How AirAsia will Become a One-Stop-Shop for Travel
Sharing the corporate venturing insights from Joanna Ibrahim from RedBeat Ventures – VC arm of AirAsia. Anastasia Green, a partner at Koalition, asked Joanna how the startup can get funding, how much to count on, which problems are they currently solving and where we'll see AirAsia in 30 years from now.
Joanna, you are flying between the US and South East Asia, scouting startups, talking internally to the team, and identifying investment priorities. Could you please describe how does the innovation ecosystem work in AirAsia? Who are the stakeholders, and how can the startup approach it the best way?
Innovation in AirAsia happens on multiple levels, and it starts internally. While interacting with the vendors, the staff comes up with ideas on how to improve operations, and those ideas go to the management. Or sometimes it can be top-down, where the management comes to push innovation through the organization.
In the last two years, we set up a subsidiary that acts as a corporate venture. Now we are going out to source new ideas from the market and bring it back to the organization.
In the process, we meet with the employees from different teams to understand what are their challenges and plans. Having that understanding, we go out and source for specific solutions that could meet any of the internal requests. Since I've been with the organization for quite a while and know the operation well, we would work with startups to test ideas and see if they can stretch their minds to find how to apply their applications to our scenario. Once we see a fit, we will sell these ideas or solutions to the relevant internal stakeholders and make sure there is adoption and follow through.
What tools and channels do you use to find startups?
We've been putting ourselves out there quite aggressively in the last two years. We attend conferences; we attach ourselves to the universities. We also work closely with the embassies representatives in Malaysia because they tend to have access to the startups in their respective home countries that they can introduce. We work with the Australian Trade and Investment Commission, Department of International Trade of British High Commission, as well as theFrench Trade Commission. They also have a mission to bring startups to Southeast Asia.
We have limited resources, so we try to be smart. We work with accelerators, for example, Plug&Play and 500 Startups, and other VCs and Corporate Ventures / Corporate Innovation teams. Sometimes it's hard to squeeze in all the events in our calendar. But we have to be out, selecting what's relevant and we don't want to miss out if there's something good.
Among all the channels you source your deals from, which ones you find the most effective?
The accelerators have an extensive network. They are close to the startup ecosystem and it is in their mandate to promote the startups in their programs, so they would be a good party to work with. But rather than having startups being pushed to you, what is more, important is to define what you really want to look at. By doing so, your search is more targeted and you can be very efficient in your interactions as well.
RedBeat Ventures being only in our second year, we are still learning In the first year we were very generic. We were open to anything. Right now, we are more specific in our search criteria.
We look to value-add our ecosystem and our portfolio. So, if you offer us something that we already have or can build ourselves, the chance of a meaningful outcome is very low.
We also take time to spend time to make people understand what are our pain points, where we are coming from, and often, we curate the list of startups before we schedule the meeting.
What kind of startups are you looking for? Is it mostly a partnership, something that you can integrate inside of the company, or it's more venture investments?
When we go out and meet people, we look at them through three categories: commercial, partnership or investment. Most common, we would be looking for startups that we can connect to the organization for a commercial deal - startups that can provide a solution to a particular pain point we have. If the startups fit nicely with our strategic vision and the impact of the commercial deal is huge for us, then we will take the discussion up a notch to explore more strategic collaboration or even a potential joint venture. And then there's an investment. We try to separate investment decisions. There is a dedicated team that looks into this.
When we consider a startup for investment, it has to pass our investment criteria, especially on our financial expectations.
Once we believe that the startup has growth potential and the ability to generate the return profile we are looking for, then we will start the investment negotiations.
What would be the criteria for the startups that are ready for the investment?
Many CVC (Corporate Venture Capital - auth.) firms are very strategic – they only invest in strategic matters. For us, it's a financial focus first. We want to make sure that whatever we invest in, we'll get a return.
For us to invest in a startup, show us your growth and financial potential first. Then, we look at strategic potentials.
Where possible, we like to give capital to startups and also be in the position where we are able to help them grow - it is our way to mitigate our investment risk. Strategic potential does not necessarily mean we have to use the product, but we have the tools and resources required by the startups. If a startup requires a product-market fit validation, they can do a proof-of-concept with us and get direct feedback on how they can improve their offering. For example, for early-stage IoT or asset tracking startups, they can conduct testing with us and our engineers can work together to make their product development better. If a startup requires customers, we look at how AirAsia can provide traffic to their platform, or if a startup wants to create awareness, we can work together to leverage AirAsia brand and marketing campaigns and so on.
What would be the process and time necessary to decide on an investment deal?
