AirAsia calls itself an “OTA challenger” amid big digital travel ambitions

AirAsia is forging ahead with its goal to challenge existing online travel agents in the Asia Pacific via its AirAsia.com platform.

The company describes itself as an “OTA challenger” and has set itself a target of 50% of revenue on the platform to be from non-AirAsia flights by the end of 2024.

AirAsia has been reshaping itself in recent months to be able to offer additional travel services, such as flights from other carriers, airport transport, hotels and activities.

Back in August, it announced a partnership with virtual interlining specialist Kiwi.com, providing access to more destinations in the region to Indonesian travelers.

More recently it signed an agreement to combine Turkish Airlines flight inventory with AirAsia’s, enabling it to offer wider itineraries and fares.

The company says it is in “serious discussions” with other full-service carriers, including European airlines, and potential GDS partners. AirAsia believes it has significant advantages over other airlines as well as regional OTAs.

Karen Chan, CEO for AirAsia.com, says that because of its platform the company can expand into other products and services that other carriers cannot.

Not repeating history

Speaking during a CAPA Live event this week, Chan was asked about AirAsia’s ability to be successful against incumbents.

“When AirAsia started with two planes people laughed at us. Look at where we are now. Some times it’s not just about the time of entering the market, it’s also about learning from all the mistakes and the successes of our incumbents.”

Those with good memories will recall AirAsia’s joint venture with Expedia: a 50:50 partnership announced in 2011 with a new company created to operate Expedia’s brands in Japan, East and Southeast Asia and the AirAsiaGo and GoRooms platforms.

AirAsia said at the time that it marked the end of its disposal of “non-core investments” with Tony Fernandes, group CEO, saying a huge amount had been learned and that the proceeds would go towards “big unicorn products.”

Back to 2020 and Chan says the biggest difference that the platform has is being an service backed by an airline (similar to Opodo in Europe in the early-2000s).

“How are OTAs pulling inventory? They are pulling either from direct APIs or aggregators. Because we own an airline, we can leverage on the cheapest tiers of fares and also unsold inventory,” she says.

Chan goes on to describe the launch of Snap in June 2020, which partners with local hotels to offer a flight + hotel bundle.

“Why do we feel we can do it much better? It’s because we are the only OTA that controls the pricing of every single segment and route, 365 days out. Unsold inventory can be bundled with direct inventory for a hotel and we can go to the market with a best price guarantee.”

She also says about 25% AirAsia domestic Malaysia and Indonesia routes that are “monopolistic”  making it a “no brainer” to offer customers a hotel and ground transport once they’ve purchased a flight.

AirAsia has always had ambitions to be more than just an airline but whether it can challenge existing OTAs in the region is up for debate.

What’s in the armoury?

The company says 90% of its distribution is via direct channels and it’s not hard to understand why it’s keen to keep building on that.

However, references from Chan above about GDS and aggregator partners would signal that it’s ready to broaden its distribution strategy in the name of building out its OTA.

The company also increasingly talking about the 75 million customer base on the AirAsia.com platform.

Fernandes referred to it in December last year, at a similar CAPA Live event, saying he looked at the customer base and loyalty program before deciding to develop the ecommerce side.

He also said he did not want to spend money, competing with other airlines, on Google and Facebook.

Chan, during the CAPA Live session, talked about how acquiring just one customer can cost up to $75, claiming it’s not “in the business of acquiring new customers” – meaning high marketing costs and cash-burn for other OTAs.

She adds that what AirAsia.com needs to do is cross-sell and upsell to its existing customers by targeting them with personalized offers.

The company will leverage its loyalty scheme here and renamed its BIG Loyalty program to BIG Rewards as it enables customers to use their loyalty currency to pay for meals or groceries or other services within the brand with their points.

Chan says: “As part of our 2021 strategic initiatives we are bringing BIG Rewards into the full ecosystem. One of the strengths of AirAsia is in the whole ecosystem play. We don’t want to be seen as a frequent flyer program anymore but a lifestyle partner.”

The company is betting big on the points program going forward as a way to “stay relevant” and “drive stickiness” for its various services but also to glean data from customers.

“Points is one piece of the puzzle. More important is the data exchange. For every single customer we have more than 10 touchpoints. Some of the other ecommerce players only have name, address and credit card details. If we look at our other entity, BigPay – our fintech – we have high quality primary data.”

Chan goes on to describe this as data being the “new black gold” for the company as it looks to combine it with passenger data to improve personalization efforts.

OTA crown

Other pretenders to the OTA crown in the region, such as Traveloka, will be looking on with interest.

The Indonesia-based OTA is unlikely to fade into the background having announced $250 million in funding just six months ago, alongside ambitions to build “a more robust and integrated Travel & Lifestyle portfolio in key markets as well as expanding its Financial Services solutions to better support ecosystem partners.”

There’s also Gojek to contend with – an Indonesian super app offering ride-hailing, food delivery, payments and activities, which also received significant funding in recent months.

AirAsia will also plans to lean on its existing partnerships to help it further its OTA ambitions.

It already has Booking Holdings-owned Agoda as an accommodation partner and touts the benefits of its recent partnership with Trip.com Group as being able to bring Chinese travelers to the rest of ASEAN destinations and travelers on the region to the rest of the world.

As an airline, AirAsia will need to be operationally and financially fit to act as the backbone to a wider OTA business.

At the CAPA event in December 2020, Fernandes talked about his belief that the company can come back stronger in 2021 not only via its diversification strategy but also having restructured and cut costs in the airline and taken what he describes as a small loan compared to others of about $250 million, from the Malaysian government.

And in a region that’s doing better than most currently because of pandemic-related travel restriction, he also said domestic travel makes up 50% of the airline’s business.

Meanwhile, responding to whether others can imitate what AirAsia is doing with the platform, Chan says:

“Maybe. We would love to have more competition and more collaboration. That’s how it will work.”

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