Given the chance, AirAsia would combine all of its overseas affiliates with its main Malaysian operation, as a step toward “complete domination” of the Southeast Asian low-cost market
AirAsia group chief executive Tony Fernandes says that if shareholding regulations were relaxed, AirAsia would “happily invest fully to take complete ownership of all” of its overseas units.
For the time being, though, AirAsia must settle with 49% stakes in its overseas affiliates owing to foreign ownership caps that prevail in the sector.
AirAsia has built an impressive list of affiliates over the years - although not all are entirely successful. It holds 45% of Thai AirAsia, 49% of Indonesia AirAsia, 40% of the Philippines AirAsia, 49% of AirAsia India, and 49% of AirAsia Japan. Of these, Thai AirAsia has enjoyed good profitability, while the others have have had mixed fortunes.
“Maybe we made the mistake of under-investing in some countries like Indonesia, which becomes a problem. I want to invest, but some of our shareholders aren’t fully keen,” laments Fernandes. “We can become like the Ryanair of Asia as a consolidated group. It would be so profitable because of our huge network, connectivity and brand.”
“Imagine that machine - if my Philippines and Indonesia (units) are profitable,” he adds, referring to their consecutive operating losses in the recent first quarter.
Philippines AirAsia recorded an operating loss of PHP306 million ($6.5 million), compared to an operating loss of PHP679 million from the year before. Meanwhile, Indonesia AirAsia reported an operating loss of Rp82.7 billion ($6 million) for the quarter, a marked improvement on the Rp389 billion operating loss from the year before.
BULLISH ON INDIA, POTENTIAL FOR SINGAPORE AFFILIATE
Fernandes describes AirAsia's smallest affiliate, AirAsia India, as an “unmitigated success… opening the floodgates” for its Malaysia and Thailand units to begin tapping the India market. This despite the delays to its launch, which finally occurred in May 2014, and short tenure of the carrier's first chief executive, Mittu Chandilya, who left after less than a year at the new carrier.
Fernandes declined to talk about Chandilya's departure, and admitted the India operation has been a slow starter. Still, the group plans to grow its Indian fleet to 20 aircraft from the current six.
“(AirAsia India) is moving along nicely. Aviation is a gestation project. It’s not something you can just go in there today and make millions of dollars tomorrow.”
He would not give a date for AirAsia Japan’s launch, which was due in the second quarter of 2016, but says work is underway to get things going. The start-up had received its air operator’s certificate in October last year targetting a Spring 2016 launch. AirAsia Japan will operate from a base at Chubu Centrair Airport near Nagoya, and fly initially to Sapporo, Sendai and Taipei Taoyuan.
Despite having his hands full with the core Malaysian business and five overseas units, Fernandes admits he isn’t satisfied with the status quo. “The world waits for nobody. It’s a dichotomy - do you throw away great opportunity, or try and keep (the joint-venture) small? I hope to be in Vietnam, Cambodia, Myanmar and I believe AirAsia Singapore could be reality soon. The Singapore government is now much more proactive in discussions with us.”
“A MICKEY MOUSE ALLIANCE”
Fernandes is flatly dismissive of of the recently formed the Value Alliance, which saw Cebu Pacific, Jeju Air, Nok Air, NokScoot, Scoot, Tigerair, Tigerair Australia and Vanilla Air team up in what is essentially a sprawling interline partnership.
“It is a “Mickey Mouse” alliance. What an (expletive) joke. It's simply desperation on their part. What passenger will take six airlines to go from one place to another? If ownership regulations were to change, it might be better for all of them to own equity in each other and create one brand. That would be something worth looking at. I value innovation and people creating ideas, but Value Alliance will struggle.”
Fernandes remains optimistic about the ASEAN Open Skies agreement that was fully ratified by all member countries in May.
ASEAN comprises Myanmar, Thailand, Laos, Cambodia, Vietnam, Philippines, Malaysia, Brunei, Singapore, and Indonesia.
Indonesia and Laos were the last two countries to sign the pact. This means that any airline in the region can launch as many international flights as the market can support. This plays to one of AirAsia's strengths: its large fleet size.
The Queens Park Rangers football club and Caterham F1 team owner says: “It’s great that all countries have signed, but it doesn’t solve everything - airports can say “I have no slots left”, leaving you back in square one. But I’m bullish that when ASEAN is fully liberalised, fifth freedoms, sixth freedoms will come in.”
Fernandes is not concerned that the pact may mean more competition. “If competition is better than us, and we get our arse kicked, we deserve to get our arse kicked. You can’t hold competition back – it makes us smarter and better.”
GROWTH TO RESTART IN 2017
Since the start of the 2015 financial year, the AirAsia Group held back capacity and growth to conserve cash.
When weakness in the Malaysian Ringgit and concerns about the company's accounting methods hit AirAsia stock hard in 2015, Fernandes and partner Kamarudin Meranun boosted their combined stake from 18.9% to 32.4%, raising MYR1 billion ($247.2 million) for the company.
“We showed commitment, as we think the company was undervalued – and it still is.”
Both he and Kamarudin have become “100% more involved” in day-to-day running of operations. Fernandes says the company has paid up around $400 to 500 million of debt since additional stake purchase.
Come 2017, AirAsia will look to expand toward China and India as areas of growth, citing the large potential of the two countries. In a recent media interview, Fernandes disclosed that the group’s flights in and out of China contributed 19% of the total revenue, while India posted 3%.
“I’m happy if I can maintain that same level for China. But India is really where the action is. There are tons of potential and space to grow. The sky is the limit there. If the India government and private airports give us more landing rights, it will be good for business for them too.”
Flightglobal’s Fleets Analyzer shows that overall the AirAsia Group operates 167 A320ceos. As for its orderbook, it has 303 A320neos set for delivery between now and 2028.
It expects to receive three Airbus A320neos by the end of the year. Sixteen A320neos are scheduled to arrive next year, with 32 slated for 2018 delivery.
When asked if the AirAsia Group might have over-ordered, Fernandes quipped: “We need those aircraft and are looking to order more. We are in talks with Airbus now, so keep a look-out. If I can have 1,000 aircraft, I’ll gladly take them.”
Source: Cirium Dashboard