The Star Online: Business
The Star Online: Business |
- AirAsia plans to be the first choice for travellers
- Tie-up with Honda set to drive change in Proton
- Aeon bullish on Carrefour buyout
| AirAsia plans to be the first choice for travellers Posted: 02 Nov 2012 06:34 PM PDT TEN years on after taking a chance to start a low cost airline, Tan Sri Tony Fernandes is sitting in a hotel room in the Westin Hotel in Busan, South Korea just after launching the Tokyo-Busan air sector that will be operated by his 49%-owned unit AirAsia Japan. In a quiet surrounding, in contrast to his public persona and frenetic business empire, he gives an quick secession of interviews like he has done many times before. For a man who is setting up affiliates across Asia, jet-setting to exotic destinations where the Formula 1 races are held and also appearing virtually every weekend on television while watching his Queens Park Rangers play, he is remarkably full of energy. It was the same energy he had when he built AirAsia from two planes to 115 aircraft today, all along never wavering on the positiveness of his ebullient character. He is a man whose confidence never seems to fade. In fact, he is now more energised and determined as he has delegated the rigmarole of day to day operations of the airline that he and his partner Datuk Kamarudin Mernanun built. But it's never been easy street for Fernandes who has had to battle to get to where he is today, In recent times, he had to contend with issues like the recent selldown of AirAsia shares by the Employees Provident Fund where he and Kamarudin became the net buyers, the criticisms over his decision to move to Jakarta after a decade of building AirAsia from Kuala Lumpur, and the emerging competition that is more intense compared with a decade ago. But his biggest competitor is himself because he was the one that taught and showed others that the low cost airline model works in Asia. He drew up the blueprint for a low cost carrier in Asia and others are now reverse engineering his methods and are using the formula to compete with AirAsia. Be it Jetstar, Scoot, Nok Air, or Lion Air, they are after the same market that AirAsia is vying for over the next decade of growth. Competition is no longer in-country but across all geographies because Fernandes has moved AirAsia across new frontiers after branching out his empire from Malaysia to parts of Asean. His gameplan now is to make AirAsia a truly Asian airline. Big markets such as India and China offer vast potential but the stakes are high. But true to his nature, Fernandes is dead set on making it work though it may take him a better part of the next decade to realise his vision. The last decade For the past ten years he has considered himself a "dreamer", but his dream is now an empire that spans across five countries Malaysia, Thailand, Indonesia, the Philippines and Japan. Besides the airline business, Fernandes and his team has also ventured into the hotels, insurance, mobile services, sports and education business. In his early days of being CEO of AirAsia, he was often seen at Subang airport, standing and watching passengers, sometimes helping to carry their luggage to check in travellers. It's not his comfort zone but his presence and visibility of doing the simple things made it clear he wanted to learn everything about the airline business and he was willing to do whatever it took to make it a success. He had his sceptics, as he and his friends were labelled as a bunch of music people dabbling in unchartered territory of the cutthroat and volatile airline business. But today, AirAsia is the leading low cost airline in the region. Success was gained through sweat and tears and there wasn't a red carpet treatment for Fernandes and AirAsia. The national carrier Malaysia Airlines (MAS) had given them a tough time, using their lobbyist network to shut them off lucrative routes and AirAsia had to start by plying to and from secondary airports. But that and with its branding of "now everyone can fly" gave people a new perspective in travelling. His favourite words when he started was "unfair competition" and he always felt AirAsia was being marginalised in the domestic market which was then controlled by incumbent MAS. He fought for landing rights, routes, with airports, airlines, regulators, and governments to get his way. Had he not, "there is no way, no way at all that we would be where we are today. And it is my nature, I just cannot take what is given. That is the easy option, but easy options will never be the same as the tough ones," he tells StarBizWeek. From two aircraft, and a decade later, AirAsia has grown to own 115 aircraft. It has ordered 300 more, may lease a dozen more and wants to make a fresh order for 50 more. After