23-10-2023 (KUALA LUMPUR) AirAsia’s parent company, Capital A, has shifted its strategy of operating independently and instead embraced partnerships with other carriers as CEO Tony Fernandes faces a significant turnaround challenge. The company recently announced partnerships with China’s SF Airlines and Garuda Indonesia, aiming to capture the growing demand for cross-border e-commerce and expand its code-sharing services. These partnerships mark a departure from AirAsia’s previous approach of defying the odds and competing fiercely in the heavily regulated airline industry.
AirAsia, founded by Tony Fernandes in 2001, transformed a bankrupt Malaysian airline into Southeast Asia’s first full-fledged low-cost carrier. However, the company has faced challenges in expanding into markets dominated by competitors such as Lion Air in Indonesia. Even before the COVID-19 pandemic, AirAsia struggled with thin profit margins due to intense competition. The pandemic further exacerbated its financial woes, leading to the withdrawal of operations in Japan and India.
Currently, Capital A is striving to recover from extensive pandemic losses and improve its financial standing. While the company recorded a net profit of 1.18 billion ringgit ($247 million) in the January-June period, compared to a 1.84 billion ringgit loss in the previous year, its liabilities still exceed its assets by 10.2 billion ringgit. This has led to the stock being designated PN17, indicating financial distress, and risking delisting from the Malaysian stock exchange if a restructuring plan is not submitted and approved.
As part of the restructuring efforts, Capital A plans to merge AirAsia’s operations in Malaysia, Thailand, the Philippines, and Indonesia into a consolidated airline group with AirAsia X, its medium- and long-haul carrier. CEO Tony Fernandes remains optimistic about air travel demand, anticipating that all 204 aircraft in the fleet will be operational by the end of December. However, the company’s recovery lags behind major competitors, and challenges such as higher fuel costs and intense competition in the Southeast Asian airline sector pose additional obstacles.
To diversify its revenue streams and reduce dependence on aviation, Capital A has been developing its digital arm, now known as Move. Originally focused on airline ticket sales, Move has expanded its services to include hotel reservations and ride-hailing. Capital A aims to increase sales from non-aviation businesses to approximately 50% of the total. However, fierce competition from established Southeast Asian superapps like Grab and GoTo presents a challenge for Capital A’s late entry into the market.
Tony Fernandes, known for his resilience in overcoming past crises, has sold his stake in the U.K. soccer club Queens Park Rangers to focus entirely on rebuilding AirAsia and expanding the digital businesses. While Fernandes has expressed his belief in knowing when to step down, he reportedly intends to continue leading the company until the completion of its restructuring.
