AirAsia was founded with two planes. It has evolved from a Malaysian budget carrier to a regional low cost carrier. Through the years, it has helped to make air travel more accessible in Southeast Asia. It is now a lifestyle company that is anchored in travel, accelerating its venture into ride-hailing and food delivery.

AirAsia’s new ventures in business will be able replicate the success of its airline company. These are 10 lessons I took away from the 2021 AirAsia General Meeting.

1. Revenue fell 73.6% year on year to RM3.1 Billion in 2020, while net loss grew from RM315.8 M in 2019 to RM5.1 Billion in 2020.

AirAsia’s financials have been severely affected by the COVID-19 pandemic.

An impairment of RM1.3 billion was caused by the loss of AirAsia Japan’s operations, AirAsia X’s business restructuring, and bleak future prospects. Tan Sri Tony Fernandes, CEO of the company, expects it to return to profit after travel restrictions are lifted. However, this timeline is still uncertain.

2. The company’s digital business — AirAsia Digital — comprises the AirAsia super app, Teleport (logistics) and BigPay (payment solutions).

The segment was responsible for 14% of company revenue in 2020 and fourth quarter. It is expected that its revenue contribution will increase to around 50% by 2025. In 2020, it achieved breakeven earnings before interest tax, depreciation, amortization, and amortization (EBITDA).

3. AirAsia’s super app was launched in October 2020.

It’s a mobile app that offers lifestyle and airline offerings, including food delivery, e-commerce for beauty items, and payments.

AirAsia completed its purchase of Gojek’s Thailand ride-hailing, payments and businesses in Thailand through a share swap. This was done by AirAsia Digital raising shares. To preserve cash reserves during the cash crunch, it did not borrow from banks. Not to be overlooked, ride-hailing is another cash-burning industry where competitors vie for market share. Gojek still suffered losses in Thailand during the most recent financial year. This super app is expected have the highest growth rate among AirAsia’s digital ventures.

4. Tan Sri Tony Fernandes believes in profitability and positive cash flow instead of being the dominant player in e-commerce and food deliveries.

To increase market share, he will not give away products free of charge to shareholders. Gojek’s in-country and cross-border delivery infrastructure, the GoPay license, as well as the merchant, driver and user network that follows, are all considered the prize for the acquisition. When asked about Shopee’s future business acquisitions, he joked that Dato’ Mohamed Khadar Bin Merican, a board member, wanted to buy Shopee for another trillion.

5. Teleport is an expansion of AirAsia’s passenger services to logistics services by leveraging on the company’s high flight frequencies and point-to-point network.

As international borders in the ASEAN region remain closed, some passenger aircrafts were converted into cargo-only freighter airplanes. Its existing cargo business is supported by the addition of last-mile and first-mile delivery.

Tan Sri Tony Fernandes stated that Teleport’s unique selling points are its speed and low price. These aren’t really economic moats, given the fierce competition in the delivery industry. While price wars and promotions are common tactics to attract customers, they are not sustainable as peers race to take market share. Teleport’s EBITDA margin was 32% in 2020.

6. BigPay partnered with Malaysian Industrial Development Finance, Ikhlas Capital, and SK Group to apply for a digital banking licence in Malaysia to become a full-fledged bank in alignment with Bank Negara Malaysia’s objective.

The bank aims to streamline banking and help the unbanked and underbanked. BigPay will be able to gain access to low-cost capital such as savings accounts and fixed deposits. The license was applied for by 29 people. Only five will be granted by the central bank before 2022.

In Q2 2021, a lifestyle insurance product was introduced. More financial products are also in development. BigPay had a negative EBITDA in 2020 of RM83 millions. BigPay also offers a ‘buy Now, Pay Later’ option in Australia. An improved version will be available soon.

7. AirAsia targets to raise between RM2.0 billion and RM2.5 billion by 2021 via a combination of debt and equity funding exercises.

Because the money was raised after AirAsia shares took a hit following COVID-19, some of the securities and private placements could prove to be dilutive. These are just a few of the initiatives.

  • Raised RM336.5 Million through two tranches private placements in Q1 20201. Issued 470.2 million shares, which is 14.1% of the total shares issued.
  • Two banks approved funding up to RM300million under the Malaysian government’s Danajamin PRIHATIN Garant Scheme.
  • Proposed to raise up RM1billion by issuing convertible unsecured Islamic debt securities that are seven years old and free of charge. Each new share is subject to a conversion price of RM0.75 per security.
  • A scheme for employee share options was created that allows directors and employees to subscribe to new ordinary shares.

8. AirAsia embarked on a list of cost containment exercises to improve its liquidity.

Tan Sri Tony Fernandes assured shareholders that the company had RM448 Million cash available as of 31 March 2021. This amount will be enough to cover the company’s expenses until 2022 due to the pandemic. Since the outbreak of the pandemic in the area in Q1 2020, the company has managed to survive for 18 months without any flying.

Headcount rationalisation, salary cuts for employees (including the directors) and restructuring of leases resulted in a reduction of 52% in fixed costs year-on-year. The non-executive directors have remained willing to waive their fees for the past two years, starting in 2020.

9. AirAsia changed its business focus to the ASEAN market where its brand name is the strongest.

Due to financial constraints, AirAsia Japan, its 33%-owned affiliate, went bankrupt. Tan Sri Tony Fernandes stated that AirAsia Japan was already in financial trouble due to a lack of scale and three aircraft, as well as regulatory restrictions such as the availability of limited slots. Given the uncertainty and poor visibility of a post-pandemic recovery pathway, it was a difficult decision to make.

AirAsia also purchased a 32.7% share in AirAsia India, which was worth approximately RM152.9million. The remaining 16.3% can be sold at RM76.5million. AirAsia continues to be an important market in India and the partial divestment was done.

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