Monday, March 21, 2011

30th Young Corporate Malaysians CEO Series of Talk - Azran Osman-Rani

Today is the 30th Young Corporate Malaysians CEO Series of Talk. And with us today is Azran Osman-Rani, CEO of Air Asia X, a graduate of Stanford University in Electrical Engineering and Management Science. He embodies the ethos of Air Asia X. His interest is snowboarding, ultimate frisbee and running. Below is the live blogging. 

Today is the biggest crowd for YCM CEO Series of Talk. We have 200+ people attending. Azran would be sharing on his message. He shared that all 1-year, 3-year, 5-year plan do not work and can throw them away. He has done 5 iterations of 2011 planning and it is still in March. We can't predict all the happenings. We just have to be nimble. If we make mistakes, then we just have to correct it and move on.

The challenges are that when Air Asia X wanted to be done, experts say that it cannot be done. Others have tried and failed. British, Hong Kong people, Canadians have tried it and cannot work. Azran said that he just have to do it. Tony Fernandes gave him 5 slides when he started. 

The easy part is that if we give discounts, people will fly. But the question is that how can we make money, if we continue to give discounts. If we strip out the brands, then everything is the same. There is nothing unique in this aviation business. So, when he is looking at the hiring, he looks for the uniqueness in people.

The entire global industry is built to serve the premium passengers. The entire industry is running on 50% capacity. Cathay Pacific average capacity of a day is 11.5-12 hours a day. As they are all very focused on premium customers, so they are not taking of the average people. The airlines are all very focused on the premium customers.

If go to KLIA and Changi, all the big flights are taking off at late nights, so that they would arrive in Europe, say London early in the morning. But in Europe, no one would be willing to wake up early in the morning, to get on 7am. So, the planes are parked at the airport and paying expensive airport charges. In the day time, at KLIA, the big planes are idle there, to wait for the premium time. 

However, Azran believed that a lot of people would be willing to travel at odd time, as long as they are willing to get discounts. Just by stripping out the idle time, Air Asia X is able to fly  17-18 hours a day. By doing this, Air Asia X is able to have the world's highest utilization rate of the flight.

For Air Asia X's customers, they are not those business people, so they would be fine if the planes fly off at different time each day. To them, they might only be going to London once a year or most of them, once in a lifetime. By doing this, Air Asia X was able to get the cost structure lower. 

The problem for those who tried long haul airlines before, they hired those who have had airline experience, so they might only be able to get 10%-20% improvement. For Air Asia X, they only have a few planes, so they had to think innovatively. They are flying at a cost of 2.9 cents per available unit kilometer. Cathay Pacific is at 8.9 cents per available unit km. Air Asia X uses 2.3 litres per seat per 100km flown, whereas Cathay Pacific uses 4.8 litres per seat per 100km flown.

Air Asia X is focusing on how to utilize every single drop of fuel. It is much better than focusing on fuel hedging. The bankers are making money whenever the price of fuel goes up or goes down. 

Irrespective of the cost structure, if can't fill up the plane, there is no way to make money. Airlines used to wait for customers to go to them. Previously, airlines wait for people to have their holidays planned. However, what Air Asia does is that it creates demand. People would decide where to go based on Air Asia's discount and depends on where is cheap. 

For example, someone wants to go to Bali, but if they find that flight to Vientiane is cheaper, they would book it, even though they might not know where it is. 

Once Azran was in a flight to Gold Coast, and it was July, and a passenger told Azran that it was snowing/cold and not blue sky. And Azran said that it is winter in July over there, but the customer didn't even know that. These are not the typical customers for airlines.

Air Asia X is able to increase passengers to Perth by 66%, Melbourne by 41%, London by 31%, Taipei by 87%. For the rest of Europe's, total passengers actually reduced. He pointed out that for those cities that Air Asia X did not fly to, MAS charges higher prices, compared to those flights that Air Asia X flies to. A case in point is Sydney.

Azran also said that for the first person who tweet him would get to go to Gold Coast at RM199 with no date restriction.

Air Asia X's revenue in 2007 was RM18 Million. For 2008, it was RM231 Million. For 2009, it was RM720 Million. For 2010, RM1.302 Billion. For 2011, they are expected to earn RM2 Billion.

Back then, when deposit has been paid for the planes, but due to the financial crisis, the banks ran away. Eventually, Air Asia X went to London to pitch for money. On that day, one of the low cost long-term airline went bust. Air Asia won't be giving guarantee to Air Asia X, but eventually Air Asia X managed to get the lifeline to get credits to borrow money. 

Basically, just have to go out there to grab the opportunities and grab it. Sometimes, just have to aim and hit it. Not everything that Air Asia X does may not work. Not everything is done perfectly correct. 

