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November 2018, Amsterdam

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AirAsia dares to dream

From new destinations to digital market places and an initial coin offering, a low-cost Asian airline is facing down industry challenges

Expansionist ideas just pour out of serial entrepreneur Tony Fernandes, co-founder of Malaysia-based AirAsia group. Sounding blithely untouched by the screaming headlines of oil-price and pilot-shortage crises at low-cost airlines, he is talking new destinations, digital market places and bitcoins.

So, on the cards right now for 2019 are long-haul flights to Los Angeles and a return to Europe with routes to Eastern Europe. Together with its affiliates in Thailand, Indonesia, the Philippines, India and Japan, AirAsia is already the largest low-cost carrier in Asia by passengers carried. Now, according to blueswandaily.com, the news and analysis site of Sydney-based air market research group the Centre for Aviation (CAPA), it is boosting the size (225 planes by end-2018) and reach of its fleet and will start these long-haul flights as soon as it obtains Airbus A330neos.

The digital push at AirAsia is designed to leverage the customer data gleaned from the group’s bank of 65-million-plus passengers and offset the volatile earnings from the cyclical airline business. “The biggest asset is our data,” Tony Fernandes told Reuters, “And we’re going to monetise that data over a series of joint ventures in three kinds of pools.”

The biggest asset is our data

His ambition (a familiar one to low-cost airline followers) is, according to a presentation at a Pacific Asia Travel Association conference, to turn AirAsia into a data and tech company. This includes transforming its loyalty programme points by selling shares to the public via a bitcoin offering – an Initial Coin Offering (ICO). AirAsia also has plans to grow its logistics business and to become a lifestyle brand with OTA-type features through the digital expansion of ‘Travel360’, its online magazine.

On the ICO plan, Tony Fernandes told online tech information platform TechCrunch that: “We have two things that are very interesting which will have relevance to ICOs, one is our loyalty card, where we have [loyalty programme] BIG Points, and I think those BIG Points can be easily transferred to the blockchain.” 

He added: “We have a product that can be a currency in Big Loyalty, [and] we’re building a payment platform so the two can marry quite nicely. We have an ecosystem that enables you to use that currency - there’s no point having a currency that can’t be used.”

New ventures

AirAsia has, according to Asian press coverage, variously described Travel360.com in a presentation at a Pacific Asia Travel Association conference as “a travel and lifestyle e-zine with booking capabilities,” as well as “a data-driven OTA that combines Content-Plus-Commerce offering comprehensive travel content and deals.”

Another new venture from the AirAsia group this summer was OURSHOP, a new digital marketplace designed to connect international travellers with airport, high street and local specialist retailers. Launching it “across 130 destinations in 26 markets” Tony Fernandes gave this year’s group target “as 80 million passengers (2018 projection) with sales at airport, high street and local specialist retailers.”

He added, talking to UK retail consultancy Moodie Davitt: “It will drive passengers and other shoppers towards the retail providers, not only increasing the latter’s virtual and physical footfall but driving up transaction volumes and values.”

Not that he is unscathed by the soaring oil price, as the Q2 2018 Malaysian company’s earnings show, although it is still highly profitable. While Q2 passenger numbers rose 13 per cent year-on-year to 10.9 million and revenue was up by ten per cent, at RM2.6 billion, net operating profit was down by 18% at RM325 million partially as a result of a 28 per cent rise in oil costs. The fall in its share price this year from RM4.75 to RM2.47 reflects investor worries.

However, it has been augmenting its revenues with asset sales, such as of its leasing and training businesses and with this summer’s $60 million Expedia payment to buy AirAsia out of their joint AirAsiaGo platform. (AirAsiaGo will continue to be powered by Expedia Group, featuring air tickets from the carrier alongside hotels from Expedia and packages of the two bundled together.)  There is also frequent talk of pulling in outside investors to some of the affiliates, with the Philippines and Thailand being favourites.   

Not an easy ride

Flight Global magazine reports that Tony Fernandes has warned that there "will be pain", too, in Q3 this year due to lower yields, and the cancellation of underperforming routes and business partnerships. The focus will be on markets it can "dominate" such as Australia, China, India, Japan, and South Korea.

AirAsia’s scope for growth is vast, and analysts focus in particular on the Chinese opportunities. According to data from CAPA, AirAsia’s Chinese network will reach 20 destinations next month, further strengthening the group’s position in Asia’s largest market. It is already the largest low-cost brand in China’s international market and currently has nearly 150,000 weekly seats to or from China, giving it around a 27 percent share of total international LCC capacity.

AirAsia could easily double - and potentially even triple - its network in China without launching a local affiliate

AirAsia currently serves China from three Southeast Asian countries – Malaysia, Thailand and Philippines, so could add other affiliates. Noted Blue Swan a few weeks ago, while AirAsia is still keen to launch a Chinese affiliate, which would enable it to access China’s huge domestic market, there are also plenty of opportunities to pursue expansion in China using its existing affiliates.

AirAsia could easily double – and potentially even triple – its network in China without launching a local affiliate, says CAPA. There are currently 75 airports in China with international services and 54 are already taking LCCs. AirAsia is also able to expand in China by launching new routes from more of its bases to its 20 existing Chinese destinations, following a connect-the-dots-strategy.

As Tony Fernandes’ Linkedin site states, despite the airline market headwinds, his focus is “on what we do best; which is marketing, branding and providing connectivity where there isn't.” His motto: “..dare to dream, work hard and never give up.”

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