Reborn in the cloud
AirAsia makes a big bet on digital transformation as it seeks to transform itself into an integrated travel and finance platform delivering far more than just flights.
Back in December 2001, AirAsia was a debt-ridden business with just two planes in its fleet when Tony Fernandes bought it for one million ringgit (US$240,000 at today’s rates). Seventeen years later, it is one of the leading low-cost carriers in the world.
With over 200 planes, AirAsia Group today serves 165 destinations across 25 countries and has a market capitalisation of 10.4 billion ringgit ($2.48 billion).
In light of such impressive achievements, investors and airline executives alike are wondering how much higher AirAsia can fly. A lot higher, replies Mr Fernandes, who believes the company’s new digital platform coupled with its financial arm might one day be even bigger than the airline itself.
“For us, this is almost like a second coming,” the Group CEO of AirAsia told journalists as the carrier announced its new venture into the platform world through a partnership with Google Cloud in London last month.
When he started the company, recalled Mr Fernandes, no one bought plane tickets online. Very few people even used credit cards or the internet in Southeast Asia. But the company decided to launch an online booking service anyway as a way for consumers to “control their destiny”.
“What we have been seeing now is a chance for us to reinvent ourselves and Google has given us that ability to do that,” he said.
AirAsia and Google Cloud are now working to integrate machine learning and artificial intelligence (AI) into every aspect of the business and culture as part of its transformation into a “travel technology company”. Two main platforms — AirAsia. com and biglife.com — will serve Mr Fernandes’s new vision.
The airline platform will be transformed into a one-stop digital travel portal where customers can book all their travel needs from flights to accommodation, tours, ground transport, entertainment and more.
BigLife is being developed as a lifestyle platform that will be like “Kayak, TripAdvisor, Groupon and eBay rolled into one”, said the Malaysian entrepreneur.
The new portal will also incorporate all other digital investments under its digital arm RedBeat Ventures including its money app (BigPay), its inflight connectivity platform (Rokki), an online marketplace (OurShop) and logistics services (RedBox and RedCargo) under one umbrella.
“In the past, the airline business was so
compartmentalised … and we saw so much waste of cost by our people not talking to each other,” said Mr Fernandes.
“When we had 200 people it was tough enough. We now have 22,000 staff in a variety of countries and six different airlines. Google Drive and G-Suite allow staff to collaborate so much more than we ever could before.”
As well, AirAsia will work with Google Cloud to solve other business challenges such as improving demand forecasting, targeted marketing, and improving the customer experience and loyalty by providing more personalised experiences.
The company is also utilising machine learning and AI technologies to maximise operational efficiency and reduce risk through predictive maintenance, real-time weather forecasting and crew optimisation.
Getting into the cloud might involve a lot of retraining to ensure staff are more “data sensitive”, but ultimately the company expects lower operating costs from improving on-time performance, and the ability to create its own applications. Facial recognition for boarding, for example, is one idea that Mr Fernandes believes the industry needs to pursue.
“We now are in a position to know which passengers are going on to the next plane so we use IoT (internet of things) to park the planes in the right place so that people don’t have to walk for miles and miles just to get on a plane,” he said. However, collaboration between airlines and airports is still weak in this area, while the use of biometric technology to prescreen passengers in Southeast Asia is just in its infancy.
“There should be a bigger trusted traveller programme, as you should be able to walk into a country just with your face and you should be able to pre-clear a lot of
people (using facial recognition). These are all new concepts that are coming to Southeast Asia,” he said.
Checking in via an app, facial recognition for clearance, installing WiFi on all planes so that crews can have all passengers’ data to provide more personalised experiences, along with bag-tracking technology are other services that AirAsia is working on.
“We’d like to create a permanent baggage tag where the tag on the bag will automatically change to the flight that you are going on to,” said Mr Fernandes. “Getting that cost down will be a big challenge.”
Cost-benefit analysis is always a critical consideration when investing in new technology as a company can easily overspend because something is “sexy”, without properly evaluating how it will help the business.
Mr Fernandes said that having a greater variety of offerings under the AirAsia umbrella could also do wonders for the company’s share price. Most airlines experience volatility in share movement based on the ups and downs of world oil prices. Fuel accounts for about 20% of airline operating costs.
“We are always caught in between our valuation and our margins in terms of oil prices. When Donald Trump says something then our share price goes down because the oil price goes up, so we have decided to reinvent ourselves,” he said.
With 19 million travelling customers worldwide and hundreds of millions of visitors to its websites — including 30 million unique monthly views on AirAsia.com alone — AirAsia foresees business opportunities beyond just selling tickets. Supported by the partnership with Google Cloud, it can now sell other products and services on its platforms.
“We are starting to be more of a platform company,” he said. “We have two huge products, which is our airline and our loyalty products. By combining the two, we are building a fintech product, we are building a logistics product and we are building a travel 360 product for customers to stay with us more.”
Mr Fernandes said Google Could was chosen because AirAsia has had “a fantastic relationship” with top Google leaders through other collaborations in the past.
“Even though it did not work out, I was one of the first to get Google+ to be a collaborative tool for our staff, and now we are using Workplace for that,” he said.
“I have seen how Google works and how, when they want to do something, they really put a lot of money into it and are very determined to make it work. So I felt Google was more hungry in terms of wanting to work with us,” he said.
On the financial side, one of the new products Mr Fernandes is most excited about, besides loans to entrepreneurs and SMEs, is BigPay, a mobile payment app that he believe will give both Alipay and GrabPay “a run for their money”.
“I started an airline with two planes against Malaysia Airlines’ 120 and Singapore Airlines’ 140 planes and we are now bigger than all of them,” he said. “Are we daunted by Alipay or Traveloka or Grab? No.”
BigPay users can sign up for an account through the smartphone app, which is linked to a physical Mastercard that can also be used for payments and withdrawals from ATMs. Users can qualify for AirAsia travel perks and send money for free, and will soon be able to top up their mobile wallets via credit and debit cards and through bank transfers.
Mr Fernandes believes that AirAsia’s comparative advantage in the platform field is the huge amount of customer data it has coming in every day, just in the form of flight bookings. In any case, he says, the world of platforms is not is “not a zerosum game”.
“This is not about one person owning all that travel space. It is not about Traveloka or Expedia having to be the only one,” he said. “We have a very strong ecosystem in terms of points and flights but the bottom line is implementation by people.”
Mr Fernandes has told his staff that the tech companies are much faster than airlines, which he likened to “pedestrians”. But an airline, he maintains, has “heritage advantages”. That said, “no one is there forever”, so the key will be execution by having the right people and the right vision.
“The whole plan is to increase the usage of the platforms for people to buy other products besides plane tickets and it is up to us to execute that plan.”
“I started an airline with two planes against Malaysia Airlines’ 120 and Singapore Airlines’ 140 planes and we are now bigger than both of them. Are we daunted by Alipay or Traveloka or Grab? No” TONY FERNANDES AirAsia Group CEO