The $3 Flight

AirAsia has made fliers out of people like Supriyadi Amin, a palm-tree farmer from Malaysian Borneo. When I met him in the L.C.C.T., he had just taken the first flight of his life, from Bintulu to Kuala Lumpur, and he was waiting for a connection to Solo, Indonesia, where he would visit family. "It's very fast," he said of the experience. The trip to Solo by bus and ferry used to take him four days.

Flying mostly inexperienced passengers has presented challenges Fernandes never foresaw. AirAsia is constantly writing and rewriting rules, many with a distinctly local flavor. Every confirmation email comes with a reminder that "fresh or frozen seafood or other meats are unacceptable as checked baggage." Durian -- a spiky-skinned Asian fruit so pungent that English novelist Anthony Burgess described it as "vanilla custard in a latrine" -- is forbidden. There's a limit to the number of bags a passenger can carry on, but it's rarely enforced. (Grandmothers can often be seen boarding with several overstuffed plastic bags in each hand.)

One rule that hasn't changed, says Bo Lingam, AirAsia's director of operations, is "Cost is the enemy." The statistic that the airline's management obsesses over is its cost per available seat mile, an industry metric of how much an airline spends -- including everything from maintenance to marketing -- to fly one passenger one mile. AirAsia's C.A.S.M. is just 5 cents, lower than that of any other airline in the world, including Ryanair, which spends 7.6 cents, and Southwest Airlines, the leanest major U.S. carrier, which spends 9 cents.

McCarthy says AirAsia's operating secrets aren't so secret: a lot of small cuts on the cost side and a lot of incremental increases on the revenue side. A no-frills airline requires fewer staffers -- Singapore Airlines flies nearly the same number of passengers but has four times as many employees -- and Southeast Asia's labor costs are low. Regulations are more lax too; a Ryanair pilot can only fly 900 hours a year under European Union law, but AirAsia's crew can log 1,000. (So far, AirAsia's safety record is unblemished.)

At the same time, Fernandes has looked for new ways to generate income. In fiscal 2007, nonticket sources contributed about 7 percent of revenue. Fernandes wants that number closer to Ryanair's 19 percent. (One Ryanair advantage is that it can sell alcohol and lottery tickets, both culturally unacceptable in mostly Muslim Malaysia and Indonesia.) In May, AirAsia, which, like Southwest, doesn't assign seats, began selling the right to preboard for about $6, bringing in more than $150,000 during the first four weeks.

Fernandes markets the airline in both traditional venues (a sponsorship of Manchester United, which is popular in soccer-mad Asia) and unconventional ways (an AirAsia logo is plastered across the exterior of his Ford Escape). And from the start he's shown a flair for expansion. Because most national aviation markets are tightly regulated, the company couldn't set up hubs in Bangkok and Jakarta. So Fernandes concocted a franchise-style structure that is unique among airlines. He launched carriers in Thailand and Indonesia that are technically separate companies in which AirAsia Berhad, as the company is formally known, owns a minority stake -- 49 percent, the maximum allowed in the two countries. (AirAsia Berhad trades on the Malaysian stock exchange.)

His biggest challenge yet will be applying his low-cost model to long-haul flights. His newest carrier, AirAsia X, will operate flights of more than four hours, the first of which was scheduled to go from Kuala Lumpur to Australia's Gold Coast in October. Roundtrip fares will average about $550 -- 30 percent less than the typical Malaysia-Australia ticket -- with promotional prices as low as $25. During the next year, AirAsia X plans to add Melbourne and two destinations in China, followed by London and, eventually, eight U.S. cities.

Such routes will make it harder to wring out the savings that short-distance flights allow by, say, keeping planes in the air. (AirAsia schedules just 25 minutes at the gate.) "We can still turn planes around faster," McCarthy insists. "Not enough to help us daily, but we'll get more flights in on a weekly and monthly basis." The company will also squeeze 396 passengers onto an A330 that typically seats 335 by eliminating first- and business-class cabins, narrowing aisles, and shrinking galleys. Onboard sales are expected to be much higher as well. Not everyone wants to eat or watch a movie during a two-hour flight, but extend that to eight hours and even the hardiest traveler might think about paying up.

Branson's August purchase of a 20 percent stake in AirAsia X gave the project a publicity and credibility boost, but even AirAsia's fans wonder if Fernandes can succeed where so many upstart airlines have failed. According to analyst Harbison, the company can turn a profit on long flights, but, he says, "you just can't get the same reductions in costs."

Fernandes rejects suggestions that he's aiming too high, too soon. He believes that full-service, long-haul carriers are ripe targets, because they have the model all wrong and penalize customers for it with higher fares. "Airlines have always tried to do it all themselves -- first class, business class, and economy," he says, saddling them with steep costs.

Still, the low-cost model has always worked best for carriers that know their limits and markets. Southwest has never tried to go international, and Ryanair flies mostly within the friendly regulatory framework of the increasingly borderless E.U. "Fernandes is very hands-on," Harbison says, "but the bigger AirAsia gets, the more it does seem to be a miraculous operation."

Slideshow: The History of the Discount Airline

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