Debt-ridden AirAsia’s super app ambitions fly into murky skies

Debt-ridden AirAsia’s super app ambitions fly into murky skies
A Gojek delivery rider clad in AirAsia’s familiar red in Bangkok, Thailand. ( pic)

Debt-ridden AirAsia’s super app ambitions fly into murky skies

SINGAPORE: Gojek motorbike drivers clad in AirAsia’s corporate colour of red have been delivering takeout meals to app users in Bangkok since mid-August.

The Malaysian budget carrier acquired Indonesian ride-hailing and payment company Gojek’s Thai operations in July, part of its effort to expand super app operations.

With its airline business battered by the pandemic, AirAsia is hurrying to expand its app operations, including food delivery and ride-hailing services. But accumulating losses from carrier operations will make it hard for the company to secure funding for necessary investments.

Developing digital businesses was a goal CEO Tony Fernandes had been pursuing since before the Covid-19 pandemic. Now with the coronavirus-induced slump in air travel, revenue from digital operations made up 39% of the group’s total in the first quarter of this year, up from just 14% for all of 2020.

Even when travel demand recovers, “the contribution from non-aviation revenue will rise to about 50%”, Fernandes has said.

But its finances may not be steady enough to fuel his ambitions. Hit by a price war and the plunge in air travel, the company incurred net losses for seven straight three-month periods from the third quarter of 2019 through 2021’s first quarter.

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It sank into negative net worth in the third quarter of 2020, with its net liabilities exceeding RM4.1 billion as at the end of March. With a Malaysian lockdown in June as well as rising Covid-19 cases in Thailand and Indonesia, the carrier is expected to report this month a deep loss for the second quarter.

So while expanding its digital operations, AirAsia has been slimming down where it can. The company last October slashed 10% of its workforce of 24,000 people, including those at long-haul airline AirAsia X, local media reported. It also liquidated its Japan business while selling a majority of shareholdings in an Indian joint venture to its partner, Tata Group.

The airline is also scrambling to secure financing to end its negative net worth and to invest further in digital operations, procuring about RM336 million this year from a group of investors that includes a Hong Kong business owner.

But such fundraising efforts have not kept up with the loss being incurred by the airline business.

By comparison, Singapore’s digital behemoth Grab boasts deep pockets, having raised US$6.2 billion in its latest round of funding from investors including SoftBank Group. Online gaming and e-commerce giant Sea Ltd, another Singapore company, has about US$185 billion in market value on the New York Stock Exchange and pours billions of dollars raised on the market into business expansion.

AirAsia’s digital businesses need to attract customers by spending a large amount of money, but it is “questionable” whether the company has “that scale of fundraising capability”, said Kenichi Shimomura of German consultancy Roland Berger.

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AirAsia’s strength is the success of its core low-cost carrier business and its strategy for gaining price-conscious customers. For its newly launched food-delivery service in Thailand, AirAsia is charging restaurants a fee of just 5% on orders through October, aiming to win business away from rivals said to have rates in the 20% to 30% range.

The company boasts a “wealth of customer data from its aviation business”, Fernandes has emphasised, counting on synergies by linking the data to the digital businesses.

When Fernandes entered the carrier business, no one expected a success story, says the CEO, who bought a bankrupt airline for a mere single ringgit and launched AirAsia with just two planes.

He is undoubtedly one of the most successful entrepreneurs, but the business environment has drastically changed over the past two decades.

“AirAsia has a powerful brand, but for its aviation business to stay competitive, reorganisation is needed,” said an analyst in Malaysia.

Debt-ridden AirAsia’s super app ambitions fly into murky skies

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