Air Asia X had an account with Lehman Brothers for fuel hedge, and was hedging at USD100. If Lehman Brothers didn't go to bust, it would have wiped out Air Asia X's capital four times over. Because of Lehman Brothers went bankrupt, Air Asia X lost USD12 Million of deposit, but that saved them from losing way more.

The design of the seats for Air Asia X was pitched to them as latest, where the seats would recline by gliding forward. However, what was not said is that they would have to glide themselves forward. And in the end, people ended up sitting straight for 8 hours and Air Asia X had bad reputation.

The in-flight entertainment was also a flop. While it was cool, it cost a lot of capital and it did not pay back on it. Air Asia X had to waste of RM55 Million on it. As 45%-50% of the flight was at late night, people won't be utilizing the in-flight entertainment, even though it was very cheap or free.

So, they bit the bullet and changed it. Luckily is that no one is blaming each other.

Air Asia X flew over to Abu Dhabi, but within 3 months, it had to back track. Emirates and Etihad really had bottomless cash and "killed off" that route for Air Asia X. What Azran stressed is that sometimes would make wrong move. What is important is that we just have to move on and go ahead.

It is the same for career. So, don't grumble and move on. We might make mistakes in career, but just have to bite the bullet and move on. There is no way for us to build a plan to go to CEO. If we plan, then we would expect things to come as planned, and if it doesn't, then we would miss out of opportunities that come along the way.

Even if things work well, need to be always restless and see how to innovate. A lot of things that Air Asia X do are very easy to be copied. One can see all the flight schedules online and how many seats they have. Ideas can be easily copied, execution is difficult.

Air Asia X became the first low cost airlines that would have flat bed. The legacy airlines are charging a bomb for the business class seats, like RM20,000 to go to London. Those prices include those expensive lounges, wine etc, besides the flat bed.

So, what Air Asia X does is that they focus on providing the flat bed seat, but minus the lounges and wine, so it provides the value. With just RM4,000-RM5,000 for a premium seat to London, that pretty much pays off.

For career, we need to focus on those things that count. We need to keep on thinking on what needs to be done.

Air Asia X became the first one to connect flights, instead of low cost airlines. Air Asia X offers this service, to help those from China to connect to Australia via LCCT, without having to go through immigration and getting their luggage and checking in again.

What matters is not the Excel sheet, but what matters is what gets done. It is about how to get it done.

Everything in the company shares the same KPI. Keeping things simple and make it happen. 

1. USD$1 Billion revenue in 5 years.
2. 2 US cents operating cost per available seat kilometer (world's lowest).
3. 3 out of 4 hours the plane is in the air.
4. 4 out of 5 seats are filled with happy guests.

If everyone focuses on getting this thing right, then it would get ahead. So, people just have to focus on simple things and get it done.

Everything is open and accessible. Azran gets exactly the same size of table and space as everyone else in Air Asia X. People can move around freely and share idea around. A lot of companies have barriers around and by doing this, it would allow Air Asia X to be nimble.

For Air Asia X, the Chief Pilot and Chief Engineer has two enjoining desk. No other airline does that. By doing this, it allows them to communicate well, and know each other. This would help to solve cross-functional issues. By doing this simple thing, it gets things moving and changes.

People go to Air Asia X because they have growth opportunities. People don't go to Air Asia X because they pay very well. If people who join Air Asia X and after 12 months, they are still doing the same thing, then Azran has failed. 

People always change role, for instance, try new routes, try new parts. There is someone who joined from PwC and she joined as financial analyst. And 3.5 years later, she managed the operations of where the planes are flying and contact all the departments, if the plane gets delayed.

Someone joined as call center operator and after 12-18 months, she went on to be flight attendant and now she is managing the flight schedule. 

That to Azran is what counts a lot, as people would learn and grow. People don't join because they want money. If people want a unique challenge and gets completely different challenge, then send Azran email.

It is important to build the tribal culture. Leaders should focus a lot of our time on the people. Keep on engaging the people and it is something that has to be built. The thing that Azran loses sleep over is not whether fuel prices would go higher and any crisis, because everyone in the industry would feel the same thing.

What makes Azran lose sleep is that Air Asia X is growing very fast, and it is more than 1,000 staff from 25 countries, and soon, it would be 2,000 staff from 50 countries. So, it would get tougher to get everyone to keep on engaged. Azran spent a lot of time on his blackberry too, to reply on emails, Facebook and Twitter.

Next on is Q&A.

One needs to have experience and marry that with people who are open minded. Moses Devanayagam, who is the Director of Operations for Air Asia X has 39 years of aviation industry. That's as old as Azran (or as young as him). 

Azran said that don't waste money on market research company. What is important to be in touch with the customers. The social media is so powerful. Today, Azran knew of flight problem, even before he heard from his team, as people would contact them directly.