its first year of operations, the airline made a modest profit of RM29mil and carried 1.1 million passengers. As of last year, AirAsia chalked a net profit of RM564mil on the back of RM4.7bil revenue. It flew 30 million passengers and has cash of RM2.02bil, while load averaged 80%. For the third quarter 2012, analysts believe AirAsia will fly in RM1.24bil in revenue and RM225mil net profit. The future The original concept of AirAsia was that of an Asean brand but Fernandes is set to make it an Asian brand. "We are on our final chapter of the dream I had a decade ago. We are truly an Asean brand now and the last bit is to be an Asian brand," he says. To him, there are loads of opportunities in Asia, be it South Korea, China, India, Myanmar, Cambodia or Indonesia. It is just about finding them and making them work. He is the type of guy who believes in organic growth and prefers to do that, though acquisitions will leap frog the airline. He tried his luck with Batavia Air in Indonesia, but that deal turned sour. While he feels AirAsia Indonesia can grow organically, CAPA Centre of Aviation felt the Batavia Air deal would have done AirAsia good. "It leaves AirAsia with a daunting task of having to rely on organic growth to increase its share of Indonesia's booming but crowded domestic market," says CAPA, adding that AirAsia Indonesia is the sixth player there and deal with Batavia would have pushed it to be third largest player. "AirAsia's position in the market, the group's overall position in Indonesia has been weakened as without the Batavia deal, AirAsia will likely struggle to meet its goal of becoming a significant player in the domestic market," says CAPA. Indonesia AirAsia carried only about 1.3 million domestic passengers in 2011, giving it only a 2% share of Indonesia's domestic market. But Fernandes still believes AirAsia can grow organically in that market and the impending IPO of AirAsia Indonesia will bring a lot of goodwill to the airlines. The IPO is slated for early next year. Still, he says: "I would never say never to acquisitions but it has to be at the right price and at the right time." He is scouting for opportunities in China, which he thinks is a tough market, and India, which he thinks is more "sexy" than China. In South Korea, AirAsia is in talks with smallish T-Way for a possible acquisition and in Cambodia, some groundwork has began. He still has not forgotten how the deal in Vietnam went sour and is not keen on that market for now. Mynamar, a flavour among investors in recent times, carries the promise of hope, but again, that is a new market and every other player is trying to jump into it with no clear indication what the growth potential is. To him, if he can get a footprint across Asia, he would have achieved a lot. Connecting the dots in Asia will complete quite a bit of the puzzle of his airline empire but it will take some time and precise planning is needed as competition across these markets are no longer the same as on the domestic turf. He knows the Asia market is huge as it has been reported that Asia is the centre for air travel this decade as Europe suffers from is own financial problems and the United States has it own set of lethargy. The rising affluence in Asia is putting money into people's wallets and hence experts have forecast that the Asia-Pacific region will have 2.2 billion passengers by 2030. And Fernandes wants AirAsia to reap that Asian potential. Detailed 5-year plan To tap this growth, he says he needs a very detailed plan. It's more comprehensive than what he's accustomed to. "It is always on my mind but we are going to have a detailed plan. We have hired a lot of smart people, though we have a balance of some smart, some entrepreneurial and some just with the gut feeling. And all of them have come together." That plan will be the blue-print to tap Asia, and to chart the markets to tap into he needs more joint ventures, the aircraft requirements, map the actual network and routes, and have a more coordinated marketing plan. All of that will require money and that too is being studied comprehensively. And all this planning is happening in Jakarta, where he has a nerve centre for the group. Because AirAsia has grown in scale from its early days, there is a need to have more coordinated approach to planning. Earlier this year he moved over 20 personnel to Jakarta and set up a planning office. This move has been criticised and he continues to get knocked for making that decision. "People still think I have left Malaysia because of the (failed) share swap between MAS and AirAsia," he says. He handed the reins of the Malaysian operations, something he has been very passionate about because he founded and set up AirAsia Malaysia, to Aireen Omar. Though he says he has