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Well, that was easy. Only a couple of years into its drive to become more like an online travel agency or even an Amazon, AirAsia Group announced this week that in the second quarter “it successfully pivoted the airline into a digital lifestyle company, anchored on travel.”
“Digital has arrived,” the company’s presentation stated, with AirAsia.com’s revenue accelerating 137 percent year over year, and revenue from its BigPay financial services unit climbing 11 percent.
AirAsia Group now divides the company into airline and digital segments, with AirAsia.com, logistics & e-commerce, and financial services composing the latter.
Source: AirAsia Group
Teleport, with revenues accounting for a record 42 percent of AirAsia Group’s total revenue in the second quarter, transported medical aid and supplies because of the Covid-19 crisis, and also delivered restaurant orders, packages, and fresh produce. It also has a nascent e-commerce business, where it sells electronics, fashion and accessories, liquor, and beauty products.
Teleport’s business, with its logistics bent, is hardly all digital. Still, the non-airline part of AirAsia’s overall business surpassed the airline portion in revenue in the second quarter, generating about $17.7 million, because flights were severely impacted by lockdowns, and travel restrictions, and AirAsia handed out $14.4 million in customer refunds for cancelled flights.
AirAsia’s overall business lost $163.7 million in the second quarter.
Earlier, in the first quarter, CEO Tony Fernandes and Chairman Kamarudin Meranun were cleared through an investigation that delved into whether AirAsia had bribed officials and hidden payments as revealed in an Airbus settlement with the UK, France and the United States. Fernandes and Meranun returned to the same leadership roles at the company after taking leaves.
Losses Across All Digital Businesses
While AirAsia Group’s digital business is growing and has potential, it is also wracking up losses across the board.
The non-airline segment notched losses of $10.9 million in the quarter, although this was a substantial improvement compared with a first quarter loss of close to $19 million. Financial services was the largest loss-generator in the June quarter, followed by AirAsia.com, and then logistics.
Some trends, such as the increased digitalization of everyday life in Southeast Asia and beyond, are certainly favorable to AirAsia’s e-commerce business, but the “digital lifestyle company” will face fierce competition from online travel agencies, banks, and super apps such as Grab and others in the food-delivery sector.
On the online travel agency front, AirAsia’s exclusive partnership with Expedia Group as its hotel provider expired this month, although Expedia still provides standalone hotel inventory to the company on a non-exclusive basis.
In its earnings announcement, AirAsia stated that it has begun to create its own direct relationships with hotels, and notched a partnership with China’s Trip.com Group to share inventory and services.
An Airline or a Lifestyle Company?
Jay Shabat, senior analyst at Airline Weekly, is skeptical about the notion that AirAsiaGroup has suddenly turned a switch and become a digital lifestyle company, noting that the business has potential, is still in its infancy, and that the airline has been prone to lofty pronouncements without a lot of substance about various reorganizations over the years.
“I think they are serious and investing a lot of money in it so I wouldn’t call it flakey,” Shabat said. “But the airline is still very much where the action is at the company.”
As a case in point, Shabat talks about AirAsia’s lofty rhetoric for more than a dozen years about its associated long-haul carrier, AirAsia X.
In its fourth quarter of 2018 earnings announcement, AirAsia X Malaysia CEO Benyamin Ismail said: “We are confident that positive growth will return in coming quarters on the back of an improved forward booking trend and average fares trending better than the previous year. A new fares structure has been implemented and the company is actively driving up ancillary revenue, which will ultimately improve yield.”
The next year, however, Shabat points out, Air Asia X lost $118 million dollars and had an operating margin of negative 3 percent. That same year, Ryanair’s operating margin was 13.2 percent.
At Skift Forum Asia in 2019, online travel agency competitors expressed skepticism about Air Asia’s foray into the broader travel arena.
For instance, Marsha Ma, who’s the CEO of Booking.com’s China business unit, said, in referring to AirAsia’s initial efforts in the hotel business, “the OTA business, especially the accommodations business, is a pretty heavy business model in terms of supply chain management.”
“It takes years of effort, it takes offices in more than 192 country locations in the world for Booking to build up our supply chain capability,” Ma said. “We’ll keep our eyes on that. We’ll see how things go with time.”
Shabat of Airline Weekly emphasized that AirAsia’s trove of data on passengers and other customers is legitimate and potentially powerful, if not realized at this point.
“Would you rather have Singapore Airline’s database with its wealthy business travelers?” Shabat asked. But he added about AirAsia’s data, “it is a great asset.”