After surviving the pandemic and the big losses it caused, AirAsia cofounder Tony Fernandes is spreading his wings again through a new venture in Cambodia and a travel-focused superapp.

Malaysian maverick tycoon Tony Fernandes, who built budget carrier AirAsia using the motto “now everybody can fly,” faced disaster during the pandemic, as suddenly almost nobody could fly. The outbreak of Covid-19 forced Fernandes to close AirAsia Japan in 2020 and, in June last year, to sell off its Indian joint venture AirAsia India to Air India and partner Tata Group.

As the pandemic crushed air travel, some analysts questioned if Fernandes could keep Kuala Lumpur-based AirAsia afloat. It suffered big losses and mounting debts, with more than 90% of its planes grounded during the worst days of the outbreak. But now, with most travel restrictions lifted, regional travel is booming again. AirAsia is among Asian carriers enjoying high load factors and most of its planes are back in the air.

Fernandes used the painful no-fly period to speed up earlier plans to expand the company into a group of diversified travel and lifestyle services. To that end, early last year it was renamed Capital A to signal it will be more than just an airline (although Fernandes says the airline will remain a core business of the new company), with Fernandes as its CEO. The key will be Capital A’s AirAsia Super App, a one-stop shop for flight bookings and other services, such as hotel bookings, ferry tickets, food delivery, ride hailing and insurance. Fernandes is hoping to follow the playbook already set by regional superapps such as Grab and GoTo with his app. It was first unveiled in 2020 and the company has been steadily expanding it, adding new countries in which its services are available. It has also partnered with Google to help develop the app’s capabilities.

Meanwhile Fernandes has taken steps to set the company on a more solid financial footing. In March last year, it completed a restructuring deal under which long-haul unit AirAsia X canceled as much as 33 billion ringgit ($7.8 billion) of debts and reversed provisions made for them, which came after AirAsia was recapitalized with the injection of 974.5 million ringgit from existing shareholders in November 2021.

Fernandes hasn’t neglected the core airline business of Capital A. In December, he announced the launch of the joint venture carrier AirAsia Cambodia—it will be AirAsia’s fifth in Southeast Asia—that should start flying later this year pending regulatory approval.

Building AirAsia has been an adventure for Fernandes and cofounder Kamarudin Meranun. In 2001, they acquired the fledgling two-airplane outfit and transformed it into one of Southeast Asia’s biggest budget carriers. Air-Asia’s success catapulted Fernandes, who got his start at Richard Branson’s Virgin Music before joining Warner Music, where he worked for 12 years. He was named Forbes Asia’s Businessman of the Year in 2010 and put the partners on the list of Malaysia’s 50 Richest. But they dropped off in 2021, due to the carrier’s share-price tumble from the pandemic.

To grow the company now, Fernandes is heavily focused on Malaysia and nearby countries, which are doing better economically than most of the world. “We’re really stamping our [mark] on Southeast Asia,” the 58-year-old says. He added that he wants to open joint ventures in “as many ASEAN countries as possible before I retire.”

“We’re really stamping our [mark] on Southeast Asia.”

Though all carriers continue to face high jet fuel prices, Fernandes says the situation has improved, with increased airfares helping to mitigate higher jet fuel prices. Demand is strong and airlines aren’t having price wars like they used to, he adds. Against the backdrop of elevated jet fuel prices—which peaked at $175 a barrel in June, before settling at around $130 in early February—the International Air Transport Association says the recovery momentum of airlines has been sustained, particularly in Asia-Pacific where passenger traffic soared 363% in 2022 from the previous year.

While operations improved significantly in the last quarter of 2022, not all pandemic-generated issues got fully resolved. The company faced roughly $2.1 billion in refund claims from passengers whose flights were canceled during the pandemic. Some customers wanted cash refunds but Capital A said it has settled 94% of the passenger refunds primarily through travel vouchers.