handed the reins, those in the know claim the he is very much in control of the day-to-day operations. But it also leaves him with more time than previously. And his best tool is the iPad and Blackberry. Throughout the interview, he kept looking at the Blackberry to check his messages. "I have relatively more time on my hands as I am not doing the day-to-day running of the Malaysian operations by being in Jakarta. I can move around and do all the deals I could not do earlier. I can now spend two days in Delhi and understand the market better," he says. The airline has over 300 aircraft under order and he says "we are never worried about aircraft financing, though there will be credit risk." He has plans to bring forward some deliveries to cater for future growth. "We have brought 30-40 aircraft deliveries forward over the next three years and our orders for the 175 aircraft would be finalised. AirAsia X will be a big part of the future growth." Contrary to market belief that growth has stagnated, he says, there will be growth in Malaysia and it is both inbound and outbound. Those leisure destinations like Kota Kinabalu, Langkawi, Penang will continue to grow," he says. The competitors Lion, Tiger, Scoot, Jetstar and soon to be launched Malindo Air are also racing to have a bigger footprint of Asia. Jetstar is tailing AirAsia wherever it goes and Scoot is giving AirAsia X a run for its money. Scoot is in markets where AirAsia X is. Jetstar and Tiger are in markets where AirAsia is. Lion is the biggest Indonesian rival and has stretched itself to eat into the Malaysian market and beyond via Malindo Air. Malaysia remains the stronghold for AirAsia and since Malindo's birth in September, AirAsia has been offering free seats to discounted fares to lock in passengers after May 1. Now Malindo has changed its strategy to come to market one-and-a-half months earlier than earlier announced. To Fernandes, competition is nothing new. AirAsia had navigated through that when it had just two aircraft. It fought to gain access into the Singapore market, it penetrated the Thai, Indonesian and Philippine markets and now has a foothold in Japan. While competition from Jetstar, Scoot, and Tiger is not that intense at the moment, experts believe the one coming from Lion and Malindo is going to be intense, simply because Rusdi Kirana, the low-profile millionaire from Indonesia, is determined to expand his empire the way Fernadnes has. "Despite its very small presence in South-East Asia's largest domestic market, AirAsia is still Asean's largest low cost carrier group. But Lion is already bigger in Asean than Jetstar or Tiger and has also overtaken AirAsia as the largest airline group in the intra Asean-market based on current capacity figures on routes within South-East Asia," says CAPA. While Lion is primarily a domestic operator, it is expanding its international network via Malindo, and clearly AirAsia is watching Lion closely to determine where AirAsia would place the 300-plus aircraft it has on order. The other business For AirAsia, Asia is the big market but Fernandes and Kamarudin are also into a lot more things than they were 10 years ago. He now has his fingers in football via QPR, has a passion for F1 races because he has a team that he hopes will beat Ferarri and Mercedes. He has developed Tune Money to provide a form of financing, has Tune Insurance, which is revolutionising the way people need to be protected. It doesn't stop there. Tune Mobile offers mobile phone services and Tune Hotels cheap hotel rates. Fernandes is also involved in education. Tune Insurance is slated for listing and so is AirAsia Indonesia and AirAsia X, the medium haul airline within the enlarged group which released its draft prospectus yesterday. The three listings Tune Group's insurance arm, AirAsia X and the budget carrier's Indonesian wing are expected to bring in proceeds of more than US$500mil (RM1.52bil). But what he has in mind is yet another dream. He wants to get into the medical business and he wants the AirAsia's brand name to be as well-known as Coca-Cola. He will achieve a lot if AirAsia becomes the airline of choice for travellers be it in the deepest regions of Asia to cosmopolitan cities and even developed cities across Asia. "I want AirAsia to be like Coca-Cola ... that everyone knows AirAsia. We want to be the first airline people think of when they want to fly," he says. To get there, the airline spends between 2% and 4% of its budget on advertising and branding and Fernandes says that was critical, though he believes that "one thing airlines don't do well is spend wisely.'' |
