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10 things I learned from the 2021 AirAsia AGM

AirAsia began its business with just two planes. Since then, it has transformed from a Malaysian budget pioneer to a regional low-cost carrier. It has democratised air travel in Southeast Asia throughout the years. Now, it even positions itself as a lifestyle company anchored on travel by accelerating its venture into food delivery, ride-hailing, and payment solutions.

Will AirAsia’s new business endeavours be able to emulate the success of its airline business? Here are 10 things I learned from the 2021 AirAsia AGM.

1. Revenue shrank 73.6% year-on-year to RM3.1 billion in 2020 while net loss widened from RM315.8 million in 2019 to RM5.1 billion. The outbreak of the COVID-19 pandemic and the resultant movement restrictions implemented to curb the spread of the virus has put a dent on AirAsia’s financials.

Impairment amounting to RM1.3 billion was made across the amount due from associates and related parties as well as trade and other receivables as a result of the cessation of AirAsia Japan’s business operations, AirAsia X’s business restructuring, and bleak near-term business prospects. CEO Tan Sri Tony Fernandes expects the company to return to profit once travel restrictions are lifted, although this the timeline remains uncertain.

2. The company’s digital business — AirAsia Digital — comprises the AirAsia super app, Teleport (logistics) and BigPay (payment solutions). The digital business segment achieved significant year-on-year growth in terms of revenue as it started from a low base in 2019. Altogether, the segment accounted for 14% of the company’s revenue in 2020 and the fourth quarter alone. Its revenue contribution is expected to rise to approximately 50% by 2025. It achieved breakeven earnings before interest, tax, depreciation and amortisation (EBITDA) in 2020.

3. AirAsia’s super app was launched in October 2020. It is a mobile application that provides airline and lifestyle offerings including food deliveries, e-commerce for beauty products, payments, etc.

AirAsia completed the acquisition of Gojek’s ride-hailing and payments businesses in Thailand via a share swap by raising shares in AirAsia Digital. It did not opt for bank borrowings to preserve its cash reserves amid the cash crunch. It is worth noting that ride-hailing is another cash-burning business where competitors fight for market share. Gojek was still having losses in Thailand in the latest financial year. The super app is expected to register the highest growth among AirAsia’s digital ventures.

4. Tan Sri Tony Fernandes believes in profitability and positive cash flow instead of being the dominant player in e-commerce and food deliveries. He will not use shareholders’ money to give away products for free to build market share. He considers Gojek’s cross-border and in-country delivery infrastructure; the GoPay licence; as well as the ensuing merchant, driver, and user network as the prize of the acquisition. He also joked that his fellow board member, Dato’ Mohamed Khadar bin Merican wanted to acquire Shopee for another trillion dollars when he was asked about the upcoming business acquisitions.

5. Teleport is an expansion of AirAsia’s passenger services to logistics services by leveraging on the company’s high flight frequencies and point-to-point network. Selected passenger aircrafts were converted to cargo-only freighter planes as international borders remain closed in the ASEAN region. The newly added first and last-mile delivery is complementary to its existing cargo business.

Tan Sri Tony Fernandes mentioned that the unique selling points of Teleport are speed and lower price. These are not really economic moats to me given the stiff competitive landscape particularly in the delivery business. Price wars and promotions to lure customers are common but unsustainable tactics as peers race to the bottom to grab market share. Teleport’s EBITDA margin stood at 32% in 2020.

6. BigPay partnered with Malaysian Industrial Development Finance, Ikhlas Capital, and SK Group to apply for a digital banking licence in Malaysia to become a full-fledged bank in alignment with Bank Negara Malaysia’s objective. It aims to simplify the banking processes and serve the underbanked and unbanked users. The move will benefit BigPay as it grants the company to access to low-cost capital like fixed deposits and savings accounts. There were 29 applicants for the licence and only up to five of which will be approved by the central bank by 2022.

A lifestyle insurance product was launched in Q2 2021 and more financial products are in the pipeline. BigPay recorded a negative EBITDA of RM83 million in 2020. BigPay has also launched a ‘buy now, pay later’ option in Australia and will release an improved version soon.

7. AirAsia targets to raise between RM2.0 billion and RM2.5 billion by 2021 via a combination of debt and equity funding exercises. Some of the private placement exercises and securities could be dilutive as the money was raised after AirAsia’s share price had taken a beating after COVID-19. Here are some of the initiatives:

  • Raised RM336.5 million through two tranches of private placements in Q1 2021 by issuing 470.2 million shares which represents 14.1% of total issued shares.
  • Received approval of funding of up to RM300 million from two banks under the Malaysian government’s Danajamin PRIHATIN Guarantee Scheme.
  • Proposed to raise up to RM1 billion by issuing seven-year redeemable convertible unsecured Islamic debt securities with free detachable warrants. The conversion price of each security is fixed at RM0.75 for every new share of the company.
  • Rolled out an employee share option scheme that allows employees and directors to subscribe for new ordinary shares in the company.

8. AirAsia embarked on a list of cost containment exercises to improve its liquidity. Tan Sri Tony Fernandes reassured shareholders that the company had RM448 million cash on hand as at 31 March 2021. The amount will be sufficient for the company to tide over the pandemic till 2022. The company has survived for 18 months without much flying and its monthly cash burn rate has been on a downtrend since the onset of the pandemic in the region in Q1 2020.

The company reduced its fixed costs by 52% year-on-year through headcount rationalisation, employee salary cuts (including directors and the management), as well as restructuring of leases. Notably, the non-executive directors have continued to voluntarily waive their fees by 50% for two years since 2020.

9. AirAsia changed its business focus to the ASEAN market where its brand name is the strongest. Its 33%-owned associate AirAsia Japan went bankrupt because of financial limitations. Tan Sri Tony Fernandes added that AirAsia Japan was already loss-making due to lack of scale with only three operating aircraft as well as regulatory constraints including the limited availability of slots. The tough decision had to be made given the poor visibility and uncertainty of a post-pandemic recovery path.

AirAsia also sold a 32.7% stake in AirAsia India for about RM152.9 million. It can opt to sell the remaining 16.3% stake at RM76.5 million. The partial divestment was made as India remains an important market for AirAsia.

10. Tan Sri Tony Fernandes expects domestic short-haul airline operations to turnaround within a year. Vaccine programmes have accelerated across AirAsia’s key markets. International travel would probably only resume gradually in late 2021/2022 according to him.

The fifth perspective

2020 was a tough year for AirAsia and 2021 continues to be challenging. Vaccination drives and the reopening of borders are the company’s key to resuming its airline business. I admire the company’s attempt to wean itself from its dependence on the airline business and diversify into food delivery, e-commerce, and ride-hailing businesses. However, it is still not clear how these digital businesses could navigate their way to profitability and survive against fierce competition.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

1 Comment

  1. The vast majority of consumers outside Malaysia will not bother too much about who is TF or AA. Without the cash to burn and technology to drive, the AA digital arm is likely to become a super “flop” instead of a super “app”.

    From what I read and gathered, I believe what TF is doing here is adopting what I call a “fake it until you make it” business strategy, try to upsell the AA brand loyalty and his persona without the ability to deliver the product or services as promised. Hence its not surprising to read all those bad reviews about AA “super” app on Google Playstore.

    Without cash and technology, AA App will not be able to match up and keep pace with first movers such as Grab and GoJek. So let’s not try to waste time reinventing the wheel or sensationalize ride-hailing or food delivery.

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