AirAsia Big Boss Tony Fernandes should come out and boldly admit to the public some of his pronouncements of his low cost carrier success all these years may not be truly as he claimed to be.
The Star story:
AirAsia X finds fictitious services
Friday, 28 August 2015
It involves 24 payments totalling RM7.01mil made to a service provider
PETALING JAYA: Long-haul budget airline AirAsia X Bhd has discovered payments for fictitious services that adds up to RM7mil.
In a filing with Bursa Malaysia, the firm said its internal and external auditors had recently discovered that certain payments had been made to a service provider between the period of 2010 to 2014 for services which were now established to be fictitious.
“Following the discovery of the irregularities, the board has on the recommendation of the audit committee appointed PwCCS to carry out a forensics audit and instructed the management to ensure the availability of all relevant documents and/or key personnel for PwCCS review and interview, where applicable,” the aviation firm said.
During the course of the forensics audit, the auditor PwCCS discovered 24 payments totalling RM7.01mil had been made to a service provider for fictitious services.
The payments were authorised by a person in a management position within AirAsia X.
Based on the forensics audit findings, the irregularities had been confined only to a sum of RM7.01mil, it added.
“The board is of the opinion that the amount involved in the irregularities does not have any material financial or operational impact on the company,” AirAsia X said.
Following the discovery, the company has taken several measures to safeguard its assets and interest.
Among others, it has sought legal advice on the possible courses of action the company can take to recover the losses and lodged a police report.
On top of that, it is reviewing the current internal control process to ensure that similar transactions will not recur.
“The board could not make any announcement earlier as it did not have sufficient evidence to substantiate the allegations and to assess with certainty the financial and operational impact to the company,” it said.
For the second quarter ended June 30, the firm raked in RM653.03mil for its revenue but made a loss of RM132.94mil. That’s compared to a revenue of RM671.61mil and net loss of RM128.79mil in the previous corresponding quarter.
During the quarter, the group recognised unrealised foreign exchange loss on borrowings of RM30.9mil as compared to a gain of RM31.9mil a year earlier due to the weakening ringgit. It also saw lesser passengers flown but average passenger fare has increased by 7.2%.
For the first half-year, its topline was at RM1.43bil while losses sum up to RM258.86mil. Net asset per share stood at 20 sen per share.
The stock traded 1 sen higher to 16 sen with a turnover of 19.17 million shares.
Needless to say, this is very embarrassing admission to Bursa Malaysia, which is an avenue to tell all the stakeholders of AirAsia X. It includes the customer base.
These transactions are pro-rated to be RM 1.4million a year or almost RM120,000 per month. That is about RM4,000 per day.
FY 2014 AirAsia X posted a revenue of RM2.94billion and net loss of RM529million. That is half a percent of daily takings which had been discovered gone into one the fictitious service providers.
It could be assumed that a fraction of what the consumers paid for AirAsia X services did not go to the services that they paid for but probably is a part of a continuous scam, which slipped through AirAsia X’s safety net.
Simply, the consumers may not get what they actually paid for. Now, the market talk is if this falling out of AirAsia’s safety net is true, is that the extend of the leakages from the transactions derived from its online portals or third party payment gateways.
That is counter productive to Fernandes’s success story for the longest time, is based on the low operating cost by eliminating ticket sales through third party agents.
What is embarrassing that Fernandes continuously proudly claimed that e commerce is one of AirAsia’s key success factor.
3 AirAsia Success Factors that entrepreneurs should look at to grow their businesses. 10 years on after taking a bold chance to start a low cost airline, Tan Sri Tony Fernandes has built AirAsia from two planes to 115 aircraft today, flying to more than 400 destinations spanning 25 countries, making the slogan “Now Everyone Can Fly” comes true.
So what are AirAsia Success Factors?
When the music industry failed to adapt quickly to the World Wide Web, Tan Sri Tony Fernandes decided to make a clean break. He left his job to pursue a childhood dream: Set up Asia’s 1st ever Low Cost Airline.