| Tie-up with Honda set to drive change in Proton Posted: 02 Nov 2012 06:29 PM PDT SHIFTING up a gear is just what the automotive industry seems to be going through right now, with conglomerate DRB-Hicom Bhd playing matchmaker for national carmaker Proton Holdings Bhd and Japanese giant Honda Motor Co Ltd. While merits of the deal have been speculated relentlessly by analysts and the media, not much have been said about the potential effect that would ripple through the entire local supply chain, driven by changes that would soon take place in Proton. However, with a confidentiality clause in the way, there's just so much DRB-Hicom can reveal to the public, even if it wanted to in the interest of the company. An official plan or roadmap is expected to be revealed this month, and the Proton-Honda collaboration might just be a prelude to an extensive plan laid out for Proton. With more than 80 active companies in its stable, integrated diversification is key for an automotive giant like DRB-Hicom, which is valued at RM4.7bil as at Friday, to ensure it stays on the growth path it has charted for itself. Having the right to control Proton, DRB-Hicom had also indirectly dictated the plans of some of its subsidiaries that are Tier-1 vendors and suppliers in the local automotive supply chain. Not only do all these subsidiaries supply to Proton, they also control a huge portion of the supply chain. For example, its 70% owned Oriental Summit Industries Sdn Bhd (OSI). Besides Proton, OSI is the main chassis component manufacturer of front lower arm, rear axle suspension and lever parking brake for key OEMs like Perodua, Volvo and Toyota. Its crown jewel of the division is PHN Industry Sdn Bhd, a Tier-1 stamping vendor specialising in metal-based automotive components. PHN's business includes mass production of parts for Proton's key models like Saga, Exora and Preve. In addition, it participates in localisation programmes with Volkswagen Group Malaysia, Suzuki Malaysia Automobile and Honda Malaysia. The growth path of Proton will actually send a huge spillover effect to the local automotive supply chain, not only to DRB-Hicom's subsidiaries but also other vendors and suppliers in the market. Nevertheless, its 51% owned HICOM-Teck Manufacturing Malaysia Sdn Bhd (HTS) is also poised to grow progressively in line with the demand of local automotive industry. Deemed the country's largest OEM plastics automotive vendor, its core products range from instrument panels, door trims, bumper fascias and door brackets to class-A surface painted to chrome-plated products. Not only does it supplies to local OEMs, it also boasts Toyota Saudi Arabia as a customer. However, as cliche as it may sound with the saying "Rome was not built in a day", it is the same with Proton. It will be a long and gruelling way ahead for group managing director Datuk Seri Mohd Khamil Jamil and his lieutenants to drive the change in Proton. Bear in mind, if an extensive collaboration with Honda becomes material, it can encompass a wide range of business areas including technology enhancement, new product line-up, platform and facilities sharing. Assuming if technology enhancement is the first priority of the collaboration, Proton could be getting its hands on Honda's extremely well-established VTEC engines that go all the way back to 1983. The technology has since undergone tremendous refinements with the B-series engines, and then replaced by the K-series that has seen usage in some of Honda's high-performance Type-R vehicles. "The Campro engine that was developed during Tengku Mahaleel's time has past its prime, and Proton is seriously in need for a new engine. What better way to transfer some of Honda's technology to Proton and develop some engine jointly for the local market and go global with Honda," says an industry observer. He says the hybrid technology in Honda's current line-up looks attractive as well, along with the electric vehicle platform the company is developing, the Honda Fit EV, which is slated for a global launch in 2013. Hints of the Proton-Honda tie-up might also have been dropped previously in September when International Trade and Industry Minister Datuk Seri Mustapa Mohamed, in a reply in parliament, said Proton is set to supply and sell its hybrid electric vehicles by 2014. Currently, Proton is also collaborating with UK-based Frazer-Nash Research to develop electric vehicle models. Couple these developments with Honda Malaysia Sdn Bhd's RM1bil pledged investment over the next three years, plans are already coming together for Honda to become a force to be reckoned with in Malaysia, and the region. Frost & Sullivan partner and head of automotive and transportation practice for Asia-Pacific, Kavan Mukhtyar, lauded the collaboration as a positive development for both companies. "Proton has excess manufacturing capacity that can be leveraged for doing contract assembling or facilities sharing