Azran shared that one just have to be thick skin and be patiently persistent, when dealing with government.

Azran shared that an author that he respected a lot is Bill Watson, who wrote Calvin and Hobbes. He learned the ability to imagine from him. He asked what people look up on someone and often it is imagination. Being able to visualize is key. 

Azran shared on how he got called to go to Putrajaya to explain on writing "Liberating Sydney" on his plane. But what Azran paid attention is when the customers scolded them. Everyone else, government, suppliers and regulators do not matter so much.

Azran did not believe in any particular framework or process. He believed a lot in gut, and if one believes that it is the right thing to do, then they would do that. If one can get most things right, then you are doing well. If can get 80% happy customers, then you are doing well. If you go for 99% or 100%, then you would be taking on too much cost. So, need to manage it as a portfolio.

What inspires Azran is that we should not accept limitation. What drives Azran is that people prove themselves, when others tell them that they can't do it. He looked up to people who are taking on the world. 

Based on Airbus data, Air Asia X has better operational reliability than even Singapore Airlines. For a lot of airlines, flow of information may not spread to everyone. If we have open flow of information, then we can deal with problem. Problems are often systemic in nature. So, as leaders, we have to get information to flow and if one has a regimented culture, the engineers or the pilots would not bring on. So, as a culture, how to instill that culture to have open information. So, anyone can go straight up to Azran. So, information flow is what that would bring information around.

Talent management eventually comes back to can do culture, clear sense of purpose, open and borderless and have growth opportunities. Aim to look for people who fit the culture. That's how Air Asia X managed talent.

Often problems happen is when first officer does not dare to tell the captain. People might not have processed all the information available. So, it all comes down on how to flow the information. The gap usually is how the information flows from the first officer to captain and the engineers to the pilot.

Azran didn't have it easy when he grew up to be accepted and sold his idea. He chose to do engineering, because he can't stand the sight of blood, and thought that numbers are boring, as well as he can't do writing. And his Mathematics teachers were handsome.

In 1997, the opportunities came, and he knew nothing of banking, so he jumped in and learned a lot and it was crazy time. He was in Bangkok during the 2nd July 1997, when Baht was devalued. He learned how to do M&A and valuation, and he did his time over at nuclear power plant, oil & gas etc. He spent 8 months in Korea at nuclear power plant.

He thought that nothing much was happening in South East Asia in 2001, and he spent good time there. The clients were very good. He wanted to stay on permanent in Korea, but he got chance to have client in KLSE. So, he had great time there. Datuk Azlan Hashim was a great person and he spent 6-9 months there. Azran was then offered to join KLSE, to move over and get things done. He sold his car and got a 2nd-hand Proton and counted money for groceries. It was a very valuable experience to turn it over to Bursa Malaysia.

At that time, Astro brought him over to help them to spend money. It was great experience for him, and it went on until the crazy idea of long haul airline came to him. So, one doesn't need to have a grand plan.
Azran shared that when all else failed, trust the wife.

42%-45% of customers base for Air Asia X is family with young children. 9%-10% of Air Asia X customers are from youths, but the price point for Air Asia X is higher, so may not be as affordable for youths.

Air Asia X is a corporate brand and it is the single brand of Air Asia. With long haul, a lot of Australian tourists are taking an onward flight on Air Asia. If only do a point-to-point for Air Asia X, it would only be able to get 25%-30% seats filled.

When Air Asia X goes to London to sell, then Azran would sell Langkawi, Bali, Phuket, Kuala Lumpur, Singapore, Jakarta, Siam Reap etc. Azran is not interested to have a brand for the sake of having a brand. The Air Asia's network is what matters. The name of Air Asia X is just for the shareholders organization structure.

Azran is setting his organization to be nimble, so that whatever crisis that happens, they can react immediately. 

Azran hates emails. People don't communicate effectively in emails, but the best way is to meet face-to-face or via phone. Main thing is spend time and get things done. Azran flies a lot worldwide, so best way is to get to the point and get things done.

Azran sums up that what is most important is information flow and openness. As an organization, there is no way to have the best idea in the world, but best way is to get the information across. And be nimble, as summed up by the MC.

Above is the live blogging of Azran's talk.

Personally, I have a wish list for Air Asia X and Air Asia, would be that they can collect loose changes from passengers in each flight, as often, after people visit a country, they would have small amount of loose change that they might not do a currency exchange back into their local currency. That would be a lot of wastage. What if Air Asia or Air Asia X could collect those loose currencies and donate to the local charitable needs. That could be huge leverage in it and benefit each of the community. Every few Ringgit, thousands of Rupiahs or Dongs etc, would add up to a big figure.

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