The process is straight forward. Talk to us and send us your pitch deck. The difficult part is trying to get a slot to talk to us. Timing is essential because as a CVC, we have our corporate hat to wear as well. There are times in the year where we're busy with other corporate activities, which means investment work will take not be the top of our priority and therefore, deals that come in would go in the "can we look at it a little later" pile. For example, right now, we have a board meeting coming up and we would be busy preparing for the board meeting, so we can only look at startups once the meeting is over. The best time to approach us would be in the mid to end of the quarter.
Do you have a strategy for the number of deals you have to make per year or it just depends on what you're seeing on the market?
Right now, we are still in the midst of raising our fund and it hasn't closed yet. So, any investments we make would be on balance sheet and we would be selective - more skewed towards strategic. Once our fund is up and running, then we will have a ticker where we need to invest within a specified period. But, for now, it's very much opportunistic or whatever we feel very strongly about.
Could you share what's the average check that startup can count on from AirAsia?
We typically disburse anywhere between half to one million. Depending on the stage and terms, we may consider to increase it to two million.
Which areas AirAsia is looking to innovate, and problems are you trying to solve?
When it comes to investment, we have a specific mandate. We look at consumer tech in the travel and lifestyle space, logistics and fintech. We also look at the technology enablers for example in the area of artificial intelligence, machine learning, augmented/virtual reality, drone technology and so on, as long as they have a use case within the three verticals of interest.
We look at startups between post-seed to series B.
Our management typically likes series B, being more stable and more convincing. However, as part of the investment team, we would like to go slightly earlier, where valuation is cheaper and the potential upside is massive.
We like when the company already has an MVP, ideally with a few ongoing proofs-of-concept. We believe this is the point where we can add the most value to the startups. We are not a technology company, so we would leave the product development to the founders. But once they have a ready product to go to the market, we can work together to refine the business model and scale-up.
If you're interested in coming to South East Asia and have no idea where to start, we would be a good landing pad because our business is here.
We not only exist in one country but we have home bases in Malaysia, Thailand, Indonesia, and the Philippines. Our network covers over 150 destinations. We have customers and distribution channels spread across the region. We know the market, and can help you navigate the cultural differences and the stakeholders within the countries.
What are some of the most promising technologies you see in the travel and lifestyle industries?
We are always on the lookout on how we can improve our revenue streams, reduce cost and improve customer experience. There are a lot of interesting things in the AI and machine learning space especially in the area of personalization, pricing optimization, and in-destination activities. To have a good recommendation and revenue management engine, it's all about how best we can use the data. In addition to that, there are also a lot of potential applications in the area of IoT and AR to provide better services and improving efficiencies.
Have you stumbled upon a radical technology or innovation in the space that you think will work?
Well, if you talk about radical, to what extreme would you want to discuss? (laughing - auth.) I saw companies working on supersonic aircraft or electrical aircraft. That's extreme. When we see startups in that spectrum, they really stretch our brain - a bit on the moonshot side.
If we look at regular operations, technology and innovation do not necessarily need to be radical. It is about their adoption from one area of application to another, and how they improve over time. For example, revenue management is nothing new. It is quite straightforward - using data to forecast demand and determine the right pricing level that can maximize revenue potential. However, you would be surprised to know that there are only a handful of companies that does this specifically for airline tickets. And how good they are is very much dependent on how complex their prediction algorithm is and how many input variables they can accept for forecasting...
We think the adoption of voice AI technology will be huge. Most applications will be voice-activated.
Also, one area worth nothing is the application of humanoid robots in the service industry. It is amazing what they are designed to do these days and how closely they resemble a human. The solution is not cost-friendly right now, but it would be interesting to see the level of adoption once the cost is reduced.
Given the futuristic look, where do you think AirAsia will be in 30 years from now?
We are already pivoting today. Right now, 80 percent of our revenue comes from aviation. The business of transporting people from point A to point B and 20 percent comes from ancillary businesses. We want to flip this. We are starting to embark on a journey where we expand our scope of core business not to only cover the aviation, but the entire travel and lifestyle ecosystem.
So, in about 20 to 30 years from now, the AirAsia brand will be synonymous with a one-stop travel and lifestyle platform.
The brand promise will not just be about being the lowest fare airline anymore, but about the experience, the convenience, and the seamless customer journey. Go to AirAsia to get inspired, plan your trip, book your flight, hotel, and activities, experience the trip, shop and share your reviews.
We are going to be much more customer-centric. Since the lowest prices are given these days; the competing value in the future will be the experience itself.
To get introduced to Jonna from AirAsia Corporate Ventures, please send your blurb and Pitch deck here.