Malaysia-based budget carrier AirAsia is expanding its fleet and adding new destinations, but this is a capital-intensive route to growth and maintaining low-cost airfares so anyone can fly can be challenging. This is why AirAsia is investing in digital capabilities to improve cost efficiencies and services at the airline, and creating other businesses that will generate income.
“The next phase is really about growing as a digital technology company focusing on data analytics, financial services, technology and digital content,” says Spencer Lee, head of Commercial at AirAsia.
In 2016, 76% of all sales were completed online, and 15% on mobile devices. This is part of the airline’s strategy to grow direct booking, without relying on third-party agents, and keep costs low. The company has also entered into several other businesses to complement its airline growth, including AirAsia Go, an online travel agency; BigPay, a mobile wallet; and MadCience, an analytics firm that monetises the big data the airline generates.
Co-founded by Tony Fernandes and Kamarudin Bin Meranun in 2001, AirAsia’s fleet has grown from 2 to 200, connecting 130 destinations across 26 countries. It will expand the fleet to 500 eight years from now.
In 2017, AirAsia increased daily flights out of Colombo as part of its global expansion. Lee expects the Sri Lankan business to double over the next two years. The budget carrier is also acquiring Sri Lankan hotels for its online travel agency, AirAsia Go.
“There’s a huge opportunity to grow our Sri Lankan passenger market. The best time is right now, with the economy developing, infrastructure improving and flying becoming affordable to more people,” he says.
AirAsia began operations as a government-owned enterprise in 1996, sustaining losses and piling debt up to $11 million, when Fernandes bought it over for $0.26. The very next year, the airline returned to profit.
The airline’s revenues have grown year-on-year, even throughout the global financial crisis years and oil price spike. Over 2008-16, revenues grew over 10% annually. “Whether fuel prices go up or down, we have to deliver low-cost fares, so we have to be disciplined and work hard to manage costs,” he says. But, this is just one aspect of AirAsia’s success.
Excerpts from the interview are as follows:
What’s AirAsia’s strategy for growth?
Lee: We have just over 200 aircraft and will expand the fleet to 500 by 2027. This entails adding 30 new aircraft every year for the next 10 years. We will also keep expanding our network by adding new routes. Having said that, our next phase of growth is really about growing as a digital technology company focusing on data analytics, financial services, technology and digital content. We also plan to tap into multiple populations and demographics across the region with our core base in ASEAN.
Today’s travellers are tech-savvy, well-researched and have demanding expectations. We need to learn more about our guests and understand these expectations in order to truly enhance our service levels. One of our main efforts is to leverage data to provide a more personalised customer experience. In line with our digital direction, we will continue to prioritise our booking platforms via our website and mobile app. We have an OTA called AirAsia Go where you can book your hotel when you check in your flight. Hotels are a big component for any leisure market, and the first product that we bundle because it’s the first thing people look for. We cover properties in Sri Lanka as well, but we’re looking for more. We’re talking to tour operators and hotels in Sri Lanka so we can expand the network here.
That’s how we’ve been able to grow over the last 16 years: we offer low fares and the best deals. We also have travel assurance, online duty free, and soon free WiFi. We’re doing a lot to improve the overall experience of travel, not just flying.
What are your plans for the Sri Lankan market?
Lee: From January to November 2017, we flew nearly 170,000 people to and from Colombo, and 31,300 passengers were Sri Lankans. We hope to double overall travellers in and out of Sri Lanka within two years.
We offer many opportunities for Sri Lankans to capitalise as they seek to expand their horizons with travel: our wide network, low fares and product services. The people of Sri Lanka can experience the various destinations that we fly to at a low cost. There are so many places to see in the ASEAN region itself: you can go to Japan or Korea. You can even fly to Hawaii with AirAsia.
There’s a huge opportunity to grow our Sri Lankan passenger market. The best time is right now, with the economy developing, infrastructure improving and flying becoming affordable to more people. We also see growth potential in tourism.
We are exploring to set up a team to further develop the market for the year ahead and are always on the lookout to partner with local travel and tour operators to share the beauty of Sri Lanka with the world, and of course to allow Sri Lankans to experience the many destinations that the airline operates in. We see a diverse portfolio of passengers flown to and from Sri Lanka.
China accounts for the highest number of people flying with us into Colombo. This can be attributed to the connection between Sri Lanka and North Asia, where we link up with 16 destinations in China itself, including first tier cities like Beijing, Shanghai, Guangzhou and Shenzhen. Most of them are FIT travellers (free and independent) and young couples. After China, the highest numbers are from the ASEAN region: Japan, Europe, the UK and the US.
What are some of the biggest challenges a low-cost airline has to face, and how does AirAsia deal with them?
Lee: Air travel is susceptible to many risks and challenges. Political unrest, economic crisis, social tension, terrorism, natural disasters and outbreak of disease can all be deterrents to air travel. Also, changes in tourism and travel policies in countries can also potentially impact travel dynamics.
Although these are occurrences that we can never predict, what we can do is anticipate them. We keep our focus on AirAsia’s low-cost business model: constantly reviewing the operational structure and strengthening point-to-point connectivity so we ensure low fares and a quality service for all our guests. This lays a strong foundation that can withstand adverse times.
Whether fuel prices go up or down, we have to deliver low-cost fares; so we have to be disciplined and work hard to manage costs. Over the last 16 years, we faced many challenges like high oil prices and the global recession, but we’ve maintained growth. The focus and discipline on costs have helped us do what an airline should be doing.
We’re always looking to drive direct bookings. We’re also bundling other services, monetising data, expanding market share, creating engaging content to connect with people, and building good partnerships with tourism industries in every destination.
AirAsia was once a loss-making, debt-ridden, government-owned airline until it was privatised in 2001. Since then, it has been expanding and growing the business. What are those critical factors behind AirAsia’s success?
Lee: It’s all about leadership and the people. The leadership gives us clear direction and focus, and the “all-stars” (we don’t call ourselves staff) do the rest. There’s a purpose. There’s a culture. No one has closed-up office spaces. Everyone sits together. There’s no special executive area. We have always said that AirAsia is more of a people company that happens to be in the airline business. We have grown from just 2 planes to over 200 aircraft carrying over 400 million passengers to-date. Second, we are really conscious about costs. It’s ingrained in all of us. We make sure we negotiate very hard to get the best deals in every single thing we do.
Cost discipline is what we do best. Keeping costs low is in our DNA as we continue expanding our network of 130 destinations across 26 countries, and counting. We’re living up to the promise made 16 years ago: ‘Now Everyone Can Fly’. We’re focused on pushing up seat capacity, gaining market share and keeping CASK (cost per available seat kilometre) down. This, in turn, allows guests to travel from point to point conveniently at a low fare and pay only for what they need—no frills, indeed—but, with a world-class experience.
Of course, there is no future without innovation and this is another aspect that we take pride in. There’s a consistent push to improve operational efficiencies and adopt automation. We introduced online booking, self-check in, self-bag drop, and now, Asia’s first facial recognition system launched recently at Senai International Airport in Johor Bahru, Malaysia. We recognise the value of forward thinking and innovation, which is why the next phase of our growth trajectory will be on big data, financial services, technology and digital content.