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October 4, 2023
16 min

Beyond the Runway: How AirAsia Became a Digital Ecosystem

When a business reaches a stagnant point, finding the right path to a breakthrough can be challenging. However, AirAsia knew exactly how to forge ahead. This is the story of its remarkable success—a journey that saw AirAsia transform from a regular airline to a digital lifestyle ecosystem centered around travel. Join us as we explore the strategic moves and innovative thinking that propelled AirAsia's pivot and disrupted the industry.

SEO copywriter

Starting from zero

A vision for affordable flying

AirAsia's journey sprouted from the aspirations of its visionary CEO, Tony Fernandes. As a student unable to afford a flight back home from England, he nurtured a dream of making air travel affordable for all. When the opportunity appeared, he purchased AirAsia, which was a legacy airline burdened by staggering debt at the time.

Determined to turn AirAsia around, Fernandes transformed it into a low-cost carrier, embracing the slogan “Now everyone can fly.” In its first full year of operation, AirAsia carried just over a million passengers. In 8 years, that number skyrocketed to 22 million passengers. The vision became a reality.

First innovations

The company’s digital vision took flight when Mr. Fernandes realized its distribution channels had to be optimized if the airline was to make flying easier for the masses. Thus, AirAsia was the first airline to launch an online booking system in 2002. Back then, it was a breakthrough, because the majority of its competitors sold tickets through travel agents.

“We were one of the first companies—not just as an airline—but one of the first to embrace e-commerce in a big way.”

Former president of AirAsia Digital

The first-ever online booking engine was later accompanied by SMS and mobile web booking services, onboard Wi-Fi, and facial recognition technology. Thus, the company used technology to make travel hassle-free.

All of this was driven by AirAsia's vision of being closely connected with their passengers, or guests as the CEO preferred to call them. Ensuring that travel was simple and accessible to everyone was Fernandes’ ultimate goal.

First challenges

In the late 2000s, the low-cost approach became more widespread, with other low-cost carriers emerging in the region. Cheap tickets weren’t AirAsia’s competitive advantage anymore.

As a result, AirAsia faced a plateau, which prompted the management to search for new ideas for growth. The answer was found in the familiar area—digital innovations. The company appointed a new head of digital transformation, Aireen Omar, who had a new strategy for the company—to transform it into a global, cloud-driven digital ecosystem.

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Omar envisioned a fundamental shift in the way AirAsia operated. In her view, focusing solely on aircraft as the primary asset for airlines had become obsolete. The true asset laid in customer data and behavioral patterns, which could help the company understand consumer lifestyles and demands. Thus, AirAsia aimed to provide more than transportation, in contrast with other airlines.

“It’s not just about flying from one point to another [anymore]. There are so many airlines that are helping you do that. How do we give customers a satisfying journey, a lifestyle experience that they’re looking for?”

Former president of AirAsia Digital

The starting point was to look at customers’ behavior on Airasia.com. The website had significant traffic, with 65 million unique visitors each month, but an average person flew only four times a year. The question was how to make better use of this substantial online presence.

In addition to that, AirAsia faced a threat from online travel agencies (OTA), as they essentially became a competition. AirAsia sold 80% of all tickets via Airasia.com, and the company wasn’t present on the largest travel aggregators like Expedia or Traveloka. Hence, if customers chose Expedia, they ended up booking other airlines’ tickets. That posed a problem for AirAsia.

“We looked at why investors started investing in OTAs and we suddenly thought, we have better data and reach than many of them. I’ve 65 million monthly active users of Airasia.com, why am I not monetizing that?”

AirAsia CEO

As AirAsia confronted the rise of low-cost competitors and travel agencies and the potential loss of customers, they were left with pressing questions. Why were agencies so successful, despite AirAsia's significant user base? How could they increase the frequency of engagement on their website?

