SINGAPORE (Reuters) - Tony Fernandes, the co-founder of AirAsia Bhd AIRA.KL, is seeking to transform Asia's biggest budget airline into an asset-light, digitally focused firm after the $1 billion sale of its leasing business, in an effort to foster sustainable growth.

FILE PHOTO: AirAsia Group CEO Tony Fernandes speaks during a news conference at AirAsia headquarters in Sepang, Malaysia December 13, 2017. REUTERS/Lai Seng Sin

AirAsia, which pioneered budget air travel in Asia along the lines of Ryanair Holdings RYA.I in Europe, is now building a sprawling empire that includes a payments company, logistics firm, food and beverages brands and a loyalty program.

Leveraging the profusion of customer data from its 65 million-plus passengers, the focal point of the strategy is a digital push that exceeds in scale that of regional budget airlines like Indonesia’s Lion Group and Cebu Pacific of the Philippines.

AirAsia will also be going head-to-head against flag carriers such as Singapore Airlines SIAL.SI which is ramping up investments in digital technology.

The goal is to offset the volatile earnings from the cyclical airline business.

“The biggest asset is our data,” Fernandes told Reuters in an interview. “And we’re going to monetize that data over a series of joint ventures in three kinds of pools.”

That includes turning its loyalty program points into a more formal currency through an initial coin offering, building a bigger logistics business and growing its content offering.

LOSS OF LEASING

In the near term however, analysts say the move by one of Airbus's AIR.PA biggest global customers to part-lease its current and ordered fleet of 500-plus planes could hurt its profits and leave it exposed to the risk of higher lease rates.

“The leasing arm was a stable low risk business,” said Ngoi Se Chai, a partner at Hong Kong-based Oaklands Path Capital Management. “Now that that’s sold, earnings will come down and become more volatile. I think they sold something they shouldn’t have sold.”

While the sale proceeds from the leasing business will be used to reduce debt, the bulk will be paid out as special dividends, potentially limiting the upside in a stock that has more than quadrupled since hitting a seven-year low in late 2015.

“The amount of money generated from this exercise could almost wipe out AirAsia’s entire debts, so it would appear a positive move,” said Shukor Yusof, founder of consultancy Endau Analytics, but he noted it faces risks associated with higher leasing rates.

Leasing had accounted for around 20 percent of AirAsia’s revenue, with a similar share earned from non-ticket items like baggage fees and food sales.

The aim is to lift revenue from so-called ancillaries by 12 percent this year.

AirAsia plans to launch remittance and lending products in Southeast Asia, through its BigPay debit card and mobile app in Singapore after the recent launch in Malaysia, BigPay’s group CEO Chris Davison said.

But for now, the company's non-flying revenue lags global low-cost leaders like Spirit Airlines SAVE.N in the United States and Ryanair and Wizz Air Holdings WIZZ.L in Europe that receive 40 percent of revenue from ancillaries, said Jay Sorensen, president of U.S.-based consultancy IdeaWorksCompany.

He said AirAsia’s food, in-flight Wi-Fi and loyalty programs were good offerings but its approach in pricing add-ons was not maximizing revenue because it only offered two bundled choices rather than three.

“The best practice today is to present three choices at the same time, based upon a good, better and best model.”

GOING DIGITAL

The digital push is front and center as Fernandes restructures AirAsia into a listed group that oversees stakes in multiple airlines in Malaysia, Indonesia, Thailand, Philippines, India, Japan and soon Vietnam and China and digital ventures rather than having the listing based on its Malaysian airline.

Combined, AirAsia forecasts the digital businesses will account for 7.6 percent of revenue this year, nearly half of its ancillary sales.

Former CEO Aireen Omar, who became deputy group CEO in January, is overseeing the non-airline businesses in a single entity that will ultimately seek a U.S. listing.

Corrine Png, CEO of research firm Crucial Perspective said AirAsia could triple its share price if it can successfully collect and monetize its Big Data.

“AirAsia’s current valuations are low as investors see it as a cyclical airline,” she said. “However, as its long-term revenue and earnings growth prospects improve, equity investors will start to value AirAsia like a growth stock.”