Does AirAsia’s Business Model REALLY work?


Reuters News Agency reported that Air Asia my terminate its Japan venture due to its inability to “manage costs” and a slightly lower average load factor (see the report’s text below).

The million-dollar mind-boggling question which investors have been asking is, does the AirAsia business model REALLY works or have the company been living off cash generated from its series of private listings within the region? How could the AirAsia model works almost miraculously in other developing countries but not in an advance economy such as Japan? What happens when AirAsia runs out of countries to issue IPOs? What happens when Malaysian customers demand that actual prices be published instead of the current overzealously misleading advertisements AirAsia has been promoting?

What happens then?

One thing for sure, as an investor, I would not want to keep AirAsia’s stocks for far too long.

– DM


AirAsia May Dissolve Japan Joint-Venture
By Reuters, 11/6/2013

Malaysian budget airline AirAsia Bhd said today that it may dissolve its Japan-based joint venture with All Nippon Airways Co (ANA) due to disagreement between the companies over how to operate the business.

AirAsia, Asia’s biggest budget airline, said in a stock exchange filing that it would not rule out the “dissolution” of AirAsia Japan, a low-cost carrier based at Tokyo’s Narita airport.

“Since its launch, AirAsia Japan has failed to track its proposed business plan due to the inability to manage costs,” AirAsia said.

AirAsia Japan has been reporting losses since it began operating in August 2012 with flights to five local destinations and two in South Korea. AirAsia, in reporting its first-quarter results on May 22, said AirAsia Japan posed a bigger challenge compared with its other ventures due to cost issues.

AirAsia Japan operated four aircraft with a load factor of 70 percent as of March, while AirAsia’s other ventures recorded 75 to 87 percent for the same period, the company said.

AirAsia, which has a 33 percent stake in AirAsia Japan, noted that the management of the venture is “predominantly comprised” of ANA staff including the chief executive and chief financial officers.

ANA said nothing has been decided in regard to ending the joint venture.

AirAsia gets 80 percent of its earnings from Malaysia, but it has invested heavily towards expanding in its operating markets – with a total fleet of 124 planes – to stay ahead of emerging rivals including Lion Air’s Malindo Airways.

The company’s long-haul arm AirAsia X launched a US$370 million initial public offering on Monday, with a third of the funds earmarked for capital expenditure. AirAsia X chief executive Azran Osman Rani identified Japan and China as a priority for the airline to build brand awareness, after it shed loss-making routes to Europe and India in January last year.

AirAsia’s Indonesian unit may launch a US$200 million IPO by the end of the year, chief executive Tony Fernandes told Reuters last week.


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