KUALA LUMPUR (Nikkei Markets) -- Malaysian budget carrier AirAsia Group said Tuesday its unit Teleport is jointly investing $10.6 million with a venture capital firm in an e-commerce and delivery company EasyParcel to help boost logistics business.
EasyParcel, which has close to half a million users, will use the so-called Series B funding to expand its offering for small and medium businesses, AirAsia said in a statement. EasyParcel will leverage Teleport's logistics network, AirAsia flights and cargo capacity, the airline said.
"I've always believed AirAsia's logistics business has a huge opportunity to be part of the social and e-commerce ecosystem," AirAsia Group Chief Executive Tony Fernandes. "Today, we are unlocking that potential with the help of EasyParcel."
Teleport will fund the investment in EasyParcel from retained earnings, while co-investor Gobi Partners would be investing through the Meranti Asean Growth Fund, a fund which seeks to invest in businesses such as cloud services, e-commerce and financial technology in Southeast Asia.
"Together, we will combine our efforts to help EasyParcel solve Southeast Asia's logistics bottlenecks and boost the industry's data analytics," Gobi Partners Chairman Thomas G Tsao said. The firm, headquartered in Shanghai and Kuala Lumpur, manages over $1.1 billion in assets.
The funding from Teleport and Gobi is crucial to strengthen the company's footprints in existing markets in Malaysia, Indonesia, Singapore and Thailand, said EasyParcel CEO Clarence Leong.
Logistics is gaining importance in the vibrant trade-reliant Southeast Asian markets where e-commerce is flourishing. The last-mile delivery channels for goods purchased online are fueling expansion of courier and logistics plays that are tapping into growth capital. In Malaysia alone, there are more than 100 courier services firms with many cash-rich logistics players rushing into the express delivery market.
Although e-commerce market in Malaysia is still relatively small with $8.3 billion worth of sales projected in 2019, it is expected to grow to $12.9 billion in 2022, estimates Fitch Solutions. The sunrise sector has attracted global giants such as Alibaba Group, whose logistics arm Cainiao Network signed a pact with state-run Malaysia Airports Holdings in 2017 to develop a regional electronic commerce and logistics hub in Malaysia.
Still, analysts have cautioned that despite the growth potential, Malaysia is overcrowded with parcel delivery service firms for a market of 30 million people.
"We believe the sector is due for a major consolidation," AmInvestment Bank said in a Jul. 11 report. "We also believe that players should explore alternative ways to sharpen their competitive edge."
AirAsia's latest investment comes as the carrier grapples with fierce competition that is eroding its profits despite a surge in traffic. A cutthroat rivalry in the aviation market has forced AirAsia to rein in regional expansion plan, sell some of its assets, and transform into a technology-driven company over a longer-term.
Fernandes had previously told Nikkei Asian Review that he was prepared to spend up to 100 million ringgit (about $22 million) a year for the transformation that could morph the carrier into a digital enterprise. In March, Teleport partnered Malaysian logistics firm GD Express Carrier to tap into AirAsia's aircraft belly space for express parcel delivery.
To sharpen focus on non-aviation business, AirAsia has formed Redbeat Ventures that houses its non-airline tech businesses, including Teleport and a slew of digital businesses ranging from travel and lifestyle to fintech and marketplace. The company also plans to sell rival airlines' seats on its online platform.
Shares of AirAsia ended 0.3% lower at 2.91 ringgit apiece, while the benchmark FBM KLCI closed 0.2% down.