Malaysian budget carrier AirAsia is set to announce two more acquisitions in the digital consumer space over the next two months, as it races to build up its digital businesses to take on the region’s tech giants.
“If something is going to take me 12 months to build versus just one month by acquiring a company or giving up some equity for it, I am going to take the latter. There are a lot of great companies out there – not many have the size and reach of AirAsia, yet compete against big players like Shopee and Grab. These companies want to be part of AirAsia to have a higher chance of survival,” AirAsia Group CEO Tony Fernandes told DealStreetAsia in a candid chat. He, however, declined to divulge details.
Earlier this week, AirAsia announced a $50-million share-swap deal to acquire Indonesian ride-hailing and payments unicorn Gojek’s Thai businesses.
Fernandes also hinted at a possibility of future partnerships with GoTo – Gojek and Tokopedia’s merged entity – as the company could benefit from AirAsia’s existing travel and logistics verticals.
“If Tokopedia decides to expand outside of Indonesia, we are a very logical company to carry their goods. [Gojek CEO] Kevin [Aluwi], [GoTo Group CEO] Andre [Soelistoyo], and I have a lot of ideas,” added Fernandes.
AirAsia, launched in 2001, was flying high as one of Asia’s largest airlines by passengers carried, with operations across Malaysia, Indonesia, Thailand, Vietnam, the Philippines, Japan, and India. In 2019 the group carried 83.5 million passengers, 12% more than the year before, as it also expanded its capacity to a fleet of 243 aircraft.
Then the COVID-19 pandemic shut borders, grounding the operations of airlines worldwide.
That pushed Fernandes, who has touted AirAsia as “more than an airline”, to double down on the group’s consumer play, which leverages on the touchpoints and reams of data from the hundreds of millions of consumers of its airline business. Over the last year the group launched a range of services in food delivery, e-commerce and payments.
“Earlier, our digital business did not get enough attention because we are not as sexy as the region’s unicorns. It reminded me of 19 years ago when we started the airline – nobody took me seriously. ‘The guy who used to sell dangdut (a genre of Indonesian music) is now running an airline’ is not the most convincing story,” Fernandes said. “Today, the dangdut guy [referring to his years at Warner Music Malaysia] is trying to start a super app [and compete] against Grab and Gojek.”
AirAsia’s latest deal with Gojek would result in the ride-hailing major owning a 4.76% stake in the former’s lifestyle platform. The deal would value AirAsia SuperApp Sdn Bhd at around $1 billion.
Still, Fernandes acknowledges that as a comparatively ‘traditional’ business, AirAsia’s valuation multiples are unlikely to be matched with the tech companies.
“At the moment, AirAsia’s airline price is undervalued for obvious reasons, but it will bounce back. However, I don’t think we will ever get to the position of digital companies,” he added.
In a Reuters interview, Fernandes expressed the company’s intentions to list its digital arm via a special-purpose acquisition company (SPAC) in the US to raise $300 million. A few SPACs focused on technology have approached the group and AirAsia has engaged auditors for a deal to list the unit, he added.
However, Fernandes told to DealStreetAsia that a SPAC listing is only one of the options and that he does not discount a more conventional way of raising the intended amount of funds. “Rothschild is our banker and they are looking at a few options,” he said.
Pandemic-hit AirAsia had last year embarked on cost containment measures including salary cuts, staff downsizing, as well as payment restructuring. The measures paid off in the first quarter of 2021 when it saw its fixed cost reduce by 54% while airline staff cost was reduced by 62% year-on-year.
As a group, AirAsia saw its net loss narrow by 4.5% in the first quarter of the year to 767.4 million ringgit compared to 803.8 million ringgit in the corresponding period last year.
AirAsia’s digital arm, which comprises a super app platform, fintech unit Big Pay and its profit-making logistics arm Teleport, has contributed 39% to its group revenue in the first quarter of 2021, compared to 8% in the previous year.
Stiff competition in Thailand
Although Fernandes is bullish about the group’s digital plans in Thailand, AirAsia’s deal to acquire Gojek’s units in the Southeast Asian market has received a mixed response from the market.
While AirAsia will need to retain as much cash to tide over the aviation slowdown, the overall value accretion remains to be seen given the stiff competition in Thailand and the fact that Gojek has been loss-making in the country.
“One key leverage is probably AirAsia integrating its huge customer base with Gojek Thailand,” an analyst said on condition of anonymity.
According to a report by consultancy company Momentum Works released early this year, Grab commands 50% of Thailand’s online food delivery market in terms of the gross merchandise value (GMV). The second-largest food delivery market in Southeast Asia with $2.8 billion GMV is also dominated by Foodpanda at 23% and Lineman at 20%.
Another analyst, who represents a regional financial services firm, said the non-reaction in share price to the news hints that the market is still concerned about AirAsia’s core business and the potential dilution impact from the impending fundraising exercise.
“As you know, Thailand, Malaysia and Indonesia are in lockdown mode. The company still has a backlog of dues to lessors, which requires them to cough up about 1.7 billion ringgit. The market is also concerned about the cash burn rate of the digital side of the expansion,” the analyst added.
In contrast, Nomura Securities analyst Ahmad Maghfur Usman said the company views the transaction positively, as onboarding a technology partner like Gojek demonstrates the seriousness of AirAsia’s super app ambitions.
“With Gojek as a partner, we think this could be a stepping stone to further collaborations between the two companies within the ASEAN region. Owing to the Thai food market that is still dominated by Grab, [AirAsia’s] management indicated that it would be prudent in terms of promotional activities, and concentrate on targeted promotions to win market share,” said Ahmad.
Aside from Malaysia, AirAsia’s fintech unit BigPay will be keen on pursuing digital bank licences in other Asian countries such as Thailand and the Philippines. Singapore, however, will not be on the list as it is already a well-managed market, Fernandes said.
The Central Bank of the Philippines has already awarded three digital banking licenses so far, while the Bank of Thailand last mentioned the possibility of issuing digital bank licences in early 2020.
Last week, BigPay announced that it has applied for the digital banking licence in Malaysia by partnering with Malaysian Industrial Development Finance Bhd, investment firm Ikhlas Capital and an undisclosed foreign conglomerate.
Malaysia’s central bank plans to issue up to five licences, with notification of successful applications to be made in the first quarter of 2022.
The plan to make BigPay a virtual bank dates back to the inception of the company in 2017, when it started leveraging AirAsia’s ample supply of consumer data to quickly build the business, said Fernandes. With minimal marketing, the company was able to capture 1.2 million customers to date.
Available in Malaysia and Singapore, BigPay is now continuing its expansion throughout ASEAN. In the coming months, BigPay is looking to launch a number of new services, including responsible credit, micro-savings and an offering for micro-SMEs and freelancers.
In May, AirAsia injected $53.27 million in Big Pay Pte Ltd through its wholly-owned subsidiary AsiaAsia Digital Sdn Bhd. According to a regulatory filing with Singapore’s Acra, reviewed by DealStreetAsia, the investment was made through the allotment of ordinary shares.
Compared to other companies competing for a limited amount of digital banking licenses, BigPay’s advantage is its existing ecosystem of digital services, says Fernandes.
Providing an example of a food seller, Fernandes said BigPay Bank would be able to provide the seller with business capital, payment services, e-commerce platform, shipping logistics, reward points structure, and an overdraft service if it had secured the licence.
“As much as BigPay Bank is about consumers, it is also about small entrepreneurs. Only about 6% of Malaysians flew before AirAsia provided a way for everyone to fly. We want to replicate that in financial services, given the chance. That will allow us to service the small businesses and provide them with a way to scale,” said Fernandes.