Why Airasia X may not be an Airasia

For this article, I am not going to compare financial numbers but would look at in terms of size for each of the company. Airasia X (“AAX”) has just been provided a valuation of RM1.98 billion at RM1.25 per share, hence effectively valuing AAX at a post IPO valuation of RM2.9629 billion of its enlarged share capital.

Now in comparison, let’s look at Airasia. At today’s price of RM3.07 Airasia has a valuation of RM8.5 billion. For the matter, Airasia is going to be 2.5x larger than AAX in terms of market valuation. Airasia has established operations in Malaysia, Thailand, a growing Indonesia and seemed to have sorted out for a good start for India. 

The reason I like Airasia is due to it having a business model that can replicate as long as it manages well in the countries it operates in. Future looks bright for the company with its dominance in the low cost airline business in Asia. One would consider the attractiveness of the growing middle class in Asia to be able to comprehend what’s the outlook for Airasia.

It has the strength, advantage and capabilities of raising funds as opposed to many other of its competitors. This portion of Airasia’s strength should not be underestimated as airline is a hugely difficult business when comes to funding. Airasia is less of that, now as it seems.

Replicating that to AAX? Yes, the brand of Tony Fernandez, the Airasia model seems to be able to cause the take-off of AAX in a much less strenuous manner if one is to start off a low-costs longer haul airline. But yet, it can still be an arduous task. Airasia is a very much a strong local flight operator although a lot of its flights are still inter-country. Inter cities within the country is very lucrative. 

AAX model, on the other hand is entirely inter-country unless one can think of more than 4 hour flight between India’s cities or Australian cities.

Business model

AAX on the other hand is still sorting out its business model with flights now flying off from Malaysia to other destinations beyond the 4 hours threshold. It has changed from a long-haul operator to now calling itself a medium haul operator, flying to destinations like Melbourne, Sydney, Taipei, Tokyo, some cities in China, Jeddah etc.

There are a lot of cities that one can go to but yet for one to take a long haul flight, many factors have to be taken into – comfort, competition (which in this case is way more competitive due to many locally owned national airlines). I provide a scenario of KLM, the Dutch operator – for its flight to Australia for example, it can provide a very competitive rate for those stopover flight in Kuala Lumpur as it has already have a large portion of its plane filled from Europe. This is going to be in competition to AAX. In terms of comfort between AAX and KLM for example, there is a significant difference especially for an 8-hour flight.

Another  thing on competition – SIA for example can allow its market share for shorter haul flight to be lost, but it will never allow its market share for longer haul flight to be greatly affected. Business is about changing to the landscape of competition. If for a short period, SIA, Qantas can afford to lose out, but in the longer run it will not and these are national airlines we are talking about.

These are the things you will see happening to AAX as compared to Airasia which has put itself in a much better situation as compared to its sister company.