Lion Air Takes Fight to AirAsia’s Malaysian Home: Southeast Asia

Lion Air Takes Fight to AirAsia’s Malaysian Home
Rusdi Kirana, president of PT Lion Mentari Airlines, right, speaks as Dinesh Keskar, senior vice president of Asia-Pacific and India sales for Boeing Co.'s commercial airplanes unit and president of the company's India operations, looks on during a news conference at the Singapore Airshow in Singapore. Photographer: Munshi Ahmed/Bloomberg

PT Lion Mentari Airlines, the Indonesian carrier that placed a record order with Boeing Co. this year, is extending its challenge in Southeast Asia’s budget travel market to Malaysia, the home of rival AirAsia Bhd.

Lion Air-backed Malindo Airways will sell tickets at prices matching “or maybe lower” than AirAsia’s, Lion Air President Director Rusdi Kirana said in Selangor near Kuala Lumpur yesterday. It will begin services in May and plans to fly to countries including Thailand, China, India, Japan and Australia, besides operating in Indonesia and Malaysia.

Lion Air’s Malaysia entry follows AirAsia Group Chief Executive Officer Tony Fernandes’ decision to relocate to Jakarta in June to focus on regional expansion. The move pits Boeing’s record customer against the biggest buyer of Airbus SAS narrow-body planes as the two carriers compete for budget travelers. AirAsia fell 5.3 percent to 3.02 ringgit in Kuala Lumpur today, the biggest drop on the MSCI Emerging Market Index.

“Lion Air may be doing this more in response to AirAsia expanding into its own turf in Indonesia,” said K Ajith, head of regional aviation at UOB-Kay Hian Holdings Ltd.

UOB-Kay Hian has a sell rating on AirAsia and cut its price target to 2.92 ringgit from 3.30 ringgit today, according to report from the Singapore-based brokerage.

Boeing Fleet

“Malindo boasts big plans,” Wong Chew Hann and Chai Li Shin, analysts at Kuala Lumpur-based Malayan Banking Bhd., wrote in a report today. “AirAsia is vulnerable as people are easily seduced by low fares.”

Malindo Airways may have about 100 planes within a decade, Ahmad Johan, president of National Aerospace & Defence Industries Sdn., told reporters yesterday at an event attended by Malaysian Prime Minister Najib Razak. National Aerospace, in which Malaysia’s finance ministry holds a minority stake and a golden share, will own 51 percent of the new airline, with Lion Air holding the rest.

Lion Air signed an order for 230 Boeing 737s in February, worth $22.4 billion at list prices. The deal, which also included 150 options, was Boeing’s biggest in terms of dollar value and plane numbers. The carrier flies to more than 36 destinations in Indonesia and overseas, according to its website. The region’s total air travel may grow 6.4 percent a year through 2031, spurred by economic growth, according to Boeing.

Passenger Growth

Malindo will draw its fleet from aircraft ordered by Lion Air Group, including 787s for possible Europe flights, Kirana said yesterday. Lion Air has forecast annual passenger growth rates of 15 percent as it adds more planes. The parent’s fleet may expand to 470 planes by 2025, Kirana said in November, from 100 planes now.

AirAsia has grown into Asia’s biggest discount airline since its takeover by Fernandes and partners in 2001. The carrier, based in Sepang, Malaysia, has since set up ventures in the Philippines, Japan, Thailand and Indonesia. The airline and its partner PT Fersindo Nusaperkasa said in July they would acquire Indonesia’s Batavia air for $80 million.

Last year, AirAsia ordered 200 Airbus A320neo aircraft valued at $18 billion in the biggest order for the plane maker. It is close to signing a deal for as many as 100 more A320s, Chief Executive Officer Aireen Omar said last month.

Malindo Airways “will go all out for market share at the expense of profitability by undercutting prices,” Joshua Ng, an analyst at RHB Research Institute Sdn., wrote in a note yesterday. “AirAsia, on the other hand, may also want to nip the competition in the bud by dropping fares. This will result in a full-scale price war.”

SilkAir, Scoot

Lion Air will face a tougher market in Malaysia than AirAsia has to contend with in Indonesia, UOB-Kay Hian’s Ajith said. “Domestic demand in Malaysia isn’t growing as much as the demand in Indonesia. Lion Air isn’t going to gain much market share.”

Both airlines also compete with the budget or regional arms of flag carriers including Singapore Airlines Ltd. and Qantas Airways Ltd. Singapore Air has responded to the rising competition from discount carriers by expanding its regional unit SilkAir, which has ordered 54 Boeing 737 planes, and starting budget long-haul operator Scoot.

Jetstar, the budget arm of Qantas, is building up a network of low-cost carriers across Asia. The airline already has ventures in Singapore, Vietnam and Japan, and is setting up another one in Hong Kong.

The airline will boost services to Malaysia, Thailand and Myanmar with the arrival of a 17th A320 aircraft, Jetstar said in an e-mailed statement today.

“Malindo Airways’ significance as a threat to AirAsia depends very much on how quickly and sizeable it can scale up its operations,” RHB Research’s Ng said. “Over the longer term, its survival also depends on its ability to beat or at least match AirAsia’s extremely low cost structure.”

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