With the closure of its operation in Japan and rumblings about selling its stake in India, AirAsia Group will have to renews its focus on core markets in Southeast Asia. But while the airline operation turns inward, the group's e-commerce operation is gambling on expansion.
AirAsia Group CEO Tony Fernandes was ready to take on the skeptics about the company’s recent switch to a “digital lifestyle company, anchored on travel,” and the doubters sound all too-familiar to him.
“Every airline rubbished us,” Fernandes told Skift in a one-on-one interview on Monday, recalling his purchase of AirAsia for less than $1 nearly two decades ago. “Everyone laughed at us. Who are these twits from the music business? I’m sure the digital guys are saying, who are these twits from the airline business. Time will tell.”
Fernandes touted the purported digital DNA of AirAsia, which he said was the first carrier in Asia to sell flight tickets online.
“So we are not virgins at this digital thing,” Fernandes said.
Monday was a notable day for AirAsia. After launching the AirAsia.com app as “Asean’s super app” last week and giving AirAsia.com its first tagline, “For everyone,” the company offered “storewide discounts” on most of its products.
By mid-afternoon, after about three hours of the sale, Fernandes, who’d just returned from the Malaysian Ministry of Finance after participating in loan discussions, which he said were “progressing well,” tallied about 1,000 food delivery, and 400 fresh food orders in the first three hours of the promotion.
Sign Up Now to Watch AirAsia.com CEO Karen Chan Online During Skift Forum Asia – October 15, 2020
With AirAsia’s Covid-19 downturn, which saw AirAsia Malaysia operating at 45 percent of pre-pandemic capacity in August, the closure of AirAsia Japan, and the possibility of selling its stake in AirAsia India looming, Fernandes’ counting the number of food deliveries on a Monday morning was not a mere trivial pursuit. AirAsia Digital, formerly know as RedBeat Ventures, and featuring the AirAsia.com platform, logistics and e-commerce services, as well as financial services and loyalty programs, could be a lifeline for the Group.
Here are some takeaways from the interview:
Is This a Pivot or a Lean?
Fernandes is all-in on AirAsia Digital, with its SNAP air-hotel packages, food delivery, and financial services, arguing that the e-commerce side of the operation could be 50 percent of the Group’s business in five years.
Cross-Selling Versus Going Head-to-Head With Expedia and Booking
Asked how AirAsia Digital would compete with the likes of Agoda, Expedia, or Trip.com Group in terms of customer acquisition and marketing, Fernandes was blunt. “We are not. We are not able to. And we are not going to try.”
Excluding AirAsia.com’s new mobile app, SimilarWeb counted 4.6 million visitors to AirAsia.com on desktop and mobile web in September. Fernandes said the strategy would be to convince flight-ticket bookers to book hotels and car rentals, as well.
While other airlines might use online travel agencies as a major means of distribution, AirAsia.com generates about 70 percent of the airline’s bookings, Fernandes said, adding that AirAsia will market through its own channels.
“This is not a zero-sum game,” Fernandes said, meaning there will be multiple winners and, erasing Covid from the picture, the e-commerce category would still be growing.
An Expedia Joint Venture, Then Build Your Own
It’s a sometimes-used page from the online travel agency playbook: Partner with a company, end the partnership, and build your own imitation.
Expedia Group and AirAsia had a long-standing exclusive joint venture in Asia Pacific, which recently ended, although AirAsia still sources hotels from Expedia, among others.
Fernandes freely admitted that he had “some of the best tutors” in Expedia Group chairman Barry Diller and former CEO Dara Khosrowshahi, and that AirAsia gained a lot of experience in the joint venture.
“And then we said, ‘Look, we can do this ourselves,” Fernandes said.
Data Theater or the Real Thing?
As in the beginnings of his airline business, where he learned from Southwest’s pioneering Herb Kelleher, Michael O’Leary of Ryanair, and easyJet’s Stelios Haji-Ioannou about an attractive low-cost carrier model, Fernandes saw an opportunity in the online travel agency business model.
“So when I started 19 years ago, I thought we had a great business model,” Fernandes said. “Now that we are starting on this digital journey, I think we have a great data model that enables us to catch up with the incumbents.”
