I was once mistaken for Tony Fernandes. It was at a black-tie dinner in Bangkok in November 2013 organised by CNBC. The aviator had received the Asian Business Leaders Award at the dinner.
Some guests patted me on the back thinking that I was the recipient. I took it as a compliment, given the gap in station (and looks). I enjoyed my moment in the sun as the lookalike of a celebrity.
Today, it is Fernandes’ turn to be an “imposter”. He now wants to assume the identity of a tech founder. The pandemic has grounded the fleet of AirAsia. The battered airline wants to pivot to e-commerce and ride-hailing.
AirAsia wants to become a super app for Asean, like Alibaba and WeChat for China. A super app is a one-stop shop where one can hail a ride, order a meal and even get an insurance policy.
A super app needs to be inclusive and ubiquitous. WeChat has 1.24 billion users, which is almost 90% of China’s population. Its users can move seamlessly from ordering lunch to making a doctor’s appointment.
AirAsia has joined the queue of aspirants to be Asean’s super app.
Asean is in the throes of a digital economy boom. Many in the region have taken to the digital economy like a duck to water. One third of the region’s digital consumers have started using a service (like food delivery) because of the pandemic. Over 90% intend to continue to use it if the pandemic ends.
Strong brand
AirAsia’s brand is strong in Asean. It is the first name in low-cost flying in the region. It wants to use this recognition to promote its app, which offers ride-hailing, food delivery, e-commerce and digital payment services.
AirAsia relaunched its app in October. It now has over 16 million users. The users are congregated in Kuala Lumpur, Manila and Jakarta. They are typically frequent flyers who have stumbled on the app’s new features.
Branding is not the only advantage that AirAsia possesses. AirAsia, like other airlines, already has detailed information of its customers, including passport details and meal preferences. It even has credit card details, along with information of over 20 million loyalty card customers.
Also, AirAsia’s prospective super app may have richer users than the competition. People who fly have more disposable income than others.
But Fernandes’ super app aspirations seem like a desperate move. It is like an ICU patient looking to run a marathon.
AirAsia’s financial situation was dire even before the pandemic. In FY2019, its net gearing was 3.5 times. Its fleet has been mostly grounded for the last 16 months. The shareholders’ equity is negative and the assets are below its liabilities. Earlier this year, the accountants raised concerns on its status as a going concern.
Taking on Sea and Grab?
AirAsia does have loyal backers. It is trading at 54% below its 2005 IPO price. However, investors are betting that AirAsia’s stock will fly when flights resume. It has just proposed a rights issue, where it could raise up to RM1.024 billion ($331 million).
A successful rights issue would mean that AirAsia will live to fly another day. It would be able to pay for the leases for its grounded aircraft. Also, the salaries and outstanding fuel payments could be met.
However, consensus forecast is that it will be in the red, even if flying resumes in 2022. According to Bloomberg consensus, its net asset value will still be negative in FY2023. Its interest payments alone are more than two-thirds of the projected FY2022 ebitda.
A foray into tech seems untenable when survival is in doubt. There is a three-way slugfest between Sea, GoTo and Grab for the crown of Asean’s super app.
The trio will face heavy losses for some years. Grab states that it will not be operationally profitable till 2032. Sea’s net loss for 2020 worsened by 11% y-o-y to US$1.62 billion ($2.2 billion). GoTo’s trajectory seems similar
In contrast to AirAsia’s travails, Asean tech companies are flush with cash. Sea is sitting on a US$4 billion net cash pile. It raised US$2.8 billion in December. GoTo has estimated net cash of less than US$1.5 billion. Grab may have more net cash (US$6.1 billion) than the other two combined.
I may still pass for Fernandes, but AirAsia may not pass for a super app.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column
Photo: Bloomberg
