Malindo Air ready for price war ?

By | December 2, 2012

Malindo Air ready for price war ?

Malindo Air Logo

Indonesia’s Lion Air is planning to launch a budget carrier, called Malindo Airways, in Malaysia by May. Lion Air’s decision comes right after AirAsia announced it was moving its headquarters to Jakarta. The competition is expected to be severe as Lion Air’s President Director Rusdi Kirana has said that the ticket prices could be lower than AirAsia’s. Malindo, which will be owned by Lion Air (49%) and Malaysia’s National Aerospace & Defense Industries – NADI – (51%), will initially start with 12 jets which will gradually reach 100 within the next ten years.

The strength of these two Asian giants is evident from the sheer size of aircraft orders they have placed. AirAsia is already one of the biggest buyers of the narrow body fuel efficient jets, while Lion Air is Boeing’s (BA) major customer. Earlier this year, Lion Air placed a $22.4 billion order for 230 Boeing 737 jets in what is by far the biggest order in Boeing’s history by a single customer. On the other hand, Airbus’s biggest order had come just a few months before from AirAsia for 200 Airbus A320 Neos with a total price tag of at $18 billion.

Both airliners seem more than willing to sacrifice net profit margins for the sake of market share. A new price war is going to start from the second quarter of 2013. The Indonesian air travel market has been growing faster than Malaysia’s, which is why AirAsia is moving its operations there.

Besides these two carriers, there are at least two other airliners in this region with significant operations; Singapore Airlines and Australia’s Qantas Airways. The latter has been expanding its budget carrier Jetstar in Singapore, Vietnam, Japan and Hong Kong, while the former is revamping its SilkAir fleet with 54 new Boeing 737s. However, Singapore Airlines is a small player in the low-cost airline industry and its subsidiary Scoot is just about six months old. Scoot currently has four aircrafts and in the coming years, 20 new Boeing 787 Dreamliners will be included in its fleet but is still effectively a pilot project for SingAir whose core business of luxury intercontinental business travel is collapsing in the face of a cloud-computing connected world and $100+ barrels of Brent Crude (BNO) oil.

It looks like Malindo Airways has a real opportunity to challenge AirAsia in the market it helped create and dominates. The former is looking to compete not only on price but on services as well by offering entertainment and free meals coupled with the inherently low ticket prices.

Via Seekingalpha

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