AirAsia plots more digital deals to navigate Covid troubles

AirAsia is hunting for deals across south-east Asia to grow its nascent digital business, as the budget carrier seeks to accelerate a pivot to ecommerce and ride-hailing after being battered by Covid-19.

Tony Fernandes, owner and chief executive of the Malaysian airline, told the Financial Times that AirAsia was looking at potential acquisitions in the Philippines, Cambodia and Vietnam after buying the Thailand operations of Gojek earlier this month.

The airline is also exploring merging its digital operations with a special purpose acquisition company (Spac), or blank-cheque vehicle.

“This wasn’t a one-off transaction,” said Fernandes, referring to the Gojek deal, adding that he expected to announce more collaboration with the Indonesian ride-hailing, food delivery and payments group. AirAsia was keen to tie up with other tech players in the region and had already received approaches from some, he added.

“That’s really interesting and we’re very open to that because . . . we’re buying tech, we’re buying people, we’re buying experience and of course some data,” Fernandes said.

The pursuit of regional acquisitions comes as the carrier’s fintech unit BigPay is set to announce a $100m investment from “a very big conglomerate” in the next two weeks, according to a person with direct knowledge of the matter, the first fundraising for AirAsia’s digital business. BigPay earlier this month applied for a digital banking licence in Malaysia.

Businesses, from banks to logistics companies and retailers, globally are attempting to become “super apps” that cater to consumers’ everyday needs. The challenge for AirAsia is selling that story to potential investors to back what will be an expensive strategy for a company whose auditor raised doubts about its ability to continue as a going concern as Covid raged.

“Tony Fernandes has obviously got strong supporters out there. He has a base and a well-known brand, everyone knows AirAsia,” said Angus Mackintosh, founder of CrossASEAN Research. “That is not his problem. It’s transforming that into being seen as a tech company.”

AirAsia’s own super app is focused on ride-hailing and food delivery, logistics and ecommerce, as well as BigPay. It marks the latest addition to the Malaysian tycoon’s business empire, which ranges from insurance and hotels to a mobile operator.

The group’s flagship airline has been pummelled by the pandemic due to countries shutting borders. AirAsia has closed its operations in Japan while its long-haul unit AirAsia X has launched an RM63.5bn ($15bn) debt restructuring.

Fernandes hopes AirAsia’s digital arm will better insulate the company from further upheaval.

Under the deal for Gojek’s Thai unit, the Indonesian start-up received a 5 per cent shareholding in AirAsia’s app business, which the airline said was valued at about $1bn.

The deal exemplifies some of the challenges AirAsia will face in making acquisitions for its digital arm. None of the big super apps in the region are profitable, including Gojek and its Singapore-based rival Grab. Food delivery players such as Zomato in India also lose money.

Gojek’s Thailand operations are also lossmaking — the Indonesian group trailed several rivals in terms of market share — and will require investment. But Gojek’s stake means it at least has a vested interest in AirAsia succeeding, especially if the two collaborate further in other markets.

Even so “it will be difficult” for AirAsia, said Jianggan Li, founder and chief executive at Singapore-based consultancy group Momentum Works. “They need to secure lots of money and build an investor story, which they are trying to do now.”

Acquisitions were the way to build that story quickly but it was impossible to say how much money was needed against so many well-capitalised competitors that had a head start, he added.

For now, Fernandes aims to raise $300m for the group’s digital operations by the end of the year. Fundraising options could involve a private placement or a Spac.

“We were approached by some Spacs. We’re now in the process of hiring a bank. We’ve already hired our accountants to prepare for the American listing,” said Fernandes, adding that the decision to merge the digital unit with a Spac was not final and would be presented to the board.

AirAsia earlier this month proposed raising up to RM1bn via a rights issue, of which between RM60.5m and RM123m would be allocated to its digital units, according to an exchange filing.

Some observers say critics should not discount the man whose one-time mentor and boss was Virgin Group founder Richard Branson. Fernandes, who like Branson is a savvy marketer, turned AirAsia into one of the world’s biggest low-cost carriers after buying it for less than $1 in 2001.

“Richard Branson is an astronaut now, so who knows what Tony could do?” said Li.