is new technology coming in the future, the secondary market price of this purchased aircraft is going to drop significantly,” he said.

The lessor enforces their clients to conduct a proper maintenance program at certified maintenance centers. “We cannot just say that we want to do the service and overhaul maintenance of the aircraft in a specific center. These maintenance centers have to be certified by EASA, FAA and so on,” he said. “I am trying to say that there is no way an airline can just do hanky-panky in terms of the maintenance cost, there is no way.”

Future developments, growth

AirAsia was also constantly upgrading its services in terms of on-board services and facilities, said Dendy. “Our priority on top is safety — of course — as it is a must and non-negotiable, but we have always put our operational excellence on top as well. That starts before you fly from our booking system.”

AirAsia, he pointed out, is a pioneer in creating web check-in and self-printed boarding passes. “This is our commitment in terms of operational excellence, it starts even before the travel experience itself.”

The company is aiming to equip all of its aircraft with Wi-Fi, a main consumer demand. “This is aligned with Tony Fernandes’ statement that someday Wi-Fi should be offered as a free item onboard. Once we have Wi-Fi, there are no boundaries in terms of entertainment. You can use your own gadgets to access YouTube, email, chat, or even selecting the menu that you want onboard.”

Dendy believes the LCC industry will grow significantly within the next five to ten years, meaning it will also affect AirAsia’s growth. With Indonesia AirAsia and Indonesia AirAsia X, two operators in Malaysia, two in Thailand, one in the Philippines, one in India and one in Japan, AirAsia also aims to launch AirAsia in Vietnam, Cambodia, Myanmar and China.

“Once we have these 13 airlines, I believe we can expand more connectivity,” he said. “I think the LCC industry’s growth would be the sky as our limit. It is not only for AirAsia, but I think the future of the global airline industry is about LCCs.”

The bottom line of any airline is profitability, as revenue can be gained by adding frequencies, flights or seats. “However, the concern is profitability, as we have to be very efficient in our operations with the highest daily utilization among other airlines to spread our fixed cost widely in comparison to other airlines.”

AirAsia already caters to long-haul destinations through Indonesia AirAsia X, serving flights of over four hours. “The main difference is only about the type of aircraft: Airbus 320 with 180 seats to cater to short-haul flights, with the Airbus 330 with 377 seats that caters to long-haul flights.”

Winning strategy

When asked about his winning strategy, Dendy simply said that the first goal is to make his customers happy. “We have what we call a ‘Customer Happiness’ division, and it is probably the only division in the world with that kind of name,” he said. “The reason for this is because we value customer happiness at the highest level as our commitment and priority, as once they are not happy, they will not fly with us.” In the digital era, with social media everywhere, the unhappiness of one person will spread widely. “If you are not happy, it will affect everyone, be it your family, friends or business acquaintances, so in the end we will lose customers. Secondly, we do not want to just adapt to what the customers want, we want to be ahead,” setting the standards for passenger satisfaction.

In internal company management, Dendy has set a new leadership value where he insists on decisiveness. “The leadership value that I have brought into this company is that the cost of indecisiveness, of not making any decisions, is sometimes more severe than the cost of making the wrong decisions,” he said.

Dendy Kurniawan: Before AirAsia.

Dendy Kurniawan has had a varied career, working with government, state-owned enterprises, at his own securities company and now in the aircraft industry. The main factor in all of the jobs he has done, he tells Eko Prasetyo, is the challenge.

GA: Tell us about your career.

DK: I graduated from ITB (the Institute of Technology, Bandung) in 1996 with a major in industrial engineering, and I first worked with the Econit economic advisory group, a think tank initiated by former minister Rizal Ramli. I worked with them for three years before winning a Fulbright Scholarship and CitiCorp Foundation at Yale University for a masters in international and development economics between 1999 and 2000.

I was the first Indonesian student to be awarded the double scholarship. Basically every year the Institute of International Education from the United States provides scholarships to students across the globe. Indonesia receives a quota of 15 students annually, and they may choose any university in the US for their graduate degree, a master’s or PhD.

Among all of the Fulbright scholars from around the world, the CitiCorp Foundation based in New York chooses the four best students. I was one of those four, the only one from Indonesia. It is a surprise that until now, no other Indonesian student has been able to achieve this double-scholarship.

When I returned to Jakarta, I met Pak Ramli and asked to work in his group again. At the time he was the chairman of Bulog (the National Logistics Agency), and he told me to work with him there as his special assistant. Six months later, he was appointed as Coordinating Minister for Economic Affairs, and he appointed me as chief of staff. When he moved to the Ministry of Finance, I also followed to work for him there.

After he was replaced by Boediono, I resigned from the government and started my own securities company in the capital market, Indo Capital Securities, from 2001 until 2006, and then a different company from 2006-2009.

In 2009, I was appointed as one of the CFOs in a state-owned company that was a subsidiary of Pertamina and PLN, with a core business in the geothermal sector. I was appointed directly by the Minister of State-Owned Enterprises, Sofyan Djalil.

I spent one term (five years) there and afterwards I received an offer from AirAsia to become the CFO of Indonesia AirAsia X. That was my first position (in AirAsia) back in May 2014. In December 2014, I was promoted as CEO of Indonesia AirAsia X. A year and a half later, in 2016, the shareholders wanted me to take the helm of Indonesia AirAsia as CEO, as well as group CEO overseeing both companies, Indonesia AirAsia and Indonesia AirAsia X.

What appealed to you about the airline industry?

I got an offer from the shareholders that I could not resist! The way I see my career is not that I have certain references in a particular industry. I just like the challenges. So, whether it is going to be the airline industry, oil and gas or manufacturing, as long as I like the challenge I will take the opportunity.

If I recall back when I was still at university, my thesis was basically about the airline industry. I took my thesis data from Merpati Airlines. So I realize that maybe it is the work of God to have me writing that thesis about airlines and now I am working in the industry.