AirAsia - from an airline to a super-app | #59

How the Malaysian airline is building a one-stop shop for travel

If you ever traveled through South East Asia, you most likely came across AirAsia or took one of their cheap flights to hundreds of destinations in the region. AirAsia is the first and leading low-cost airline in the region and dominates the market both in terms of revenue and number of passengers flown every year. I first came across AirAsia when I took one of their cheap flights in Malaysia. That first flight showed me that AirAsia is so much more than just an airline - it’s a travel super-app. Today, we will explore the origins of AirAsia and how the company is building a one-stop shop for all things travel.

A 26-cent acquisition and the rise to prominence

Transformative companies are usually led by visionary leaders who think different. For AirAsia, that hero is Tony Fernandes. Born and raised in Malaysia's capital city of Kuala Lumpur, Tony graduated with a degree in accounting from the London School of Economics. Upon graduation, he worked as an accountant for Virgin Record under legendary Richard Branson, who later went on to found Virgin Airlines. After gaining experience in the music industry, Tony returned to Malaysia as the Vice President of Warner Music, where he worked for 9 years.

The 1990s were revolutionary for the airline industry. The emergence of low-cost airlines like SouthWest Airlines in the US and Ryanair in the UK disrupted the industry. Flying finally became affordable for regular people.

Tony wanted to bring the low-cost airline model to South East Asia but was denied a license to operate planes in Malaysia. At the same time, a local airline known as AirAsia was struggling. Founded by a government conglomerate in 1993, AirAsia started flying domestic flights in 1996. After 5 years, the company had nothing to show but $10 million in debt. That's when in 2001, Tony stepped in and acquired the company for 1 Malaysian Ringgit or $0.26 at the time. He would take over the company's 2 Boeing planes and the $10 million of the company’s debt.

Within a month of the acquisition, Tony turned the company from a traditional airline to a low-cost carrier following the playbooks of pioneers like SouthWest Airlines, Ryanair, and EasyJet.

By optimizing its operations and stripping away everything from flights except for bare essentials, the company was able to offer flights for as low as $3. The low cost of flying started a flying revolution in the region. People started preferring flights vs taking long boat rides to thousands of islands in the region or taking busses and trains in the mainland. AirAsia posted a profitable year in its first year as a low-cost airline and started its international expansion shortly after.

Instead of expanding directly in the region, AirAsia chose to expand through a network of sister organizations with flying hubs in each country. This strategy led to the formation of Thai AirAsia, AirAsia Philippines, India, Indonesia, Japan, and many more. By setting up separate hubs in each country, the company could run lean operations and offer cheap flights.

Before the Covid-19 pandemic, AirAsia flew over 80 million passengers in a year to 160 destinations in 25 countries. In less than 20 years since the acquisition, AirAsia set itself up as the top 5 biggest airline in Asia and the #1 low-cost airline in the world for 13 years in a row.

The case for a travel super-app

Think about the last time you traveled - how many different apps and services you used during your trip? You might use a service like Skyscanner to book flights, then use Booking.com or AirBnB to book accommodation, then use a local service to book buses, then use Uber or an equivalent for rides inside the city, etc. A 2018 survey by TravelPort found that travelers use an average of 8 different apps throughout their travels and 61% use smartphones to book travel activities.

Armed with this insight, AirAsia started its transformation which led to the launch of the first travel super-app in the world. A super-app is an application that allows users to accomplish many different tasks using a single product. It’s an app that houses a range of mini-apps inside it. The format was pioneered by WeChat, the Chinese social media company that allowed users to do everything - from chat to playing games, to purchasing tickets, to paying for goods, etc. For AirAsia, creating a travel super-app meant bundling all the different services needed for travel in one single offering. Enter AirAsia Super App - the only app you need to travel through South East Asia.

During my time in South East Asia, I got to experience different aspects of the app. At a core level, AirAsia’s super-app consists of 3 different pillars: travel, local services, and money. Let’s break down each one.

