SINGAPORE, Mar 24: Lion Air’s record aircraft orders underline the ambitious plans the privately held Indonesian group is hatching to emerge as a pan-Asian low cost carrier, throwing a serious challenge to AirAsia Bhd, the region’s biggest budget airline.
The rivalry intensified on Friday when Lion Air launched its first service in Malaysia, barging onto AirAsia’s home turf, but the pace of expansion has raised questions about whether airlines are overextending themselves.
Financiers and industry executives, however, say the party is just starting, with the region’s budget carriers just beginning on the rapid growth path enjoyed by Ryanair Holdings Plc and Easyjet Plc in Europe and Southwest Airlines Co, the pioneer of the model, in the United States.
“I think it’s been pretty rational in the sense that it is underpinned by economic prospects,” Eric Eugene, BNP Paribas’s global head of transportation banking, told Reuters in an interview in Singapore. “It’s underpinned by the number of people capable of paying fares and flying.”
The staggering bets being placed by both airlines rest on the dominant market shares they enjoy in their home countries and the hope that rising disposable incomes will drive Asia’s growing middle class to keep flying to new destinations.
Lion Air’s co-founder Rusdi Kirana placed a blockbuster order for 234 medium-haul jets with Airbus this week, just a year after ordering a record 230 Boeing planes.
Despite the projections of sharp growth, some bankers and lessors have expressed concerns that the series of record-breaking orders risks flooding Southeast Asia with too many narrowbody planes.
“The one thing that we have to consider is that the delivery span of those aircraft is over, probably, 10 years,” said BNP Paribas’s Eugene.
“So, if you put this number of aircraft in perspective of economic growth, and in perspective of aircraft retirement, actually our own results show that it’s not irrational.”
And, in a move that could reduce the risk of having too many unused planes if demand projections don’t pan out, Lion Air has also set up Transportation Partners, an aircraft leasing company in Singapore, and hired senior financiers.
Establishing a base in Singapore, a growing aviation financing hub, might help Lion Air to diversify its portfolio outside Indonesia, where the country risk is much higher, and enable it to tap into a wider circle of banks for funding.
REGIONAL RIVALRY
The emergence of Lion Air presents Malaysia’s AirAsia with the most serious challenge to its dominance of the region’s budget flight business.
However Tony Fernandes, AirAsia Group’s CEO, believes tight control on costs and ties with one planemaker will help his group retain its advantage.
“One aircraft the A320. Lowest cost airline in the world. That’s the key. Lowest cost always wins,” Fernandes tweeted on Friday.
—
(AGENCIES)
Follow our WhatsApp channel