AnalysisMalaysia

10 things I learned from the 2023 Capital A (AirAsia) AGM

In January 2022, AirAsia Group Berhad rebranded itself as Capital A Berhad to better represent its expanding portfolio of businesses, extending beyond its core budget airline. Besides the AirAsia airline, Capital A’s businesses include ventures in digital, logistics, and other aviation services. Its ‘airasia Superapp’ now acts like an online travel agency that allows consumers to book air tickets, accommodation, as well as hail a cab. Its fintech and e-wallet platform, BigPay, and logistics business, Teleport, also look promising.

Here are 10 things I learned from the 2023 Capital A annual general meeting.

1. Revenue surged from a low base of RM1.7 billion in 2021 to RM6.4 billion in 2022. Net loss narrowed from RM3.o billion to RM2.6 billion over the same period despite the absence of government support as all core business segments recovered except Teleport. COVID-19 movement restrictions have gradually eased, and border closures have slowly lifted in the past two years. Air travel demand remains strong as forward bookings have surpassed pre-pandemic levels. Approximately 70% of the company’s 205 leased planes are currently fully operational, and the expectation is that all of them will be in full operation by the third quarter of 2023. Retrenched staff have also been recruited.

2. Capital A was restructured into four main businesses, namely aviation, digital, logistics, and aviation services. The aviation segment consists of its aviation businesses in Southeast Asia. AirAsia Japan was shut down in 2020, while the company’s stake in AirAsia India was recently sold. It targets to launch AirAsia Cambodia by the end of 2023 and will continue to focus its business primarily in Southeast Asia particularly Thailand and Malaysia.

As consumers, we may have observed a significant increase in airfares after the pandemic. According to CEO Tan Sri Anthony Francis Fernandes, these airfare hikes are ‘rational’ and are maintained at levels that are beneficial for both the company and its shareholders. The management doesn’t anticipate that the emergence of a new competitor, MYAirline, to have a substantial impact on the Malaysian market, given that other well-established airlines also exercise fare discipline. Additionally, the CEO anticipates that ancillary services such as Wi-Fi will play a more significant role in boosting the company’s bottom line.

3. Under its digital segment, the company repositioned its airasia Superapp as a low-cost online travel agency (OTA) by focusing on travel-related businesses including flight, hotel, and ride-hailing. The airasia Superappno longer offers food delivery after three years since its launch as Anthony Francis Fernandes thinks they ‘are never going to make money on food delivery’. As part of its collaboration with foodpanda, consumers who wish to order food delivery or hail a cab will be redirected to each other’s app instead. The benefit of this partnership is yet to be seen. Additionally, the airasia Superapp now enables consumers to make discounted reservations for in-house dining. The CEO is optimistic about the prospects of its digital ventures, citing the company’s strategy of capitalizing on its extensive database to engage in cross-selling to its 12.9 million average monthly active users (as of Q1 2023), which helps reduce advertising expenses.

4. The company’s ride failing app — Airasia Ride — is currently available in Malaysia, Thailand, and Indonesia while the company is applying for relevant licences in Singapore and the Philippines. The number of completed rides per month improved from 161,000 in the first 17 months of operations to 410,000 currently. Market conditions are challenging — it’s noteworthy that Grab, the dominant player in the ride-hailing sector, continued to incur losses in 2022.

5. One shareholder pointed out that airasia Superapp was not as user-friendly as Grab. In fairness to Capital A, it’s worth noting that their app was developed during the pandemic when the company faced financial constraints. As a user myself, I have observed some noticeable improvements in the airasia Superapp over the past few years. Additionally, it’s worth mentioning that lately, airasia Superapp’s fares have generally been more competitive and lower than those offered by Grab.

6. BigPay, an ewallet app, is available across Malaysia, Thailand, and Singapore. The company is seeking approval in other parts of ASEAN. The CEO aims to have at least 30% of the revenue in airasia Superapp transacted on BigPay in the future, which is a bold target.