Digital business is a key to Fernandes’ plans to build Capital A. It’s an area where AirAsia’s superapp is competing with established regional digital giants Grab Holdings and GoTo. But Fernandes isn’t daunted, asserting that AirAsia—which flies to all ten ASEAN countries—“can be a very strong digital travel company.” One factor he’s counting on is how he has his own airline, which rivals do not, and his superapp can be used for arranging ground travel for some of the region’s most popular destinations, such as Siem Reap in Cambodia and Boracay in the Philippines.

Fernandes expects AirAsia’s business will be enhanced by its superapp, which includes financial services. Capital A’s fintech unit BigPay claims it gives the best exchange rates for remittances. “We’ve created fintech around [the Super App], which is a natural extension when you travel,” he says.


Heading For Profit

After hefty losses in recent years rooted in Covid-19 woes, AirAsia is expected to return to the black next year amid a resurgence in travel demand.


“They certainly have a lot on their plate,” says Nirgunan Tiruchelvam, Singapore-based head of consumer and internet research at Aletheia Capital, of Capital A’s recent activities. Tiruchelvam has some doubts about how successful a carrier can be at competing against established players in the space. “There aren’t any precedents,” he says of an airline transforming into an app-based travel and lifestyle services company.

To be sure, Capital A is expanding into a growing market. Online services such as travel bookings, e-commerce and other financial services are gaining in popularity among Southeast Asia’s 650 million population. The Super App has 12 million active monthly users while Capital A’s logistics unit Teleport—which counts Lazada, Shopee and Zalora among its customers—is tapping into the region’s booming e-commerce.

Fernandes is also counting on Cambodia to help boost the business. AirAsia began flying to Cambodia from Kuala Lumpur in 2005, and now it expects the country to be a hub of activity with the launch of AirAsia Cambodia. Air-Asia already has hubs in Kuala Lumpur, Jakarta, Manila and Bangkok, which means the carrier’s locally incorporated joint ventures can pick up passengers from these places and fly them to countries such as China, India, Japan and South Korea.

The Cambodia venture is a partnership between Capital A, which will have a 51% share, and Phnom Penh-based Sivilai Asia, with 49%. The CEO of AirAsia Cambodia is Sivilai director, Vissoth Nam, a Cambodian entrepreneur who worked at the country’s central bank and the International Monetary Fund, and also founded a Siem Reap hot pot restaurant and a Phnom Penh bar. The carrier will start small—two to four planes the first year—but the partners have big expectations. “An increase in connectivity alongside best value fares will certainly stimulate demand for air travel,” says 32-year-old Nam.

Prior to Covid-19, Cambodia, with its famous Angkor Wat temple in Siem Reap, was a popular tourist destination. In 2019, there were 6.6 million international visitors, and they brought in $1.8 billion in revenue, according to Cambodia’s Ministry of Tourism. With Beijing finally opening the borders of mainland China, closed for nearly three years because of Covid-19, there should be a surge in travelers from China. Fernandes thinks AirAsia can easily double the number of visitors from China, and also over time bring people from India, Japan and South Korea. “It’s very easy to go and add 21 destinations from China to here [Cambodia],” he says. Fernandes is characteristically upbeat about Cambodia as an investment. “We’ll be profitable straight away,” he says. “Why shouldn’t we? Everyone here [in Cambodia] knows AirAsia.”

Capital A was put pretty deeply in the red by Covid-19, and reported a combined loss of 6.3 billion ringgit for 2020 and 2021. Financial results for 2022 will be reported at the end of February (just after this magazine goes to print). Although operations improved in the last quarter, Maybank forecasts a loss of 2.9 billion ringgit for 2022, a slight widening from the prior year’s 2.8 billion ringgit. The brokerage projects another loss this year, of 700 million ringgit, before a return to profit, of 258 million ringgit, in 2024. The last year with a profit was 2018.

Maybank analyst Samuel Yin says AirAsia has been able to respond quickly to the resurgence of travel demand because it made the right decision to keep leases on many of its grounded aircraft during the pandemic. That set it apart from rivals such as Batik Air of Indonesia and Malaysia Airlines, which have struggled to deploy additional planes to accommodate increased passenger traffic after shrinking their fleet in the past two years, he says.

