CEO Tony Fernandes explains why he is bullish on Asia and the rapid growth of the region’s middle class.

Malaysia’s government can’t decide whether to celebrate Tony Fernandes or curse the day he created the nation’s most globally-important company.

That many might dispute my characterizing AirAsia as such tells the story. Malaysians might prefer to trumpet, say, Petronas, Maybank or Genting. But no company created in the last 15 years better demonstrates what’s possible in Malaysia - and the headwinds that trip up even the strongest willed of entrepreneurs - than Asia’s first budget carrier.

Fernandes earned his stripes as Asia’s Richard Branson amid the wreckage of 9/11. The months after hijacked planes shook America seemed an inopportune time to create an airline. At the same time Sept. 11, 2001 fueled an existential crisis in the aviation world, former music industry executive Fernandes was buying planes, negotiating routes and confounding the conventional wisdom both outside Malaysia and within.

Along with odd timing, there are two big reasons Fernandes, 52, never should’ve succeeded. One, he’s not a member of the ethnic Malay majority, one long coddled by the nation’s massive corporate welfare system. Two, AirAsia threatened struggling flagship Malaysia Airlines on its own turf. Fernandes beat the odds, somehow cajoling then-Prime Minister Mahathir Mohamad to okay his flight path.

The rationale was simple. In 2001, only about 6% of Malaysians flew regularly. That left 94% of the nation’s consumers for Fernandes to tap with his “now everyone can fly” business model. After that, the rest of Asia, too. Increasingly, that model is disrupting the region as copy-cat budget carriers emerge to service a nascent middle-class consumer sector. Before Fernandes landed, cozy monopolies and duopolies were the norm. In many ways, AirAsia was regional aviation’s answer to Uber.

“We’ve hardly scratched the surface,” Fernandes told me yesterday while visiting Tokyo. “We’re just getting started.”

Investors looking to ride Southeast Asia’s demographic boom and regional integration efforts could do worse than climb aboard AirAsia. That’s particularly true as Fernandes and his team dust themselves off from a trying few years and accelerate efforts to expand in India, Japan and China. Perhaps even a second share listing, this time in Hong Kong.

The fallout from the 2008 global crisis and the loss of an aircraft and 162 lives over Indonesia in December 2014 hit share prices. Questions about AirAsia’s accounting practices sent the stock to a record low in August 2015. Fernandes stuck to his guns, cutting costs, reshuffling routes and expanding. Last month, he ordered another 100 Airbus aircraft, adding to the more than 170 planes already making Asia a smaller place. As shares rebounded over the last 12 months, AirAsia’s market capitalization swelled to more than $2.2 billion.

AirAsia’s recovery must drive some in Putrajaya crazy. Officials in the nation’s capital long celebrated and micromanaged Malaysia Airlines, much to the carrier’s detriment. Never the most competitive of airlines, MAS is still reeling from the loss of two planes in 2014. One, flight MH17, was shot down near the Ukraine-Russia boarder. The other, vanished MH370, stands as the biggest aviation mystery since Amelia Earhart in 1937.

You can tell loads about a company, and indeed a nation, from how it responds to tragedy. MAS, and the government of Prime Minister Najib Razak, failed at virtually every turn, offering opacity, spin and insularity as a frustrated world looked on. AirAsia’s response, and that of Indonesia’s government, was infinitely more competent and transparent. While MAS obfuscated, Fernandes was on scene personally briefing victims’ families. It was awkward, too, in April the CEO brought in to turn MAS around quit after just one year.

Speaking out also gets Fernandes in hot water now and again. In June 2015, as Najib’s party fomented social tensions, Fernandes took to Twitter: “Government and opposition spend so much time on race and religion. Will there ever be a truly Malaysian party that puts people first?” He called on Putrajaya to build a society “where all Malaysians respect each other’s culture, religion but work together to benefit all. If you need an example look at AirAsia.”

Fernandes proved that even an ethnic and political outsider can, through grit and perseverance, succeed in a decidedly uncompetitive nation. And at times, speak truth to power. What bothers me, though, is even Fernandes might have a hard time getting started in Najib’s Malaysia. When he rose to the premiership in 2009, Najib talked big about changing Malaysia’s racial-preference model. Instead, Najib strengthened it to survive scandals including the workings of his 1Malaysia Development Bhd state fund and $700 million the Wall Street Journal traced to his private accounts.

The good news is that AirAsia is creating free-market forces where Najib’s government won’t. That includes forcing MAS to work harder and Malaysia Inc. to think beyond its often narrow domestic focus. “Competition makes us better,” Fernandes says. “If someone is better than us, then we deserve to lose. Life is a challenge.”

The real challenge is keeping up with Asia’s torrid growth. “My bullishness,” Fernandes says, “rests on consumption, a growing middle class and further integration.” As the Southeast Asian region drops trade barriers and join forces, the winners will be those bringing the people of Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam together. Quite literally, AirAsia is doing that and spreading its wings to Australia, China, India, Japan, New Zealand, South Korea, the Middle East and beyond.

Now that everyone can fly, as Fernandes likes to say, investors might want to take their own journey with an airline that’s just getting started.

http://www.barrons.com/articles/is-airasia-ready-to-fly-even-higher-1471999932