Travel and accommodation

Travel is the first pillar of the AirAsia super app and it takes care of the first two steps of any travel experience - booking flights/busses and accommodation.

With the super app, users can book flights offered not only by AirAsia but also by other airlines. This is unlike most airlines which only offer their flights on their website. Another rarity - I found booking directly through AirAsia to be cheaper than booking through flight aggregators like Skyscanner. Users can also check in to flights for free vs paying a $10 fee at the airport counter. Through all the steps of the booking process, I found the user experience to be intuitive and seamless.

For places where it's easier to get by bus or ferry, AirAsia provides an easy way to book tickets as well. When I tried booking bus tickets from Kuala Lumpur to Cameron Highlands using services like RedBus and Easybook, several technical issues that didn't allow me to buy the tickets. My experience with AirAsia, on the other hand, was seamless.

Beyond booking flights and busses, AirAsia also allows you to book hotels for your stay. AirAsia's SNAP program bundles flights and hotels into one offering you can book with a click. You can also browse all the hotels, see reviews, and book a hotel stay separately.

By bundling all the offerings into one seamless product, AirAsia makes sure that users use one platform to book everything.

Local services: Ride-hailing and delivery

The second pillar of the AirAsia Super App focuses on a ride-hailing service and the delivery of food and goods.

What's the first thing you do when you land in a new country? You take a taxi or public transportation to get to your hotel. AirAsia's super app takes care of this step as well. Using AirAsia ride, you can schedule a ride from the airport and the driver will have a real-time view of your flight status when you land. But it's not just airport pickups. The ride-hailing service helps travelers move around South East Asia at competitive prices without installing new apps. I benefited from using the AirAsia Ride when going from the Bali airport to our hotel. While other apps like Grab charged $25 for the ride, AirAsia charged just $11 for the 40-minute ride to our hotel.

Since its launch in August of 2021, AirAsia Ride is one of the fastest-growing ride-hailing services in South East Asia. While still a small player compared to Grab and Gojek, the service recorded 2 million rides in the first 8 months and recruited over 53k drivers.

Food delivery is another component of AirAsia's delivery business. During the pandemic, when cafes and restaurants were shut down, AirAsia doubled down on food and grocery delivery as a way to drive revenue. But in 2022, the company shut down its grocery delivery unit and is refocusing the food delivery business for travelers.

The last component of the delivery pillar is AirAsia's duty-free shop. With the super app, users can browse thousands of duty-free items and set up airport pickup or home delivery.

Payments and rewards

The third pillar of the AirAsia super-app is about payments and rewards.

Like most airlines, AirAsia has a rewards program for frequent flyers. But its rewards program extends further thanks to the super-app. On AirAsia Super App you earn rewards for everything you do in the app, whether taking flights, rides, or ordering food. You can also use your points towards any activity in the app. AirAsia also has a points converter feature where you can exchange credit card points and other airline points for AirAsia rewards.

Another component of AirAsia's payments strategy is BigPay, a travel debit card and online wallet. When traveling, users can change their wallet balance to local currency and make purchases without accruing any fees. AirAsia incentivizes users to use the digital wallet by giving 6x points for every purchase.

And the last component of their payment strategy is insurance. This includes insurance against flight cancellations/delays and health insurance for any incidents during your travel.

A precedent for other airlines?

While there are many super-apps in South East Asia, AirAsia is the first airline in the world that became a super-app. And it’s doubling down on this strategy. While the company’s marketing name is still AirAsia, the legal entity changed its name to Capital A - a signal that it’s much more than an airline. The strategy to become a super-app seems to be working so far. The AirAsia Super App boasts more than 53 million monthly users who are using the app to book flights, hotels, rides, and much more. The company estimates that by 2027, more than 50% of its revenue will come from sources outside the airline. Whether it will happen or not is unclear, but the company is moving in the right direction to achieve its goal to become the first successful travel super-app.

Disclaimer: I’m not a shareholder of AirAsia and this is not an investment advice. For informational purposes only.

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