While AirAsia put about 150 airplanes back in service (with another 54 expected to return to the skies in the first half of this year), the group continues to wrestle with accounting issues after auditor Ernst & Young cast doubt on the group’s ability to continue as a going concern last October, deeming it as a financially distressed company under the Malaysian stock exchange’s Practice Note 17 (PN17).


Taking Flight Again

AirAsia’s passenger traffic is gradually rebounding from the depths of the Covid-19 pandemic.


The PN17 status was triggered because the liabilities of long-haul unit AirAsia X exceeded its assets. In November, Fernandes said that while the PN17 status “does not accurately reflect the business viability and prospects” of Capital A, it was working hard on getting it removed “as a key part of our post-pandemic recovery journey.” Fernandes now says he expects the PN17 status to be removed by the second half of this year. Meanwhile, he has been working on consolidating units in Indonesia, Malaysia, the Philippines, Thailand and AirAsia X into one listed entity to be called AirAsia Aviation Group.

Fernandes hopes to have further restructuring that takes his business to new heights. He plans to have four listings over the next few years spun out from Capital A. These would be for the Super App, logistics firm Teleport, the group’s fintech arm BigPay and its aircraft maintenance, repair and overhaul unit Asia Digital Engineering. “As a conglomerate, it [Capital A] is not going to get its true value,” Fernandes says. “So I’m going to break it up.”

While the non-aviation businesses didn’t gain much traction in the past decade, Fernandes sees huge potential in AirAsia’s superapp and Teleport, which he expects to deliver 94 million parcels in 2024 from 8 million in 2022. To cope with booming e-commerce demand, the group will gradually add three Airbus A321 freighter planes into its fleet starting in the first quarter of this year. “These narrowbody freighters will strengthen Teleport’s cargo network and address the diversifying market demand within Southeast Asia and the overall Asia-Pacific region, easily connecting manufacturers, exporters and e-commerce,” Fernandes says.

Having raised $50 million in fresh capital from investors in December, Teleport is gearing up to expand its cross-border delivery network across Southeast Asia, aiming to establish a logistics hub in Cambodia as soon as AirAsia Cambodia takes to the skies. “We can’t wait to get into the Cambodian logistics market with textiles and foodstuff,” Fernandes says. “We can feed that into our network in China and Southeast Asia.”

Aletheia’s Tiruchelvam says residual customer unhappiness due to flight cancellations and delays during Covid-19 could be “potentially problematic” for brand management, but the issues it faced were common in the airline industry. “People will put up with difficult flying conditions as long as AirAsia continues to be a low-cost carrier compared to competitors,” he says.

Fernandes agrees that the brand suffered during the pandemic, and in more recent months when AirAsia had to cancel flights as it didn’t have enough planes. “People don’t realize it that when you have a plane that hasn’t been flying for a long time, and you haven’t serviced it, it’s going to have bits and pieces that will go wrong. There’s been instances that we sold flights and we didn’t have planes because the engineering department can’t meet the timetable of putting the planes back in service,” he admits. Fernandes is confident the airline can improve customer service. “The most important thing is communication,” he says. “It’s tough when you’ve got to firefight so many things but we’re working on it.” To that end, Capital A in February scrapped its existing chatbot Ava and replaced it with Ask Bo, which the company promises will be more “proactive and attentive” than Ava. It offers new features, such as live updates of flight status, and more languages including Japanese and Vietnamese.

MORE FROM FORBES

MORE FROM FORBESTycoon Tony Fernandes’ Capital A Forms AirAsia Cambodia As Budget Carrier Seeks New Growth MarketsMORE FROM FORBESTycoon Tony Fernandes’ Capital A To Consolidate Aviation Business Under AirAsia X Amid Travel ReboundMORE FROM FORBESTycoon Tony Fernandes’ AirAsia X Returns To The Black Amid Post-Pandemic Travel Rebound

link

By admin