Asia Can Sustain Aircraft Fleet Increase on Travel Demand

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Tony Fernandes, chief executive officer of AirAsia Bhd., poses for a photograph at the Credit Suisse Asian Investment Conference in Hong Kong on March 20, 2013. Close

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Tony Fernandes, chief executive officer of AirAsia Bhd., poses for a photograph at the Credit Suisse Asian Investment Conference in Hong Kong on March 20, 2013.

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, said Tony Fernandes, head of AirAsia Bhd. (AIRA), the region’s biggest low-fare carrier.

Asia, which has 10 times the population of the U.S., has about a third of the number of aircraft, Fernandes, group chief executive officer of AirAsia, said in a Bloomberg Television interview at the Credit Suisse Group AG Asian Investment conference in Hong Kong. “So it can take a lot of planes.”

The comments come after Indonesian budget carrier PT Lion Mentari Airlines ordered 234 aircraft from Airbus SAS this week -- its second commitment to purchase more than 200 planes in two years -- stoking concerns of overcapacity in Asia. More than a dozen budget airlines began operations in Asia-Pacific in the past 15 years as economic growth in China, India and Southeast Asia enables more people to fly for the first time.

“The Asia-Pacific aviation industry is still booming,” Angeline Chin, a Kuala Lumpur-based analyst with Alliance Research Sdn., said by e-mail. “Nonetheless, we believe industry may need to adopt a more disciplined approach to capacity in the near-to-medium term.”

Photographer: Romeo Gacad/AFP/Getty Images

Passengers board a plane while a nearby Lion Air aircraft sits parked on the tarmac of Bali airport. Lion Air, which serves more than 36 destinations, is establishing a low-cost carrier in Malaysia to challenge AirAsia, Airbus’s biggest A320 customer. Close

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Passengers board a plane while a nearby Lion Air aircraft sits parked on the tarmac of Bali airport. Lion Air, which serves more than 36 destinations, is establishing a low-cost carrier in Malaysia to challenge AirAsia, Airbus’s biggest A320 customer.

A massive “aircraft flood” may create yield depression and put airlines in financial difficulties, Chin said.

The growing population in Asia is expected to help fill the planes, said Fernandes, whose AirAsia group expects to carry 43 million passengers this year. Eleven years ago, the airline carried 200,000 passengers, he said today.

“I wouldn’t say there are too many planes in Asia,” Fernandes said. “We have 500 planes and we fly in six countries. Lion Air is in Indonesia and a hybrid in Malaysia. Asia can take the planes they have and we have.”

Low-Fare Airlines

Discount carriers have secured about a quarter of the region’s air travel market in the past decade. The region will account for 33 percent of global passengers in 2016, according to the International Air Transport Association, and HSBC Holdings Plc has said four out of five airports in Asia are operating at or above their designated capacity.

AirAsia has grown into Asia’s biggest discount airline since its takeover by Fernandes and partners in 2001. The Sepang, Malaysia-based carrier has set up ventures in the Philippines, Japan, Thailand, India and Indonesia.

Domestic Competition

In 2011, AirAsia ordered 200 Airbus A320neo aircraft valued at $18 billion in the biggest order for the planemaker.

Lion Air, which serves more than 36 destinations, is establishing a low-cost carrier in Malaysia to challenge AirAsia, Airbus’s biggest A320 customer. Low-cost carriers are increasing their fleet as air travel is expected to increase more than 6.4 percent annually through 2031.

Lion Air already has 700 planes on order and expects to have ordered 1,000 planes within “two to three years,” President Rusdi Kirana said March 18. The Indonesian carrier ordered 230 Boeing Co. (BA) 737 planes last year.

AirAsia plans to pick an engine for the 100 A320 planes it ordered from Airbus by April 18, Fernandes said, without elaboration.

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Jasmine Wang in Hong Kong at Jwang513@bloomberg.net;

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

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