Stepping outside the comfort zone

Travel & Hotels

Facing the challenges, AirAsia’s management came up with unconventional ideas. The first one was to use Airasia.com for selling not just AirAsia’s tickets, but tickets from other airlines. For many, it seemed counterintuitive. Why would AirAsia assist its competitors? However, the management believed in success for three reasons.

First, the company acknowledged that customers often visit other airline websites and OTAs alongside Airasia.com to compare prices and secure the best deals. Instead of losing those customers, AirAsia would provide them with that information while still keeping them within the AirAsia brand.

Second, the management was confident that, in many cases, they could outperform competitors by offering the best prices and deals.

Third, substantial traffic flowing through Airasia.com would be a benefit for other airlines as an additional audience.

Ultimately, it would be a win-win situation for all parties involved. To realize the idea, AirAsia joined forces with tech company Kiwi.com. The partnership worked well, and despite the impact of Covid-19, the platform went live in August 2020.

Together with selling flights, the next logical step was to sell hotel bookings, since customers were never looking just for a flight ticket. That’s why AirAsia began to create relationships with hotels and notched a partnership with China’s Trip.com Group to share inventory and services.

The introduction of new offerings and flight-hotel bundles proved to be a lucrative strategy. In 2019, Airasia.com reported a three-fold surge in revenue thanks to the service expansion.

Logistics and e-commerce

Another industry that the company eyed to enter was logistics. With one of the largest air fleets in the region, it was fairly easy for AirAsia to unlock this market.

The first step in this direction was back in 2014 when the company introduced a cheap courier service Redbox. Later, AirAsia decided to further leverage its aircraft's belly capacity for shipping a wide range of goods, including cargo, parcels, and last-mile deliveries. A spin-off from its cargo department, Teleport, was meant to help with that.

Having a whole entity focused on shipping goods, the management decided that they could go further into retail. At first, it was only about duty-free retail—the idea was to allow customers to buy duty-free goods online. The pandemic reshaped AirAsia’s approach, and the company turned to selling everyday goods, medical goods, groceries, and clothing.

As a result, AirAsia's logistics unit now serves prominent regional customers such as Lazada, Shopee, and Zalora. In 2020, Teleport delivered 228,300 e-commerce orders, marking a more than thirty-fold increase in monthly deliveries since the start of the year.

Finance

AirAsia's management noticed a gap in the market for banking services, particularly for currency exchange. They observed that many customers faced high commission fees when changing currency at airports. Sensing an opportunity, AirAsia built a banking service, BigPay, from scratch. From that moment, AirAsia’s customers could create bank accounts in as fast as five minutes, and get the currency they needed.

BigPay saw the volume of remittance transactions grow approximately five-fold in 2020. Encouraged by positive customer feedback, AirAsia further expanded fintech services and added an e-wallet, AirAsia Pocket, and a financial marketplace, AirAsia Money. Both were embedded in the company’s new mobile app, the AirAsia Super App (more on this below).

Food delivery

Observing customer behavior sparked an unexpected idea. AirAsia was popular for its in-flight meals, so much so that a lot of passengers asked the company how they could eat AirAsia’s food when they were not traveling.

This inspired the management to open AirAsia’s first Santan restaurant that served the same delicious in-flight meals that AirAsia is known for.

In October 2020, AirAsia Food witnessed a whopping 1,150% increase in order volumes in Kuala Lumpur, which generated more than a 500% increase in sales.

It seemed that the Covid-19 crisis would ruin AirAsia's plans for its restaurant business, but the company managed to adapt. While the physical restaurants had to be temporarily closed, AirAsia started a food delivery service and established a franchise model.

“Amazon started by selling books; it now sells cabbage. Go-Jek is ride-hailing, now it delivers massages. We have delivered on planes, now we will deliver on everything else.”

AirAsia CEO

Becoming a digital lifestyle brand

Digital Frankenstein

The success of AirAsia’s spin-offs wouldn’t be possible without a robust digital interface, where customers would be able to do all the tasks. Here comes the jewel in AirAsia’s crown—the AirAsia Super App.