with Honda. This will lower its fixed cost per vehicle produced, provided there is enough volumes. "Also, Proton can benefit through any technology, model sharing or licensing arrangement," he says. He believes Honda will benefit through the collaboration, especially in reducing its manufacturing cost through localisation. But he is sceptical on the impact on the international front due to the conservative nature of Honda's corporate culture, which prefers to venture into markets alone and not with partners. Collaborations and joint ventures like the Proton partnership were basically unheard of since Honda's inception in 1948. "The impact will depend on the extent to which the collaboration is expanded. In general, Honda has been quite conservative on partnerships. Hence, in the short term, the impact could be limited in the international market," he says. In its annual report, DRB-Hicom also hints that there might be a need to consolidate its assembly units for cost effectiveness once it achieves economies of scale. If that is true, besides opening the gates to interested foreign strategic partners (FSPs) to utilise Proton's Tanjung Malim plant, DRB-Hicom could also alleviate some capacity pressure that is building up in its plant in Pekan, Pahang. The Pekan plant has been running on full capacity since it established the completely-knocked-down (CKD) assembly line for Volkswagen, starting with the Passat 1.8 TSI. According to CIMB Research analyst Lucius Chong, Proton's plant utilisation rate currently stands at 41% and the fastest way to raise this figure is to work with multiple foreign players. "It was futile for Proton to keep designing its own cars from the ground-up as this requires a significant amount of research and development as well as capital expenditure. "Using common platforms from the likes of Honda and perhaps, VW, in the future will not only reduce costs but also bump-up the quality and brand perception of Proton cars. "Overall, we are neutral on this news as DRB-Hicom's decision to work with multiple parties could be hard to do over the long term. It is also too early to calculate the impact on the bottom line as the current deal is at exploratory stage," he says. Meanwhile, DRB-Hicom also aims to assemble cars for the Asean market by 2014 and perhaps, it is in the midst of partnering more FSPs to utilise Proton's manufacturing capacity. |
| Aeon bullish on Carrefour buyout Posted: 02 Nov 2012 06:27 PM PDT DESPITE its relatively pricey acquisition of Carrefour Malaysia's operations, Japanese retailer Aeon Co Ltd appears bullish on its buyout, with the move projected to further strengthen the latter's presence in Asean. "For Aeon Co, the acquisition of Carrefour Malaysia provides us with the opportunity to expand on our existing roots here in Malaysia and further develop our Asean operations. "We are trying to expand our business in South-East Asia because there is a growth market," Aeon's Asean business vice-president and chief executive officer Nagahisa Oyama says. The group is targeting to open 100 stores in various formats in Malaysia and aims to achieve 300 billion yen in revenue by 2020. It also plans to open stores in markets like Vietnam and Cambodia. But questions remain on how fast can Aeon Co turn around its newly acquired loss-making Carrefour Malaysia in a relatively high acquisition price and integrate the latter into its business that could eventually benefit Bursa Malaysia-listed Aeon Co (M) Bhd (Aeon Malaysia). Tokyo-listed Aeon Co paid an enterprise value including equity and debt of 250 million euros (RM990.19mil) for Magnificient Diagraph Sdn Bhd which operates Carrefour stores, a price which analysts opined are relatively expensive, as it values Carrefour three times its book value. The price was also higher than the earlier expected US$250mil. Analyst says the almost RM1bil sale tag "seem rather high" for business with relatively low margins. However, they say the South-East Asian venture is seen particularly attractive as consumer spending accelerates in this region, a huge contrast to developments in the eurozone. Maybank Investment Bank Research notes that a selling price of some RM900mil would translate into an enterprise value/sales of 0.53 times, versus the 1.19 times at which Carrefour Thailand was sold (but Carrefour Thailand was profitable). "The price consideration is based on business performance up to date and business forecast. We decided on a figure we could work with," Nagahisa says. Carrefour Malaysia currently runs 26 hypermarkets in the country, with annual net revenue of 402 million euros (RM1.7bil) in 2011. However, it is loss making, and its net loss widened to RM81mil in 2011 from RM2.9mil in 2010 due to rising overheads. Carrefour's existing stores in