AirAsia's Tony Fernandes on building the 'low-cost unicorn' of Asian super-apps, digibank hopes and possible SPAC listing

In 2009, during the tail end of the global financial crisis, most airline chiefs were reducing capacity and cutting routes as they bemoaned the industry's biggest slump since the Sars (severe acute respiratory syndrome) crisis.

AirAsia's maverick boss Tony Fernandes, on the other hand, was talking up his expansion plans.

With its position as the ultra-low-cost Walmart or McDonald's of Asian aviation, the downturn was proving to be a silver lining for the carrier: cash-strapped travellers previously accustomed to the frills offered by the likes of Cathay Pacific and Singapore Airlines began trading down to fly on AirAsia for the first time.

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That year, the airline - then already Asia's biggest low-cost carrier by fleet size - booked what was at the time its biggest annual profit.

In early July, AirAsia said it was buying the Thai operations of Gojek, the Indonesian ride-hailing giant which has super-app ambitions of its own.

In an interview with This Week in Asia, Fernandes said more such acquisitions were in the works.

The new digital business needs about US$300 million in the near term to meet its ambitions, and Fernandes said a US$100 million investment was expected soon from a "very top-class investor".

The 57-year-old brushed off analysts' scepticism about the digital expansion plans, saying instead that he would bring the airline's underdog mentality to the new venture.

"We are kind of like a Robin Hood right, against Shopee, Foodpanda and all these big boys," Fernandes said over Zoom.

"It's so similar to the airline world, where all the second, third-division guys who couldn't get jobs with Singapore Airlines or Malaysia Airlines or whatever, came to us," he said. "And that's how we built AirAsia, right? Lower cost, cheaper quality and smarter people."

Fernandes said there was ample space for entrants to the super-app race. "Even in America, with Amazon's huge dominance, is there only one Amazon? Walmart's making a dent and others are coming up.

Research houses, including Malaysia's MIDF Research, have in recent weeks sought to pare back the hype about AirAsia's super-app plans.

"To address the elephant in the room, we believe the digital segment is still in its infancy and altogether a different ball game as opposed to AirAsia's traditional business of airlines," MIDF said in a research note on July 8, shortly after the Gojek-related announcement.

"Our thinking is that the digital segment of AirAsia is not self-sustaining yet and still at a scale that cannot sustain the whole group; especially in the near-term," it said. "Without successfully addressing the immediate needs of its airline business, AirAsia is still going to be in a precarious state, foreseeably longer than calendar year 2021 to 2022."

But Fernandes said analysts tracking his company had been repeating the same warning for two decades - first about competition from the likes of Singapore Airlines, and now from the likes of Grab and Foodpanda.

"So you know, a couple of them have missed the trick as to what we are trying to do. But I am not here to prove them wrong now. Let the numbers talk, let the business talk," he said. "What I can say is ... we've taken an airline that is on the ground [due to Covid-19], used this time productively and built a digital [arm] that is attracting investment.

Fernandes has for years contrasted AirAsia's success, despite its lack of deep-pocketed patrons, with that of Singapore's Temasek-backed low-cost carriers. Scoot, which absorbed the now-defunct Tigerair, is a subsidiary of Singapore Airlines, which in turn is majority owned by the investment firm.

On the possibility of securing one of the digital banking licences that Malaysia's central bank is expected to issue early next year, he sought to downplay expectations.

"Of course we are eager, but there are 28 other people so you know, we [have] got to wait and see," he said. Along with BigPay's consortium, other bidders include a joint venture between Grab and Singtel, wealth management platform iFast and a consortium led by telco Axiata and RHB Bank.

Fernandes said he was confident AirAsia's data - accrued through nearly two decades in the airline business - would make it an ideal lender compared with the likes of Grab.

"It's high-quality data... I have rewards data for 19 years. I know more about a customer. Grab's rewards data is just about redeeming food, right? [AirAsia's customers] have been redeeming hotels, redeeming petrol, [taking part in our partnership with] Citibank. So I have got much richer data and much more personalised data."

This meant "I don't need CTOS and those guys", Fernandes said, referring to the Malaysian credit reporting agency. "I can supplement my data with them, but I've got great lending algorithms already from my own data."

Asked whether AirAsia's digital operations would need to be headquartered somewhere other than Kuala Lumpur - Grab's rapid expansion came about after a move to neighbouring Singapore - Fernandes said he saw no need to follow suit.

"I built an airline out of Malaysia didn't I? You create talent. I don't have to import talent," he said, noting nonetheless that AirAsia already had offices in the island nation. Its food delivery arm, Airasia Food, launched there in March.

"Talent in Malaysia is going to be more affordable than talent in Singapore or in India," Fernandes said.

For now, a merger with a special purpose acquisition company (SPAC) appears to be more likely than a new home base for AirAsia's digital operations.

The Gojek deal, which saw the Indonesian company take a 4.76 per cent in AirAsia's super-app business, values the division at around US$1 billion, according to Reuters. That amount is more than AirAsia's current market value of around US$868 million.

A SPAC listing would also be in line with what other Southeast Asian super-app contenders are doing. Grab is set for a listing of this nature in the United States in a US$39.6 billion deal with Altimeter Growth Corporation, while GoTo Group - formed through the merger of Gojek and e-commerce player Tokopedia - is also said to be eyeing a US$40 billion valuation, possibly through a SPAC listing.

Fernandes said he had been approached "by a few companies to do a SPAC", with a bank now appointed and proposals from PriceWaterHouseCoopers to do a listing.

But questions remained over whether AirAsia should "raise capital first then do a SPAC, or do a SPAC straight away", he said, adding that the decision ultimately lay with the company's board. "My job is to put a lot of options in front of them."

On the airline business, Fernandes said he hoped flights for his low-cost carrier would return to at least 50 per cent of 2019 levels by the end of the year, with a full recovery by the end of next year.

"My only caveat is that [this happens] if there's no other variant that makes the vaccine ineffective," he said. "I am encouraged by India and by the UK, which really opened up and now [cases] are going down."

This article originally appeared on the South China Morning Post (SCMP).

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