New budget carrier could spark price war
UPDATED @ 07:02:28 AM 12-09-2012
KUALA LUMPUR, Sept 11 — A majority-Malaysian owned budget carrier Malindo Airways launched today will start operations next May and could spark a price war in an increasingly crowded low-cost carrier market.
The new airline is a 51:49 joint venture between Malaysia’s National Aerospace and Defence Industries Sdn Bhd (NADI) and Indonesia’s PT Lion Grup, and was launched by Prime Minister Datuk Seri Najib Razak this afternoon.
The airline will start operations on May 1, flying passengers from Indonesia to Kuala Lumpur International Airport (KLIA) and the soon-to-be completed KLIA2. It will also operate out of Kota Kinabalu International Airport.
“This is going to be a landmark collaboration not only between the two parties, but beyond,” Najib said in his speech.
Analysts say that Malindo Airways is eyeing primarily AirAsia’s lucrative domestic market in Malaysia and could undercut AirAsia in an effort to win market share.
The new carrier will begin flights between Indonesia and Malaysia next May with a fleet of 12 Boeing 737 aircraft, which it plans to expand to 100 planes within a decade, Lion Air President Rusdi Kirana told reporters earlier today, according to a Reuters report.
The move is the latest in the intense rivalry between Lion Air and AirAsia as strong economic growth and rising incomes spur rapid passenger growth among Asian low-cost carriers.
“Malindo is an opportunity to tap a robust market that is right for the entry of a new low-cost carrier,” Najib said when launching the new carrier.
According to Reuters, AirAsia has made inroads into Lion Air’s home market, announcing in July it would make its first major acquisition by buying Indonesia’s Batavia Air.
AirAsia chief executive Tony Fernandes said in May his group was looking to list its Indonesian operations by the first quarter of next year as it moves its regional base to Indonesia.
In contrast with other budget carriers, Malindo Airways will have in-flight entertainment, extra legroom and free light meals, as well as low fares, Reuters quoted Kirana as saying earlier today.
Its hub will be Malaysia’s new budget terminal, KLIA2, which is currently under construction.
“I should be selling at what AirAsia is selling, or I may sell lower,” Kirana told reporters, referring to ticket prices.
He did not say how much Lion Air was investing in the new carrier.
Kirana said there was still a need for “two or three more airlines with specific business models” by 2013.
RHB Research Institute said in a report this evening that AirAsia may also want to nip the competition in the bud by dropping fares, a move that could trigger a full-scale price war.
“However, practically, Malindo Airways’ significance as a threat to AirAsia depends very much on how quickly and sizeably it can scale up its operations,” said RHB.
The two firms’ rivalry is also part of a battle between dominant manufacturers Boeing and Europe’s Airbus , which are favoured by Lion and AirAsia respectively, Reuters reported.
Lion Air ordered 230 Boeing short-haul jets worth US$22 billion (RM33 billion) last November to take its total orderbook to more than 400 planes. Sources told Reuters last week that AirAsia is nearing a deal to buy up to 100 Airbus jets, close on the heels of its record order for 200 last year.
Najib said that the joint venture was part of the government’s Economic Transformation Programme’s (ETP) two entry point projects, “EPP1 — Growing MRO Services” and “EPP2 — Growing Large Pure Play Engineering Services”.
“By the year 2020, these initiatives are expected to contribute RM16.9 billion to Malaysia’s Gross National Income (GNI) and create over 32,000 jobs,” he said.
The scope of the joint venture agreements signed today includes the formation of a new budget airline, maintenance, repair and overhaul services (MRO), supply chain management and also development of human capital.