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Old 25th November 2012, 09:16 AM   #1
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Default Lion Air : Beyond Border

by B.K. Sindhu ,

RUSDI Kirana is one of Indonesia’s wealthiest people. Together with his brother Kusnan, the Kirana brothers own Lion Air and are listed by Forbes as the 34th richest individuals with a net worth of US$580mil.
But there was an air of simplicity surrounding Rusdi when he sat down to give his story to StarBizWeek. There was no phalanx of bodyguards, no designer clothes or an expensive timepiece on his wrist. Dressed ordinarily, all he had with him was a nondescript haversack.

“I walk without bodyguards because I feel nobody knows me,” he says.
He spoke about his start in the business world where as a salesman, he earned US$10 a month and was hungry every day. The interview eventually gravitated towards why he is a man that the airline industry in Malaysia needs to pay attention to.

Starting Lion Air with US$1mil in seed capital when the Indonesian government liberalised the market, Rusdi seems to have found the magic touch most businesses dream about. Lion Air has been profitable from its first day of operations and today, together with Wings Air, control 50% of Indonesia’s domestic air passenger market.

A regional expansion is inevitable since there is a growing market for low cost travel in Asia. A courtship with Berjaya Air and Firefly fizzled out after two attempts but Rusdi eventually found a partner in little knownTan Sri Ahmad Johan of National Aerospace and Defence Industries Sdn Bhd (Nadi) to set up Malindo Air.

In the cut-throat airline business, one wonders if there is space for a third airline to operate out of Malaysia but Rusdi sees it from another perspective. He feels Malindo will be the bridge for all 240 million Indonesians who want to travel to the rest of Asean and the world.
“What we saw was an opportunity to do business in Malaysia. It is an expansion for the Lion Grup,” Rusdi, the president director of his flagship company, PT Lion Grup, says in an exclusive interview.
PT Lion has 49% stake in Malindo and Nadi 51%.

Rusdi is not the normal airline boss who will present papers at conferences or be seen at airline events, wrote Maybank Investment Bank in a report. However, this man and Lion Air shot into the limelight when he stood next to US President Barack Obama to sign a record 230 aircraft order with Boeing in February. It was the first time an airline has placed such a big order.

Malindo will take off earlier than planned, in mid-March instead of May and two weeks ago invited candidates to join the company. Around 3,000 people jostled for an interview to secure a job with the fledgling airline. Rusdi has promised to hire up to 600 of the 1,000 unemployed pilots in the country.
“It is good to remain unknown and that is why I avoid publicity, but I want people to know that I am serious about our venture in Malaysia and about employing pilots. It is not just an empty promise and we will offer fares same or lower than the competition,” he says.

A regional player
For more than a decade, Lion Air Indonesia’s largest privately-owned airline focused solely on the Indonesian market, carrying passengers and feeding those passenger to other carriers because it had too few rights to fly international routes. It was going to launch Batik Air in March for its international operations because it needs the regional extension, but since setting up Malindo, the strategy has changed. Malindo will be Lion’s launchpad into the region.
This is the same strategy AirAsia, Jetstar and Tiger Airways have employed, first focusing on the home market. Those airlines later set up ventures in other countries, thereby giving them a bigger market.
Lion Air and AirAsia are two carriers that have placed large numbers of aircraft from Boeing and Airbus respectively and they come with very aggressive delivery schedules. Both airlines have strong support from their respective aircraft manufacturers, and are able to access financing from export credit agencies.
The aggressive order book delivery schedules of Lion Air and AirAsia put them squarely at the forefront in the fight for Asian LCC dominance, says an analyst in his report.

Lion has ordered 381 aircraft, both narrow and wide body including the Dreamliner and AirAsia over 300. Tiger Airways and Jetstar also have orders but doesn’t come close to what AirAsia and Lion Air have committed to.
Malindo has not begun flying and many do not see it as a real threat in the region. But those who know how Lion operates would not think so.

Lion has been able to control 50% of the domestic market share in Indonesia by flying the most number of routes, totalling 69 for now, and beats the competition with the lowest fares.
“The market has also not fully appreciated the impending entry of Lion Air into the regional low cost carrier space. We reviewed publicly available information on Lion Air and conclude that it has a fair chance of realising its regionalisation plans, putting it in direct competition with AirAsia in the pursuit of Asian LCC market dominance,” the analyst says.
“Lion may be better positioned than AirAsia to achieve regional dominance, even though AirAsia has a headstart. Lion has access to a larger hinterland and a faster growing market Indonesia to generate cash flows to fund its regionalisation strategy compared with AirAsia, which has primarily funded its regionalisation plans from its Malaysian operations. While Lion has a smaller fleet than AirAsia, all its aircraft are based in Indonesia, which may allow it to generate strong cash flows vs AirAsia, which has only half its fleet in Malaysia.”
Whatever the analysis, the real test would be when Malindo takes to the skies. But Malaysia may not be Rusdi’s only stop; the region is his playground now.
“It depends on which country or government that wants to support us. We just want to do business, not lobby or try to provoke,” he says.

The gateway
For Rusdi, the entry to Malaysia is about providing Indonesians with a window to the world.
Jakarta is now the main hub for travellers in Indonesia, that geographically has 1,750 islands. For some islands, the only link is by air. Being the fourth most populous country in the world, its growing middle class is travelling more than before.

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