November 13, 2014
Indonesia’s Lion Group looks to kill two birds with one stone
One is left wondering if this type of scenario isn’t an airline’s worst nightmare. You are at the heart for the world’s fifth largest domestic air travel market, located in the fourth most populous country in the world, and you have 500 planes on order over the next ten years. What could possibly be wrong with that scenario? Well for budget airline Lion Air, the problem lies in the fact that Indonesia’s 200 airports are bulging at the seams, many of which are operating at two or three times their intended capacity, and are screaming out for investment after years of minimal government funding, inefficient bureaucracy, and never-ending disputes over land rights. The country’s principal airport, Soekarno-Hatta International Airport, Jakarta, anticipates handling 64.4 million passengers this year, roughly triple its designed capacity of 22 million, according to its owner, Angkasa Pura II.
Currently Lion Air warned its new aircraft could be diverted to its affiliates in Thailand or Malaysia if Indonesia is unable to accommodate its intentions to expand into the international market, said Edward Sirait, the firm’s director of general affairs. Indonesia’s flag carrier Garuda Airlines (GIAA.JK), announced plans a year ago this month to double its fleet to 350-400 aircraft by 2025. However it is also being forced to relocate many of its new aircraft to Batam and Medan airports because of the lack of capacity in Jakarta.
Now that Indonesia has eased regulations to allow foreign companies, like India’s GVK Power & Infrastructure (GVKP.NS) and South Korea’s Incheon International Airport Corp IIACO.UL, to manage and operate airports, the investment floodgates in Indonesian airports are now opening. Plans are in place for 24 new airports to be completed by 2017 and a further 21 are expected to be built to cope with growing capacity over the next ten years. As a result of all this, it makes a great deal of commercial sense for Lion Group, owner of Lion Air, to push forward with renewed plans for a 2016 initial public offering with the intention of funding an airport essential to securing its growth, chief executive Rusdi Kirana said. Additionally, Lion Air is close to placing an order for Airbus A330s, which it intends to use for busy domestic routes as airport slots for smaller craft run short.