To me, the positioning of BigPay can be clearer to the public. It acts like an e-wallet, a budgeting tool, and a debit card. Users can apparently transfer money to overseas bank accounts and pay bills in the three countries mentioned (obviously I am not a user). Migratory workers look like the target users as cross-border remittance grows. BigPay has disbursed RM2.8 million to its 1.3 million user base so far as part of its nascent lending business.

BigPay raised US$100 million from SK Group in 2021 and aims to achieve profitability by 2024. Its payment business made up of 69% of its revenue in 2022. It will rely on QR payments to reduce its dependence on Visa and Mastercard payment networks.

7. Teleport sells AirAsia’s and third-party passenger flight cargo belly space to freight forwarders like DHL and Schenker. It has grown its market share to 10.3% in the ASEAN region and targets to overtake Singapore Airlines Cargo by the end of 2023. Teleport is also an e-commerce service delivery provider and a courier for customers like Zalora, Shopee, Lazada. One aircraft freighter was brought in in June 2023 for the first time with two more on the way.

Teleport’s revenue declined from RM551.2 million in 2021 to RM469.1 million in 2022, primarily attributed to the increased availability of belly space as air travel rebounded, leading to higher supply in the market. Losses before interest, taxes, depreciation & amortisation narrowed from RM69.1 million to RM26.9 million over the same period as it used low-margin passenger planes to carry cargo in 2021. In 2022, it shifted back to using the belly space of AirAsia aircraft to carry cargo.

8. Aviation Services comprises several entities, including the inflight catering company Santan; the ground handling services provider, Ground Team Red; the maintenance, repair, and overhaul company, Asia Digital Engineering (ADE); as well as AirAsia Consulting, among others. These companies provide services to AirAsia and the CEO wishes to expand their offerings to other airlines.

In an effort to sustain the company during the pandemic when flights were halted, the management explored various business verticals, such as launching Santan outlets in the Klang Valley. Some of these Santan outlets were subsequently shuttered. Currently, the company is pivoting towards smaller-format kiosks and supplying its food products to convenience stores and inflight catering services instead.

The cargo volume handled by Ground Team Red is anticipated to grow 30% year-on-year in 2023. To capture the rising cargo demand, three cargo terminals will be introduced by Q1 2024 at Sandakan, Kota Kinabalu, and Tawau in Sabah. Ground Team Red is expected to be profitable by the end of 2023.

Additionally, the company’s dual-listing in New York does not appear to be progressing as of now.

9. Capital A remains financially distressed and may only exit PN17 status by 2024. It postponed the submission of its regularisation plan to October 2023 to incorporate its latest FY2022 figures. At the same time, it plans to list in New York look shelved for now. Despite these challenges, the CEO has reaffirmed his commitment to remain at the helm of Capital A.

Impairment losses from AirAsia X and Thai AirAsia X (both are related parties) totalling RM313.2 million and RM227.7 million respectively were recognised in 2020 and 2021. The amounts were pertaining to the former’s debt restructuring exercise and the latter’s proposed rehabilitation plan.

10. Capital A aims to raise RM1 billion through debt and equity financing. Teleport raised US$50 million in 2022, while the aviation group and Asia Digital Engineering secured US$30 million and US$100 million respectively in 2023. Capital A is in talks with third parties to secure funding totalling US$40 million for airasia Superapp and another US$150 million for the aviation group.

The fifth perspective

Capital A has experienced remarkable growth since its inception, expanding its fleet from 2 to 205 planes. Much like how it successfully challenged Malaysia Airlines in the aviation sector, the company aims to extend its competitive edge into other industries. While numerous promises and prospects were discussed during the AGM, many of these initiatives are still in the process of materializing. It may be prudent to adopt a wait-and-see approach to gauge the outcomes of these endeavours.

Moving forward, the company stands to benefit from favorable business conditions, including the recovery of the Chinese market, which contributed to 15% of Capital A’s pre-pandemic revenue.

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.

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