Fernandes argued that one of the airline’s competitive advantages is in its trove of data, including that siphoned from rewards programs and co-branded credit cards. “It’s called knowing your customer for 19 years,” he said. “It’s having very high-resolution data, KYC (Know Your Customer Data).”
But sometimes companies such as Expedia Group have touted their data acumen for years, but it turned out that it was often more rhetoric than reality. For example, Expedia Group CEO Peter Kern said at Skift Global Forum last month: “I’ve said to the company, ‘I think we have a more complete data set on the world’s travelers than anyone else, but we’ve never had it in one place,’” Kern said. “[The data] was in multiple places, broken up. You couldn’t teach your machines or use AI against the data, etc.”
Fernandes said AirAsia didn’t invent the online travel agency or food-delivery business, but is learning from the incumbents, and has a handle on its data. “We are learning from all of them and over the last few years — we’ve been talking about this for two years — we’ve been getting our data into position. All the buckets are in one place, with the help of Palantir, with the help of Google.”
AirAsia Doesn’t Need as Many Hotels as Booking
As with its marketing strategy, Fernandes’ vision of AirAsia as an online travel agency is a twist on the biggest in class model, where Booking.com had 2.58 million properties, including 460,000 hotels at the end of last year.
“Less is more for me,” Fernandes said. “I don’t need 50,000 hotels. I need hotels where they make a difference to us. So we are sourcing where we are strong.”
Changing Customer Behavior Is Tough
AirAsia Digital is making a big bet that it can change consumer behavior, that it can convert flight bookers looking for a deal, into hotel bookers, or even fashion buyers.
“Our ethos stands the same,” Fernandes said, referring to the schizophrenic role of being a low-cost carrier and financial tech firm. “We are value, whether we are selling watches, whether we are selling airline tickets.”
He added: “We are not going to be selling Hermes on our website.”
Pointing to Grab, the leading superapp in Southeast Asia, which began just offering rides, and Amazon, which had its beginnings selling books, Fernandes argued that companies can evolve.
“Amazon is the leader in that,” he said. “For many, many years they sold books. Now they are selling cloud space.”
Fernandes was reminded that Amazon has made several aborted attempts in entering travel, and that some businesses look easy to outsiders but don’t turn out that way. He countered that Amazon could make it in travel if it devoted ample resources to travel, but has too many other lucrative businesses to deal with.
Asked whether there is a danger that AirAsia and AirAsia Digital won’t have the requisite focus, Fernandes said they operate as nearly independently run businesses so focus is not an issue.
He argued that AirAsia has already been selling things like food and duty free goods but has until now been mostly doing it on flights.
“We are a delivery company — we’ve just been doing it in the air,” Fernandes said. “All the e-commerce companies have been using us to move boxes around. Now we are just doing last mile is it’s a natural extension.”
Path to Profitability?
AirAsia Digital lost $11 million in the second quarter, but Fernandes said all of the digital businesses are in the black except for financial services. “They are all making money except for our fintech business,” he said. “That’s where most of the losses are coming.”
Other superapps are losing hundreds of millions, he said, adding that AirAsia Digital’s BigPay is only losing money because of the interchange charge. Otherwise, Fernandes said, “we are in a pretty good position.”
AirAsia Digital Branches Out While the Airline Looks Inward
While AirAsia Digital is branching out into myriad e-commerce services and products, the airline operation itself is shedding its Japan business, and India may be soon to follow.
Noting that the airline group has a presence in Malaysia, Thailand, Indonesia and the Philippines, Fernandes said, “Our strength has always been in Southeast Asia. That’s where we are going to continue to focus on.”
As for the future, Fernandes speculated that domestic travel will bounced back first, followed by regional travel, continental travel, and then intercontinental trips.
“For us, most of our travel is regional so we hope that is the sweet spot there,” he said.
AirAsia Group is making the best big that being a digital lifestyle brand will be its sweet spot, as well — naysayers notwithstanding.
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Tags: agoda, airasia, booking, digital, digital transformation, expedia, grab, hotels, packages, tony fernandes
Photo credit: AirAsia Group CEO Tony Fernandes thinks the strength of the Group's brand can help it pivot into a digital lifestyle company. Harry Murphy/RISE via Sportsfile / Flickr.com