Today, AirAsia is named as the World’s Best Low-cost Airline for 4 consecutive years 2009 – 2012 by Skytrax. Air Asia has become a household brand in Malaysia and beyond in less than a decade.
In my opinion, Air Asia has not just only revolutionized the entire airline industry but more significantly, it has allowed more Malaysians especially the younger generation to travel abroad and see the world.
AirAsia Success Factors
This experience has enabled many Malaysians to be critical to the nation’s developments; they count the blessing of their mother land but at the same time, give constructive criticism by comparing to more developed nation as well as to progress which went awry.
There are indeed, a lot of lessons for Start Up to take home from AirAsia stories. Tan Sri Tony Fernandes has shared with BBC on his way of doing business.
He adopts a “walk around” management style. “If you sit up in your ivory tower and just look at financial reports, you’re doing to make some big mistakes.” For a few days every month he works on ground or in the cabin crew and he made important decisions by getting the feedback from the crew.
Being a big fan of AirAsia and its business model, there are 3 AirAsia success factors to learn from:
1. Never afraid to challenge the norm.
A few years ago, people had to call a travel agent or airline operator to buy a flight ticket. Air Asia challenged the norm by riding on the e-commerce wave. It invested in a user-friendly website interface and allows travelers to book and print flight ticket anytime and also introduce online check in services. This has proven to be enormously successful especially in engaging with the Gen-Y customers.
AirAsia Success Factors
2. Dare to Think Big and Serve the right Customer
Air Asia business model has always been focusing in low cost operation and serving the mass market. They know their targeted customers well and do not directly compete with other premium airlines. 10 years ago traveling by air was a luxury. Air Asia was daring enough to think big and today, it is truly “Everyone Can Fly”.
3. Create Complementary business opportunities, they can be Huge
This is shared by Luke Bong and I think it is an exemplary example for businesses to learn.
AirAsia Success Factors
When we fly AirAsia, most likely we will use their services such as Sky Bus from KL Sentral or stay at Tune Hotel. It is very important to think of innovative ways to get more out of your existing customers.
The question is not about how to squeeze more profit out of the existing operations, but how to provide add on values so that customers are willing to pay for even more.
Announcement to Bursa Malaysia is not enough enough considering that Fernandes is aloud when criticising and even dramatising against other corporations, especially Malaysia Airports and Malaysia Airlines.
Example, recently AirAsia made a big ruckus about the defective Malaysia Airports’ KLIA2 and making a claim against the GLC which is part of Khazanah Holdings Bhd.
July 31, 2015 — 5:09 PM HKT Updated on August 1, 2015 — 8:24 AM HKT
AirAsia Bhd., Southeast Asia’s largest budget carrier by market value, is asking the Kuala Lumpur airport operator for 409 million ringgit ($107 million) to cover losses and damages the airline says it suffered using the new and old budget terminals.
AirAsia sent a letter Friday demanding payment from Malaysia Airports Holdings Bhd. and a subsidiary, claiming they breached their duties at the airport. The letter claims problems at the new klia2 terminal have hurt the airline’s reputation, “as the public perception is that the failings of the facilities are within the control of AirAsia” as klia2’s largest user.
The 4 billion ringgit terminal, which opened in May 2014, is sinking, causing cracks in the taxiways and pools of water that planes must drive through, Bloomberg News has reported. AirAsia says the defects could cause flight delays, increase wear and tear on planes and pose safety risks.
Malaysia Airports says the depressions and ponding are caused by soil settling unevenly in the apron and taxiway, where some of the structure is built on piling and some stands on normal ground. The operator has patched and resurfaced problem areas and is building a concrete slab that it says will serve as a more permanent solution by next April.
In a statement late Friday, Malaysia Airports called AirAsia’s claims “baseless” and said it would “vigorously challenge them.”
“We are surprised by some of these assertions about klia2” and the old low-cost carrier terminal “after AirAsia has benefited from the facilities provided by Malaysia Airports since 2001 to grow into the largest LCC in Asia,” the airports operator said in the statement.
Its time Fernandes literally put his money where his loud mouth is or was. To be exact, RM7.01million.