Bloomberg News

Lion Air Plans Asia to Australia Ventures With 1,000 Planes

April 02, 2013

Lion Air Plans Asia, Australia Ventures Using 1,000-Plane Fleet

A Lion Air plane takes off from Changi International airport in Singapore. Lion Air started operations from Indonesia in 2000 with one aircraft, according to the airline’s website. Photographer: Roslan Rahman/AFP/GettyImages

PT Lion Mentari Airlines plans to set up ventures across Asia and Australia to expand after placing orders of more than $45 billion with Airbus SAS and Boeing Co. (BA:US) in the past two years.

Indonesia’s biggest private carrier is considering partnerships in Thailand, Myanmar, and Vietnam, Commercial Director Edward Sirait said in an interview yesterday. Lion Air, which has the world’s biggest order backlog for 559 narrow-body aircraft, aims to have 1,000 planes in 10 years, he said.

The carrier’s plan mirrors the strategy of AirAsia Bhd. (AIRA) that has set up ventures across the region to become Southeast Asia’s biggest discount operator. Singapore Airlines Ltd. and Qantas Airways Ltd. are among companies that have also started budget airlines as Asia’s economic growth enables more people to fly for the first time.

“The outlook for budget carriers in the region is excellent,” Shukor Yusof, a Singapore-based aviation analyst at Standard & Poor’s, said by phone today. “You are looking at an annual growth of 12 to 15 percent for discount carriers in this region.”

Lion is also setting up a Malaysian venture to challenge AirAsia’s grip on the region’s budget travel market. Malindo Airways, which will draw its fleet from planes ordered by Lion Air Group, aims to start flights this year.

Virgin, Tiger

Lion Air, based in Jakarta, is also considering a venture in Australia, as Qantas seeks to defend its 65 percent market share in that country amid rising competition. Virgin Australia Holdings Ltd. (VAH), which sold a stake to Singapore Air last year, is also seeking to build on alliances by acquiring Tiger Airways Holdings Ltd. (TGR)’s Australian unit and regional carrier Skywest Airlines Ltd. (SKYW)

State-owned PT Garuda Indonesia (GIAA) last week said it would start a Sydney-to-London flight via Jakarta in the fourth quarter, competing with Qantas and Singapore Air. Qantas has formed an alliance with Emirates to cut travel times to Europe by using the Gulf carrier’s Dubai hub.

More than a dozen discount carriers began operations in Asia-Pacific in the past 15 years. Budget carriers’ market share in Asia-Pacific rose to 24 percent last year from 1.1 percent in 2001, according to CAPA Centre for Aviation, an industry consultancy. Total traffic for the region will expand 6.4 percent a year during the next 20 years, Boeing has forecast.

“The venture in Myanmar and Vietnam could work as those are the markets that have not been penetrated enough,” S&P’s Yusof said.“With the number of aircraft that they are taking, they should do something there.”

Narrowbody Planes

That has spurred airlines to order more aircraft. AirAsia has built a backlog of 359 narrowbody planes, according to Bloomberg Industries. The Malaysian carrier has set up ventures in the Philippines, Japan, Thailand, India and Indonesia.

“The economic growth in this region has been strong and this will translate to air travel demand,” Sirait said. “Lion Air is anticipating this by ordering these aircraft early. We want to set up partnerships in a number of countries.”

Asia will be able to take in more aircraft as economic growth and a population of more than 3 billion people will sustain travel demand, Tony Fernandes, head of AirAsia, said last month. The region, which has 10 times the population of the U.S., has about a third of the number of aircraft, according to Fernandes.

Lion Air started operations from Indonesia in 2000 with one aircraft, according to the airline’s website. The carrier was the launch customer for Boeing’s 737-900ER, and currently serves more than 36 destinations.

Lion Air agreed to buy 234 Airbus planes last month, its second commitment in two years to purchase more than 200 planes. Most aircraft on its fleet will be used to service Indonesian operations, Sirait said. The airline has a total of 700 planes on order, including turboprop aircraft.

“The plan A that we have is to put all these planes that we have ordered into operation,” Sirait said. “We also have plan B: if someone is keen to lease our planes of course we will do it.”

To contact the reporter on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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