AirAsia pushes for bigger digital play as it seeks to monetise customer data

FILE PHOTO: AirAsia Group CEO Tony Fernandes speaks during a news conference at AirAsia headquarters in Sepang, Malaysia December 13, 2017. REUTERS/Lai Seng Sin

Tony Fernandes, the co-founder of AirAsia Bhd, is seeking to transform Asia’s biggest budget airline into an asset-light, digitally focused firm after the $1 billion sale of its leasing business, in an effort to foster sustainable growth.

AirAsia, which pioneered budget air travel in Asia along the lines of Ryanair Holdings in Europe, is now building a sprawling empire that includes a payments company, logistics firm, food and beverages brands and a loyalty programme.

Leveraging the profusion of customer data from its 65 million-plus passengers, the focal point of the strategy is a digital push that exceeds in scale that of regional budget airlines like Indonesia’s Lion Group and Cebu Pacific of the Philippines.

AirAsia will also be going head-to-head against flag carriers such as Singapore Airlines which is ramping up investments in digital technology.

The goal is to offset the volatile earnings from the cyclical airline business.

“The biggest asset is our data,” Fernandes told Reuters in an interview. “And we’re going to monetise that data over a series of joint ventures in three kinds of pools.”

That includes turning its loyalty programme points into a more formal currency through an initial coin offering, building a bigger logistics business and growing its content offering.

LOSS OF LEASING

In the near term, however, analysts say the move by one of Airbus’s biggest global customers to part-lease its current and ordered fleet of 500-plus planes could hurt its profits and leave it exposed to the risk of higher lease rates.

“The leasing arm was a stable low risk business,” said Ngoi Se Chai, a partner at Hong Kong-based Oaklands Path Capital Management. “Now that that’s sold, earnings will come down and become more volatile. I think they sold something they shouldn’t have sold.”

While the sale proceeds from the leasing business will be used to reduce debt, the bulk will be paid out as special dividends, potentially limiting the upside in a stock that has more than quadrupled since hitting a seven-year low in late 2015.

“The amount of money generated from this exercise could almost wipe out AirAsia’s entire debts, so it would appear a positive move,” said Shukor Yusof, founder of consultancy Endau Analytics, but he noted it faces risks associated with higher leasing rates.

Leasing had accounted for around 20 percent of AirAsia’s revenue, with a similar share earned from non-ticket items like baggage fees and food sales.

The aim is to lift revenue from so-called ancillaries by 12 percent this year.

AirAsia plans to launch remittance and lending products in Southeast Asia, through its BigPay debit card and mobile app in Singapore after the recent launch in Malaysia, BigPay’s group CEO Chris Davison said.

But for now, the company’s non-flying revenue lags global low-cost leaders like Spirit Airlines in the United States and Ryanair and Wizz Air Holdings in Europe that receive 40 percent of revenue from ancillaries, said Jay Sorensen, president of U.S.-based consultancy IdeaWorksCompany.

He said AirAsia’s food, in-flight Wi-Fi and loyalty programmes were good offerings but its approach in pricing add-ons was not maximising revenue because it only offered two bundled choices rather than three.

“The best practice today is to present three choices at the same time, based upon a good, better and best model.”

GOING DIGITAL

The digital push is front and centre as Fernandes restructures AirAsia into a listed group that oversees stakes in multiple airlines in Malaysia, Indonesia, Thailand, Philippines, India, Japan and soon Vietnam and China and digital ventures rather than having the listing based on its Malaysian airline.

Combined, AirAsia forecasts the digital businesses will account for 7.6 percent of revenue this year, nearly half of its ancillary sales.

Former CEO Aireen Omar, who became deputy group CEO in January, is overseeing the non-airline businesses in a single entity that will ultimately seek a U.S. listing.

Corrine Png, CEO of research firm Crucial Perspective said AirAsia could triple its share price if it can successfully collect and monetize its Big Data.

“AirAsia’s current valuations are low as investors see it as a cyclical airline,” she said. “However, as its long-term revenue and earnings growth prospects improve, equity investors will start to value AirAsia like a growth stock.”

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.