JUST as the lockdowns imposed by governments around the world have affected billions of individuals, a countless number of corporate entities have also suffered immeasurably from this draconian gesture, a move initiated in the name of a pandemic in 2020.
Capital A Bhd
, or arguably still much more known by its hugely popular airline AirAsia, was one of such companies, resulting in the group having its planes grounded as strict travel restrictions were put in place.
The effective incarceration of the public has put a major squeeze on the group’s primary revenue source – flying – landing it in the dreaded Practice Note 17 (PN17) category, from which it is fighting to emerge.
However, tough as those lockdown years may have been, Capital A has managed to turn itself around – especially in 2023 – and it is now innovatively running as five synergistically connected companies.
Having said that, the group acknowledges that last year itself has been a difficult period, particularly since Asean reopened relatively later than many parts of the world, with its aviation industry still working hard to get all its planes in the air again.
Sitting down with StarBizWeek for an exclusive chat at Capital A’s RedQ headquarters at the Kuala Lumpur International Airport, chief executive officer Tan Sri Tony Fernandes is looking fitter, meaner, and sporting an optimistic glow to his face.
He remarks that it has been heartening to see a lively buzz returning to the office, made all the more apparent by cabin crew zipping around the premises with luggage bags in tow.
Looking back at 2023, and ahead to 2024
Fresh from holding a group budget meeting with his colleagues, Fernandes is upbeat that 2024 will be promising, as he recounts the challenges he and his group have faced over the past four years.
“Undoubtedly with our backs to the wall, we have managed to create separate profitable companies in the digital, logistics, aviation services, and branding sectors, as we are also looking to return our aviation arm to the black,” he says.
He comments that since Capital A has not only survived but has built up five well-run businesses in the process, the group is targeting for its non-aviation divisions to contribute to 25% of revenue this year, up from approximately 17% in 2023.
He stresses: “For the long term, we are looking at having non-aviation businesses to make up 50% of Capital A’s revenue eventually.
“Also, we are particularly optimistic about AirAsia Move (previously known as SuperApp), which is our online travel agency (OTA) or platform business and the tight relationship it has with AirAsia and BigPay.”
The symbiotic relationship between the businesses is fuelling Fernandes’ hopes for this year, as he remarks that shareholders of Capital A would be looking at a significant amount of value – something which has not been reflected in the group’s share price – most likely due to investors still exercising caution over its PN17 status.
Earlier this week on Tuesday, Capital A announced on Bursa Malaysia that it has submitted its latest application for an extension of time until June 30 this year for the group to put forward its regularisation plan to exit PN17.
The company’s share price closed one sen higher at 83 sen yesterday.
The sanguine outlook notwithstanding, Fernandes has had to play the patient game as he has expressed his hope to have all the group’s planes back by the middle of last year.
That has yet to happen due largely to macroeconomic situations that were out of Capital A’s control, such as oil price still remaining at an elevated level, albeit lower on average than it was in 2022.
Nevertheless, he opines that a silver lining from the lockdowns and the difficulties they have brought is that they have sharpened his focus on making the non-aviation businesses as profitable as possible.
Peering out the glass window at the runway below his desk, Fernandes remembers the harrowing experience of seeing all of his planes on the ground with no one manning them just short of four years ago.
As such, one can probably understand the magnitude of the effort it took the group – and him – to have put 189 aircraft of a total of 204 back into activation so far with 161 back in the air, while he points out that the focus of the division is to get all planes flying by the first quarter of this year.
At the same time, the group intends to enhance the business by leasing another eight planes, bringing the total to 212 by the end of 2024.
“At the moment, we are making profits across our logistics, digital and aviation services divisions but still turning a loss on aviation.
“However, we believe that once we get all our planes back again, the economy of scale would turn back in our favour, bringing the aviation business back to profitability,” says Fernandes.
Expounding further, he says the ultimate goal is for each plane to fly 13 hours a day, but due to the fact that Asean has reopened relatively later than the rest of world after the lockdowns, Capital A is still paying off expenses incurred by approximately 200 planes, while getting operational access to less.
In its quarterly results review ended Sept 30, Capital A reported that its cost of available seat kilometer (CASK) and CASK excluding fuel stood at US$0.05 and US$0.031 respectively, marking a 25% and 27% reduction year-on-year.
Summarily, CASK is used to measure the unit cost expressed in cash value to operate each seat for every kilometre, and a lower CASK value would mean that it is easier to generate higher revenues.
It is calculated by taking direct operational cost and dividing it by available seats per kilometre.
One of the most important terms to look at for airlines, CASK is critical to determine an airline’s capacity to compete and survive in the industry.