Malaysia will be rebranded as Aeon BIG while its new corporate name will be Aeon BIG (M) Sdn Bhd. Aeon Malaysia, on the other hand, has 25 department stores and four supermarkets that generate RM3bil in retail revenue. The takeover effectively doubles the number of Aeon Co (and subsidiary) stores in Malaysia, giving Aeon a spot as the country's second-largest retail group. Presently, the country's largest retailer is Giant with over 100 hypermarkets and supermarkets. "The things we will be doing immediately is to study each store and its performance and we may also, if necessary, pump (money) into them. "We will craft new business plan for the news stores," Nagahisa says, adding that Aeon would not rule out closing non-performing Carrefour outlets. He stresses that the business plan for its new stores will be critical before it makes any decision to relocate or close down any existing Carrefour stores. Additionally, he says, the stores will be created in different formats to attract different target markets so that they will not cannibalise each other. Currently, there are about eight Carrefour stores within a two-kilometre radius from Aeon Malaysia stores. The stores in Mid Valley mall are the closest, located almost side by side. It remains to be seen how things will pan out for the group. Carrefour will undergo a rebranding exercise over the next six months. However, the value for the exercise or further investments into Carrefour stores was not disclosed. Nagahisa also points out that Aeon BIG (M) will operate independently from Aeon Malaysia and thus will have no effects on the latter. However, he says there will be integration in terms on information technology and distribution integrations between the two companies to create synergistic value. "When you conduct a merger and acquisition, it is not about the current business that one needs to look at but the synergies and potential. "Tremendous synergies can be gained but our ultimate goal is to be able to provide a better life for Malaysians to help them upgrade their lifestyle," he adds. Aeon Co is unperturbed about Carrefour's massive losses and is committed to turn its operations around. "I believe it can be turned around. Part of the reason for the poor performance was the fact that they did not invest properly. "We will establish a growth strategy for the next three years and five years and act quickly when required. "We have full confidence they will become excellent stores," Nagahisa says confidently. Analysts concur that Aeon Co will be able to turn around Carrefour, given its profitability in operations. "We believe they will be able to do it (turning around Carrefour) but we don't know the details of their execution plan. "Having said that, we believe they will streamline some Aeon Malaysia and Carrefour stores that are located close to each other," an analyst says. MIDF Research says Aeon Co may turn around Carrefour's loss-making stores and Aeon Malaysia may eventually benefit from its parent's acquisition. "Aeon Malaysia's revenue has been on a steady uptrend, growing at a compounded annual growth rate (CAGR) of 9.6% for the 5-year historical period of financial years ended Dec 31, 2007 to 2011. "The company operates under two segments retailing and property management, which have been historically making profit with a CAGR of 9.2%. "With their stellar record, we are sanguine that Aeon Malaysia will be able to turn around Carrefour's loss-making Malaysian operations," MIDF says. RHB Research says the acquisition will reduce direct competition and there will be significant operational synergies and economies of scale with Aeon's supermarket operations. Aeon Co is also planning to expand its operations into new emerging markets in Asean such as Vietnam, Cambodia and Indonesia. Aeon Co has been exploring growth opportunities in new geographic and business areas using its China and Asean headquarters to accelerate an integrated approach to Asian business development. The company estimates to post 15 billion to 17 billion yen in operating profit for its Asean market this year. Affin Investment Bank sees three positive implications from Aeon Japan's acquisition of Carrefour Malaysia's operations. First, it says, the massive investment reflects management's confidence in the growth potential of the consumption and retail sector in Malaysia a space in which Aeon Malaysia operates. It adds that this will provide good operating synergies since Aeon Malaysia is a department store targeting middle-income group while Carrefour, which is a hypermarket operator, caters to low-to-middle-income consumers. "Third, Aeon Japan's regional ambitions may open up new growth opportunities for Aeon Malaysia," Affin says. |
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