Case Study of Airasia Group Berhad (5099)

By Stella Goh – Market Data Analyst | 2 January 2020


AirAsia Group Berhad is an established Malaysia-based investment holding company founded in the Year 1993 based in Kuala Lumpur, which primarily involved as a multinational airline group with the world’s lowest cost-carrier in Asia.

AIRASIA was listed in Main Market of Bursa Malaysia in November 2004. The group has connected people and place across 388 routes, 104 of which are categorized as unique routes across the Asia Pacific. In 2018, the groups include AirAsia Group Berhad (AirAsia Malaysia, AirAsia Indonesia, AirAsia Philippines), AirAsia Thailand, AirAsia India and AirAsia Japan reinforced its leadership position with two remarkable milestones. For examples, flying over 500 million guests and grew from 2 aircraft in FY2001 to 226 aircraft as the end of FY2018.

Business Model

AirAsia Group Berhad’s entire business model centres at low-cost philosophy which requires its operations to be a lean, simple, and efficient.

AIRASIA focuses on high Aircraft Utilisation means the group has high frequency and high turnaround of flights, both bring customers convenience and greater cost efficiencies as the turnaround of 25 minutes is the fastest in the region.

AIRASIA provides low fare but no frills mean there is no frequent flyer miles or airport lounges in exchange for low fares. Guests have their choices to pay for in-flight meals, snacks and drinks.

AIRASIA also offers internet sales or by call centres. The bulk of sales can be done via the airline’s website (, whereby the fares are paid by using credit cards, debit cards or via online banking. While for call centres, customers can purchase tickets via telephone. Both methods are the most effective distribution channel which can be made customers more convenience.

The group also has actively diversified their business into non-airline digital-based businesses such as Big Loyalty, BigPay,, ROKKI, OURSHOP and RedCargo Logistics and RedBeat Ventures (RBV).

Financial Review

Based on past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-oy) from FY2014 (+5.95%), FY2015 (+16.28%), FY2016 (+8.71%), FY2017 (+41.83%) to FY2018 (+9.56%). On a CAGR basis, AIRASIA has grown 15.79% based on 5 years. The increase in revenue was mainly driven by an 18% increase in capacity which enables a 14% increase in a number of guests carried to 44.44 million. Although their enhanced capacity led to slightly decrease in average fare from RM176 in FY2017 to RM173 in FY2018, it has compensated by 7% increases in ancillary revenue to total RM2.06 billion.

AirAsia Group Berhad has recorded a decreased gross profit from RM1.9 billion in FY2017 to RM805.1 million in FY2018 equivalents to (-56.55%). The huge decrease in gross profit was mainly caused by the increased of fuel and one-off expenses as well as changed in accounting from owning to leasing aircraft towards the second half of FY2018. Due to hike in fuel price, and 3% dip in average stage length of flights, their overall cost per available seat kilometre (CASK) including fuel increased by 12% to 14.80 Sen.

The Net Profit After Tax (PAT) of AIRASIA has successfully recorded a considerable RM124.02 million increase in Profit After Tax (PAT), translating to a growth of 7.89% from RM1.6 billion in FY2017 to RM1.7 billion in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 36.17% was in line with the growth of revenue.

Cash Flow Statement

The group have generated net cash flow from operating activities of RM353.1 million in FY2018 compared to RM2.2 billion in the previous year. The decrease in net cash from operating activities was mainly due to the interest paid (RM323.1 million), taxes paid (RM45 million) and retirement benefit paid (RM3.4 million). Even though the cash flow is lesser in FY2018, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (RM9 million) was mainly due to the group received proceeds disposal from Property, Plant and Equipment (PPE) & associate, dividend received from investment securities & associate and net cash inflow from partial disposal of an interest in subsidiary with a total amounting of RM10.6 billion. The positive cash flow indicates that the firm is generating a positive return from their investment and gain through the disposal of assets.

The net cash from financing activities in FY2018 is (-RM8.1 billion) was mainly attributed to the repayment of borrowings and dividends paid to shareholders with a total amount of RM9.3 billion.

Based on liquidity ratio calculation, AIRASIA has a current ratio of 1.2872 times in FY2018 compared to 0.8104 times in FY2017 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, receivables & prepayments, deposit on aircraft purchase, derivative financial instruments, amounts from (subsidiary, associates, joint ventures and related parties), tax recoverable, asset held for sale, deposits, cash and bank balances amounting to RM8.8 billion.

Prospect and Challenges

AIRASIA has launched the FACES (Fast Airport Clearance Experience System), also known as biometric airport recognition system at Senai International Airport in Johor, Avalon (new airport based in Melbourne) and the airport in Kuching to facilitate the boarding process. For examples, users can board the flight by using facial biometrics which can eliminate the needs to show their passport. (Source: Annual Report FY2018)

The group have to collaborate with Google Cloud to integrate machine learning and artificial intelligence (AI) into every aspect of their business and culture. Their Digital and Data team will work together with Google Cloud engineers on specific business scenarios to gain a solid foundation in enhancing their predictive ability in sales and marketing, as well as asset management. (Source: Annual Report 2018).

As of 2 April 2019, when an upgraded version of AirAsia’s portal was launched, the portal has incorporated OURSHOP (online retail business), tours and activities deal by Vidi. There will be more products and services will be added as to be evolved. The group has also launched an international remittance service that will allow instant international transfer from Malaysia for fixed rates as low as RM7 (S$2.31). So far, there are four countries included such as Singapore, Indonesia, Philippines and Thailand. (Source: Business Insider Malaysia, 23Sep2019).

AIRASIA has opened a restaurant (Santan and T&CO) which serving actual aeroplane food at Mid Valley Megamall. According to Tan Sri Dr Anthony Francis Fernandes, he plans to open 5 outlets this year, and 100 over the next three to five years to fulfil the increasing demand for Asian cuisines. (Source: Business Insider Malaysia, 3Dec2019).

By recognising the needs for low-cost carrier terminals to cater for budget travellers, the Government has agreed to set up a dedicated low-cost terminal in Penang by 2022. AirAsia already occupies 50% of the capacity at Penang International Airport and would like to turn Penang into their northern Malaysia transit hub connecting ASEAN directly with the country’s Pearl of the Orient. (Source: Annual Report 2018).

Rating System

Return on Equity (ROE) = Good

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share [5 years CAGR] = Good

Interest Coverage = Average

My Insight

Based on my calculation on Discounted Earnings Model, AIRASIA has a fair value of RM4.911. The current market value of AIRASIA is RM1.71 which is undervalued. (Based on 27Dec2019). AIRASIA has a beta of 1.261 (500days) indicates that the company is more volatile than the current market, which means investors/traders are actively trading in this stock; they may face a higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), AIRASIA has an expected market return of 6.25%.

In conclusion, AirAsia Group Berhad has achieved an outstanding performance for revenue and profit after tax in FY2018 due to its capacity expansion. I believe the group’s digital-based ventures such as BIG Loyalty, BigPay, Vidi, RedCargo Logistics, ROKKI, OURSHOP, and Redtix will help AIRASIA poised for good ancillary revenue growth going forward.


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