Kuala Lumpur — At the launch of an Indonesian-Malaysian airline in Kuala Lumpur earlier this week, Najib Razak, the Malaysian prime minister, suggested the venture heralded a new era of co-operation between two neighbours more used to bickering.
But while a politician with an election to fight soon might put it like that, the market has taken a different view of the establishment of Malindo Airways, a joint venture between ambitious Indonesian budget carrier Lion Air and Malaysia’s National Aerospace & Defence Industries.
The launch of the JV, which will be 51 percent owned by NADI and 49 percent by Lion Air, comes just a few weeks after Malaysia’s AirAsia, the region’s biggest budget carrier by fleet size, said it was stepping up its expansion in Indonesia by acquiring local carrier Batavia Air.
Analysts believe that competition between Lion Air, led by former travel ticket delivery boy Rusdi Kirana, and AirAsia, set up by flamboyant tycoon Tony Fernandes, is intensifying with both now operating in each other’s back yards in the fast-growing South-east Asian travel market.
“Lion Air has made various announcements about joint ventures in Malaysia in the past but I think this one will happen,” said Gerry Soejatman, who runs an industry blog and works for DNK, an Indonesian aerospace communications company.
He noted that Lion Air, which earlier this year signed on for Boeing’s biggest-ever single plane order, needs to expand into new markets to make use of its growing fleet. Indonesia’s aviation market is growing rapidly but Indonesia’s airport infrastructure cannot keep up with the rapid pace at which Lion Air is buying new Boeing 737s.
Rigan Wong, an aviation analyst at Citi in Hong Kong argued in a note to clients that the launch of Malindo was “more than a competitive threat” to AirAsia, speculating that it “may be a strategic disruption to AirAsia’s regionalization” plans.
AirAsia CEO Tony Fernandes dismissed Lion Air’s Malaysia JV plans, citing AirAsia’s strong position and regional brand. However, we believe Lion Air’s broader intent is actually to step foot into Malaysia in order to weaken AirAsia’s funding source for expansion into Indonesia, especially the expected capital commitments needed to turn Batavia Air around following its acquisition by AirAsia Berhad.
Lion Air’s Kirana hinted at this possibility, indicating that when it launches its first flights in May next year, Malindo’s fares could be lower than AirAsia.
Ever ebullient, Fernandes insisted on his Twitter feed that Malindo, which will offer some inclusive in-flight services, unlike pure budget carriers, would be more of a threat to state-owned Malaysian Airlines, which started to unwind a short-lived alliance with AirAsia earlier this year.
Putting the sniping to one side, the ultimate question, said Soejatman, is whether the air travel market in South-east Asia is growing rapidly enough to accommodate all these players or whether they will have to battles for each other’s business to survive.