No treasurer likes balance sheet surprises. Unfortunately, when working in Asia, where multiple currencies are a way of life, surprises are more the norm than the exception.
Enough was enough for AirAsia. Last month, the low-cost carrier implemented a Royal Bank of Scotland (RBS) foreign exchange (FX) solution for its online ticketing that automatically sets prices in any one of five global currencies -- the Australian dollar, Hong Kong dollar, UK sterling, Singapore dollar and US dollar. That gave its customers certainty about what would be charged on their credit card bills (and freedom from the ever too common conversion fees) and it gave the airline's treasurer peace of mind about cash flow.
"It gives certainty and transparency to our passengers and into our revenue," said Rozman Omar, group chief financial officer at the airline, on the solution. "But most importantly we will get the best FX rates possible." The solution uses RBS FXmicropay, an automated small-value payment tool, which is seamlessly integrated with AirAsia's internet booking system and the bank's currency trading desk. All transactions are priced immediately using spot market prices and the rate is locked in through settlement.
Omar said that he expected some positive impact to the company's bottom line, but would not provide any estimates.
Abdul Aziz bin Abu Bakar, non-executive chairman of AirAsia, pointed out that, while they may not be able to provide any specific numbers, the new solution is a customer-facing service with the main goal of making it easier for passengers to buy tickets online.
"Our principle has always been to give as much convenience to our passengers as possible. This is another service that we are providing to our passengers. When they want to buy seats online, they can do it without giving a second thought as to the exchange rates that they will be subjected to," he said.
Though neither Omar nor Bakar said it, the solution could help the airline boost sales by simplifying the online ticketing process.
AirAsia's website processes more than a million transactions each week, selling tickets for more than 80% of the 14.2 million passengers it carried last year. According to RBS, FXmicropay can handle up to 3,000 transactions per second -- or 259 million per day. The airline reported approximately M$2.8 billion ($671 million) in revenue, 86.9% of the group's total, from ticket bookings last year.
Prior to implementing the online payment solution, AirAsia worked with RBS on aircraft financing, interest rate swaps, fuel hedging and foreign exchange derivatives. Omar said they started talking about implementing FXmicropay in the second quarter of 2009 and began integration with their reservation system that November. The solution went live on May 12 after final central bank approvals were received.
Payments in Malaysian ringgit -- something that seems a given for a company based in the country -- were initially not covered by the solution but were added during the last week of May. Omar said that RBS had already expanded its FXmicropay currency capabilities to include additional Asian currencies in order to meet the needs of the airline. He added that the Thai baht and Indonesian rupiah would be available by the end of June.
Next steps
For now, the FX payment solution is limited in scope to just online bookings. Yes, it will guarantee a portion of AirAsia's revenues will be protected from exchange rate volatility, but it is just a small step towards the comprehensive regional or global treasury solutions that have been implemented at other airlines, which often include features such as cash pooling and sweeping, currency hedging and interest bearing overnight accounts.
"The treasury system we have now is still very much proprietary and we work closely with another bank on cash management," said Omar.
"We are now looking into the possibility of regional cash management with RBS as the next step. With FXmicropay newly in place and taking into account other areas of our banking relationship with RBS, it does make it easier for us." He would not name the institution AirAsia currently has a cash management relationship with.
While the airline bides its time on whether to implement a regional or global treasury solution, FXmicropay -- or a payment product like it -- would be beneficial to many customer-oriented businesses in Asia. For the same reasons it benefits AirAsia, the solution could provide customers of hotels or online retailers, such as the Peninsula Group or Alibaba.com, clarity over the amount they are getting charged and the treasuries of those companies certainty of their receivables. "Lots of other businesses could make use of it," said Omar. "It's about giving convenience to the cardholders to choose what currency they would like to be charged in."
This story was first published in the June 2010 issue of FinanceAsia magazine.
