The rest, as they say, is aviation history.
In no time at all, he turned the budget carrier around. Then he transformed it into Asia's largest and shaped it into an award-winning low-cost giant that ferries more than 40 million passengers a year.
By bringing budget flights to Malaysia and changing the face of regional aviation, Fernandes, now 50, has become a semi-cult figure at home.
Many Malaysians were able to enjoy their first flight, thanks to the lower prices introduced by his carrier, which operates with the tagline "Now everyone can fly".
The AirAsia success story - it cleared its 40 million ringgit debt after a year - had proceeded without a hitch until yesterday, when an Airbus 320 operated by its 49- per-cent-owned subsidiary Indonesia AirAsia went missing with 162 people on board.
Now Fernandes' mettle will be tested.
His first reaction to AirAsia's first major crisis was to fly immediately to Surabaya, where the flight originated, to be close to the families of the missing passengers.
Kalimullah Hassan, director of AirAsia X - the group's long-haul arm - told The Straits Times "we were all devastated" after hearing the news, but "this guy said we got to sort it out and we can cry about it later".
Flamboyant and feisty, Fernandes is known for his keen interest in sports, a trait that has raised his profile on both the front and back pages of newspapers.
Last year, he became the "Donald Trump" of reality-TV series The Apprentice Asia.
Based on the American original, the show pits aspiring entrepreneurs against one another for the chance to work with Fernandes, who also hosted the show.
When AirAsia committed a public relations gaffe by running an in-flight magazine article in April that appeared to mock Malaysia Airlines less than a month after it lost a Boeing 777, Fernandes swiftly apologised and recalled the offending publication.
Public-listed AirAsia now flies to 88 destinations in 22 countries and Fernandes was estimated by Forbes magazine to be worth over 2 billion ringgit, making him Malaysia's 28th-richest person - a far cry from when he mortgaged his house 13 years ago to fund his AirAsia revamp.
His holdings today include two-thirds of English Premier League club Queens Park Rangers, where he has been a colourful chairman, accusing football agents of duping him.]
He also founded the Caterham Formula One team and in 2010 won a bet with Virgin Group boss Richard Branson (whose music arm he once worked for) over whose team would do better. It led to the British tycoon serving as a stewardess, complete with the signature red uniform and lipstick, on an AirAsia flight last year.
One of Fernandes' biggest achievements has been to lead the charge for open skies in South-east Asia. Partly because of his lobbying, Malaysia, Thailand, Indonesia and Singapore granted landing rights to AirAsia and other discount carriers that have mushroomed in the region.
Now his leadership is needed at AirAsia in dealing with the loss of Flight QZ8501, an incident that has sparked grief in Indonesia, Malaysia and Singapore.
Before flying to Surabaya to meet his Indonesian management, he tweeted that "my only thoughts are with the passengers and my crew... we must stay strong".