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

28 Sep 2012 20:06:59

businessweek.com

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 (AIRA) Bhd.

Lion Air-backed Malindo Airways will sell tickets at prices matching "œor 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.

"œLion 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

"œMalindo boasts big plans," Wong Chew Hann and Chai Li Shin, analysts at Kuala Lumpur-based Malayan Banking Bhd., wrote in a report today. "œAirAsia 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 (BA) 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.

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