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Before the pandemic, AirAsia used all the customer data it gathered via Airasia.com to create a customer intelligence profile. This helped the company personalize marketing and better target potential customers. The next step, though, was to make the online experience convenient for the customer.

“We were a little bit of a Frankenstein. We had different offerings with different capabilities, different payment methods, different UI, different user experience—so, one of the first things we needed to tackle was to unify the experience”.

AirAsia CTO

AirAsia had already been considering the concept of a travel super app long before the pandemic. Due to the circumstances, AirAsia had to speed up the work. What was supposed to be completed within four or five years was now compressed into a tight timeframe of nine months. The result was a single, user-friendly platform where customers could access all the services offered by AirAsia.

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Super app

Launched in October 2020, the AirAsia Super App included more than 15 different types of products and services, with a single sign-on and the ability to earn and burn loyalty points. This was a sign of AirAsia becoming a digital lifestyle brand, rather than just a low-cost carrier.

As of July 2023, the AirAsia Super App includes:

  • Flight booking
  • Ride-hailing
  • Hotel booking
  • Finance and insurance
  • Shopping
  • Transport
  • Food delivery
  • Entertainment
  • Chat and community

Not all of the services were there from the very start though. AirAsia added them gradually, observing customer behavior and listening to their needs. For example, AirAsia Ride was added in August 2021, to make the travel experience complete—”pre-flight, during flight, and post-flight.”

Despite the fierce competition from the established giants Gojek and Grab, AirAsia Ride performed well—by early February 2023, the number of completed rides had increased to 3 million.

Let’s take a look at a typical journey of an AirAsia customer who’s planning a trip from Dubai to Bali. The first step is to book a flight. It’s possible to find a good option in the super app, for example, a connecting flight with AirAsia and a different airline that has partnered with the company.

Next—booking a hotel in Bali, which is also done via the super app. For savings, a good option is to buy a SNAP package, which includes both the hotel and the flight. In addition to that, to get to the hotel from the airport, it’s possible to book a ride within the same super app, although only up to three days in advance.

In most cases, travel insurance is necessary for a trip. AirAsia provides its insurance packages through the super app as well, although working in a web interface. If a traveler needs to bring extra items but doesn't want to buy more luggage, they shop for skincare products or clothes on the super app and have them delivered to the airport or to their seat on board.

Finally, once a customer arrives in Bali, the super app continues to be helpful. For example, if they want to visit the nearby island of Nusa Penida, they purchase ferry tickets through the app.

To discover tips and tricks for exploring Bali, there's a Bali travelers community within the app. And, if they ever get tired of hotel food, the super app offers a food delivery option. Though its availability in Bali is uncertain, it's definitely available across Malaysia.

The customer journey shows that an AirAsia Super App user typically completes at least seven transactions instead of just one when buying a flight ticket. The ecosystem approach allows AirAsia to capitalize on its extensive user base while making trip planning easier for its customers.

“Flying is only one part of the equation. You still need to get to the airport, and you still need hotels.”

AirAsia CEO

Results

“With all the lifestyle offerings, the velocity and frequency of use of the app and website are at least 7 times more than what it used to be when we were just offering our flights.”

Former president of AirAsia Digital

The growth and success of AirAsia's super app and digital ecosystem have been remarkable. The AirAsia digital unit's tremendous success has led to its unicorn status, with a capitalization of $1.2 billion. Surprisingly, it’s valued more than the airline itself, whose valuation stands at $0.9 billion.

Tony Fernandes, AirAsia CEO, believes that the collection of digital services has an even larger potential to revolutionize travel in the region. The company has a five-year plan in place which will see non-airline revenues contributing around 50% of overall group revenue by 2026.

Looking ahead, the management envisions the AirAsia ecosystem becoming an “AirAsia republic.” With a loyalty scheme boasting nearly 51 million members, including 12 million active monthly users, AirAsia indeed resembles a community rather than just a company. The future of this community lies ahead, and time will unveil its possibilities.