Capital A is maintaining its downward CASK trajectory moving ahead, with the ambition of matching 2019 figures as quickly as it can – which is approximately US$0.035 including fuel – partly attributed to the increase in available seats.
Collaborations and fund raisingMeanwhile, the group is keeping its focus on fund-raising as well as collaborative activities, both for its aviation and non-aviation businesses.
In September last year, Capital A inked a memorandum of understanding with PT Garuda Indonesia Tbk as a whole, which will see the subsidiaries of the two respective parent groups working together.
For example, AirAsia Aviation Group Ltd will be cooperating with Garuda subsidiary PT Citilink Indonesia later this year on interlining operations, subject to regulatory approval, while on the logistics end, Teleport is slated to work with Garuda Indonesia Cargo.
Concurrently, the proposed collaboration between Asia Digital Engineering, Capital A’s aviation services unit, with GMF AeroAsia, the maintenance, repair and overhaul subsidiary of Garuda, is in the pipeline.
In terms of the group’s digital business, Capital A has signed a partnership with UnionDigital Bank in the Philippines, which involves three key subsidiaries – AirAsia, airasia MOVE and BigPay.
Additionally, Fernandes reports that ongoing funding efforts, which had posed as a challenge for the group during the lockdowns, will continue to strengthen, signalling strong confidence from the banking and credit markets.
“Our first regional debt financing of US$179mil from Bangkok Bank and Citibank has been secured.
“The impending revenue bond of US$200mil from the international credit market will be the first capital raise earmarked for the expansion of the airline, which will be followed by an equity raising including potential initial public offering issuance for AirAsia Philippines in the near term and further equity raising from AirAsia Indonesia,” he reveals.
He also mentions that Capital A is looking to sign a binding agreement with owners of special-purpose acquisition company Aetherium Acquisition Corp on behalf of new company Capital A International.
The business combination would see Capital A International, an investment and strategic development company, become a standalone public company in the United States, and will have an equity value of US$1bil.
With Fernandes commenting that the group is looking to leverage on the deeper appreciation of branding that is prevalent in the American market, Capital A International is seeking to generate revenue from AirAsia brand loyalty and aircraft leasing.
Looking ahead and profit forecasts
Always preferring to look on the bright side, Fernandes believes the continued rejuvenation of the tourism industry should stand Capital A in good stead.
He reiterates the point that at its core, Capital A is focused primarily on Asean and the greater East Asian region, while also counting on oil price to moderate further going into 2024 and the ringgit to keep up its recent appreciation against the greenback for longer.
He believes that China, having come off its zero-Covid policy and reopened, will stage a comeback, even though it has not exactly taken off yet in a big way – pun intended – especially in terms of external travel out of the country.
“However, with many countries now doing their best to attract Chinese tourists, we remain hopeful that their travelling activities will revert back to pre-lockdown levels,” he comments, while not exactly predicting when he thinks that will be.
One thing Capital A will be predicting, however, which would be a point of interest to shareholders, are its profits – according to respective divisions – for the year.
Fernandes says the group will be announcing the profit forecasts most likely in the middle of this month, adding that the announcement will showcase Capital A’s confidence of a strong 2024, while also serving to galvanise investor and shareholder confidence.
“We are also looking to start paying dividends again, perhaps in 2026, which would be brilliant judging from the fact that only six years back from that year, we had no planes flying,” he points out, referring to the lockdowns imposed in 2020.
In a research report released in the final week of 2023, Kenanga Investment Bank Research analyst Raymond Choo says he expects business and leisure air travel to continue to recover throughout 2024.
Citing Kenanga Research’s in-house projection, Choo says tourist arrivals in Malaysia are expected to jump 35% year-on-year to 27 million, which would be consistent with Tourism Malaysia’s projection of a return to pre-lockdown levels.
“A key driver are Chinese tourists that had historically contributed to an estimated 12% of total tourist arrivals in Malaysia.
“Furthermore, tourist arrivals are expected to be boosted by the 30-day visa-free regime for Chinese and Indian visitors to Malaysia starting from December 2023 and China, allowing inbound visitors 15 visa-free days between Dec 1, 2023 and Nov 30, 2024, underpinning growth in Capital A’s passenger demand this year,” Choo observes.
Forecasting Capital A’s revenue passenger kilometers (RPK) to touch 58 billion in 2023, he goes on to predict the group’s RPK to register a 20% growth and reach 70 billion this year, as Capital A’s operating capacity crosses 74% of pre-lockdown levels.
Such data does suggest brighter skies ahead for the company.
Already a subscriber? Log in
Get 20% OFF The Star Digital Access
Cancel anytime. Ad-free. Unlimited access with perks.
