Any thoughts on what do you think of AirAsia?? Simply put, would you advise say EPF or some big fund to invest in this company??
- Are there are "BIG" future potential earnings?
- What about their Business Model?? Is it sustainable???
- What are their capabilities???
- Any "unususal" strengths or core competence??
- What are their currrent and future competitive adavantages??
- How are the customers changing? Low cost fares??
- Competition? Any "BIG" threats???
In my opinion and based on newspaper articles, I would not invest in this company for long term investment. Short term say, 2-3 yaers okay... but more than 5 years NO NO!!
Briefly, this business model will not last, e.g. see Ryanair, etc, Also with low investment initial capital, there is always room for new competitors! Another matter I am very concern is their huge purchases of new aircrafts!?!?! I am very, very, very uncomfortable... what it means is that say 5 years from now after the aircraft have been delivered they will need to make big capital repayments and like any other businesses, this is their ARCHILLES Heel!?!??! New planes are NOT cheap, AIRBUS, but with low cost fares, can these be justified, I ask?? Also their growth is too fast and I feel "troubled" or uneasy. We have seen too many good companies with good business models decaying very fast with these sort of corporate behaviour?!?!?!? And long haul cheap flights????? Manchester, UK. No other lost cost carriers have done this???
Any thoughts/arguments??
regards,
david chong
5 comments:
i think long haul will be hard to make profit in long run, if AA just concentrate on serving SEA or Asia region, that would be more sustainable, how many of us that could afford to fly to UK willing to sit for 13 hours w/o free food and entertainment?
btw, an article from theedgedaily:
Citigroup: Sell AirAsia to take profit
Hi Mak,
First, I totally agree with your assessment... So short term okay... more than 4-5 years bad deal!! Read high Debts!??! I cannot honestly believe Tony can repay the high debts of new aircrafts??? and lon haul flighths ??? no food or pay movies (rm50 for 10 hours)!?!?
Welcome to the site.... Am glad we can get some good ideas from you..
For Chua and Patrick, Mak is currently in USQ-MBA Part 1 and a good source of some good, rational ideas!!
I read The Edge article and even replied to concur their thoughts.
Mak any ideas on the other two topics?!??
david chong
Hi David,
Thanks for the ice breaking intro, hi 'Mak' nice to meet you.
I'm going to put some fairly simple straight thoughts and opinions based on your questions posted, probably later I'll whip out somemore.
Let's start;
1. Are there are "BIG" future potential earnings?
- In my opinion I would think they will earn in the long run, AA is anticipating an upcoming possible joint venture with Sir Richard Branson 'Virgin Atlantic' which Tony Fernandes very much seek ideas and inspiration from. They both come from managing a Music Record company which of course Richard Branson owns one and Tony Fernandes was former MD of Warner Music Malaysia. Tony Fernandes once said 'what does it take to make a million?', his answer goes 'in the airline industry you need millions to make a million' so this would answer the purchase of new aircrafts.
2. What about their Business Model?? Is it sustainable???
- 50/50 they need innovation in terms of ideas to spur people take their airline. What is the difference between Virgin Atlantic and other airlines? Basically Sir Richard Branson bless airline with entertainment, e.g. providing massages and etc on board. So Tony Fernandes has a joint venture up in his sleeves and Sir Richard Branson is the answer to sustainability and a probably a whole new business model.
3. What are their capabilities???
Any "unususal" strengths or core competence??
- None at the momement because of pricing.
4. What are their currrent and future competitive adavantages??
- Sir Richard Branson.
5. How are the customers changing?
- Customers are changing rapidly, basically demanding cheaper products/services with better added value, who knows maybe AA would have game shows or reality games on board for flight more than 10 hours. It is not that expensive to organize a game show where passengers could win free stuff e.g. a burger or something!!! so it's up to Tony Fernandes to get innovative in ideas like Sir Richard Branson who made Virgin Airlines so popular and till today they are making profits.
6. Low cost fares??
- Our Malaysia consumption per capita is still pretty low compared to our neighbouring countries, so who doesn't love low fares?
Competition? Any "BIG" threats???
- Think Blue Ocean for the time being but starting to turn red.
Will whip up more comments, opinions and remarks (with references as David demands) as I've got to prepare for an upcoming business meeting this month.
Hi Patrick,
For a guy who is "...going to put some fairly simple straight thoughts and opinions..." I think you have some rather interesting ideas....
I cannot agree that Richard Branson (RB) is AA's competitive advantage!!! NO way. If I know the foreigners, there is no way RB will allow Tony to ride his much bigger advantage!?!? What will RB get out of it??? Some shares in FAX!?!?
I think one should be more cautious when JV with foreigners, take the case of VW and Proton... still talking after what 2/3 years !!??
Based on my IB experiences over the years, I have to say you are WRONG here!
AA have to develop their OWN homegrown Competitive advantages, e.g. some unique features or advantage. Otherwise RB will NOT want to talk to Tony!! Some competencies which is Asian and or long term advantage would be good!
Oh their past similar historical background, this is MORE a coincidence without any basis, e.g. founder of Low cost Airline will automatically come from Music industry people!?!?
Point 6. I agree that Malaysia per capita income is to low to justify huge profits or high fares. That’s where AA must look outside Malaysia i.e regional to develop their markets. SO far AA's success is very localise (70% of turnover). That where Intl Bus comes in friends!?!? A taste of problems or issues is the JV with Taksin's company which has turned out "not good or wrong partner". IB for AA will be much more complex than what Tony has faced s far!! Mark my words. There are so many cases of UNCERTAINTIES and it only takes one wrong move and all the hard work is down the drain!
David Chong
Hi David,
Pretty good points you've highlighted there. Obviously the brand name/company 'Virgin' is to highly priced for Richard Branson to even allow AirAsia to have a piece of it. :) Richard Branson don't call it 'Virgin' for no reason! :) :)
You're right about JV it won't possibly come true because Richard Branson is too big of a giant, it would be more like an alliance? as in Richard Branson needed Asia pathways whereas Air Asia, like you mentioned needed to look away from home ground. But all these are all predictions, premature ones I might say.
But Air Asia don't really need the other side of the world pathways as Asia pathways is pretty huge at the moment and growing. In Asia, IATA (International Air Transport Association) has forecasted travel passengers by 2010, it would reach a whopping 522 million. So Tony's recent purchased of planes does justify to the shareholders, and he had expressed strong confidence of AA's growth saying that the airline is expected to carry about 62 million passengers by 2013. (about 12% market share?)
At the moment Air Asia is diversifying and complementing their airline business, look at 'Tune Hotels', target to set up in every Air Asia destination which employs the same concept as no frills.
Wouldn't Tony Fernandes be a good icon to study on the subject of leadership? (since you've brought out leadership)
I think there is more of AA, we can actually study on the influence of culture and leadership (Tony Fernandes) at AA on how it's operational efficiency and strategic orientation of the airline. Could somebody else do a better job? How can a company started in 2001 which everyone predicted it to be a bad company in aviation at that point of time, but as the short years goes by it has become stronger with positive cash flows. Is it because of leadership?
If we look at AirAsia we have to give due respect as we most analysts had generally agreed that AA success had significantly changed the dynamics of aviation industry.
To reiterate, AA's future is still to premature to tell. Could they be like Nokia who had diversified from making boots and toilet rolls to telecommunications?
Anyway, hope to debate this further as I've just got back from a long tiring strategic meeting which my head still hangs high up in the air.
Cheers,
Patrick
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