Malaysia-Indonesia Rise…in the Air

The newest airline Malindo Airways is set to change the low-cost carrier scene with plans to create routes to Asean, China, Hong Kong, India and Japan as well as further afield to Australia and Europe.

CONSUMERS want low airfares, regular flights and new planes. If you thought flights between Malaysia and Indonesia couldn’t get cheaper and more frequent: think again.

Last week, Rusdi Kirana, the owner of Lion Air, Indonesia’s largest low-cost airline inked a deal with Malaysia’s National Aerospace and Defence Industries (Nadi) to form Malindo Airways.

Nadi will hold 51% and Lion 49%, with the latter managing the airline. Malindo will operate out of the soon-to-be-opened KLIA2 airport and start plying Indonesia-Malaysia routes from May, 2013.

It will initially operate 12 Boeing 737-900ERs and then incorporate five of the American aerospace giant’s 787-8 Dream-liners from 2015, towards having 100 planes in 10 years.

Indeed, there are plans to create routes to Asean, China, Hong Kong, India and Japan as well as further afield to Australia and Europe.

First off, it’s always good to see Indonesian and Malaysian businesses collaborate. Our bilateral relationship might be uneven at times, but such business-to-business ties can only bring our two countries closer together and when consumers benefit, everyone’s happy.

Indeed, Pak Rusdi’s initiative is part of a wider regional trend as national champions such as ThaiBev (the brewers of Chang beer), Filipino oil refiner and retailer Petron and our very own banks, CIMB and Maybank expand across Asean.

Hitherto, Indonesian business giants have been preoccupied with their own vast and rapidly growing domestic market. With Lion Air’s bold move, we can see that corporate Indonesia is beginning to survey the region for opportunities.

In the case of Pak Rusdi, it’s doubly intriguing that he chose Malaysia – and not Singapore – as the base for his regional expansion.

Of course, a combination of language, cost and a large Indonesian expatriate community makes this decision seem almost inevitable now.

Moreover, this suggests that Malaysia is fast-becoming a better economic and business “fit” for Indonesians despite the bilateral noise.

But let’s get back to Pak Rusdi who is himself a very gutsy businessman.

When he first started Lion back in 2000, flying a leased aircraft between Jakarta and Pontianak, no one took this travel agent turned upstart airline entrepreneur seriously.

By the end of the year however, Lion was already flying to Singapore, Kuala Lumpur and Penang.

When he placed his humungous order for 230 737s with Boeing for US$21.7bil (RM67.3bil) in November, 2011, Jakarta – if not the rest of the world – sat up and took notice, especially when the deal was witnessed by US President Barack Obama.

Now with over 80 planes in service and 60 destinations, Pak Rusdi’s low-cost carrier has long since eclipsed Garuda to become Indonesia’s largest domestic carrier.

Indeed, according to the Wall Street Journal in 2011, some 47.9% of Indonesia’s domestic travellers flew with Lion Air and this will rise to 30 million in 2012. Not bad for a man who hasn’t reached 50 yet!

With the Nadi deal, it’s clear that Pak Rusdi has plans for the international market, a sector in which South-east Asian aviation behemoth, AirAsia has been particularly strong.

Indeed AirAsia now controls a 40% share of Malaysia’s international air travel (not to mention 42% of Indonesia’s). AirAsia has since embedded itself even more deeply into Indonesia with its US$80mil (RM248mil) purchase of Batavia Air in July 2012 (although according to media reports it may be reconsidering this) and supremo Tony Fernandes’ moving to Jakarta.

Pak Rusdi and Tony (who has welcomed the competition) will be going head-to-head though Malindo, unlike AirAsia, will offer frills like in-flight entertainment.

The market, in fact, seems eager to fuel the rivalry: AirAsia’s market capitalisation fell by RM475mil at the end of Sept 12, 2012 (one day after the announcement of Malindo) and its share price fell 5.33%.

As Citi analyst Rigan Wong was quoted in the Financial Times on Sept 13, Lion Air’s expansion may weaken AirAsia’s funding source for its Indonesian expansion, disrupting its plans to go regional.

Of course, it remains to be seen if Malindo can deliver: aviation is an industry whose would-be players don’t always match the PR buzz.

Another interesting aspect of the competition is that AirAsia and Lion Air represent a proxy war for aviation dominance in the South-east Asian market between Airbus (AirAsia) and Boeing (Lion/Malindo).

I should add that I’m a little disappointed that Pak Rusdi isn’t using his own Lion Air brand in the Malindo joint venture. Lion Air – with flights to Kuala Lumpur, Penang and Malacca (and soon to Johor Baru) – is already pretty well-known in Malaysia.

Still, this has the makings of a great business rivalry — on the scale of Apple vs Microsoft or Pepsi vs Coca-Cola.

There’s a new player in Malaysian aviation and my itinerant heart is glad as long as airfares remain cheap and flights are regular. Having yet another regional airline to choose to fly with is always welcome for a frequent flyer like me.

(The Star – Malaysia)

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  1. Hijjaz

    9 / 18 / 2012 3:03 pm

    It’s such a solemn progress since Lion exists ever so far and persisting the enhancement by its award-winning record of numerous order to fly their fleets.Thanks for it Lion Air’s existence bridges the archipelago sky, and now even more dilating by strengthening its link into ASEAN skies as it’s so correlated with Indonesia position as the newly kind of power to transform and comfy the region. If this so, as most do we hope Lion air could reamrk another signature of the sky amid struggling and triggering competition.





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