Airline Weekly - November 28, 2011

Cover Story

Promise and Peril in Indonesia: Garuda and Lion Air, armed with new narrowbodies, seek to realize their potential

Potential is a double-edged sword. It means you’re likely to accomplish a lot. But it can also mean you haven’t accomplished much yet. So it is with Indonesia’s major airlines, enormously high on promise but yet to establish themselves as serious competitive forces beyond their home market.

One ultra-ambitious carrier called Lion Air hopes to change that. Earlier this month, Lion stunned the airline world with a mega-order for up to 380 B737s, 230 of them firm and the rest purchase rights. Just as significantly, the 230 included 201 units of the B737-MAX, Boeing’s answer to the A320-NEO. When finalized the deal will be “the largest commercial airplane order ever in Boeing’s history by both dollar volume and total number of airplanes,” according to Boeing.

This wasn’t the first time that Lion Air made loud noises in the aircraft market. It ordered 30 B737-900ERs in 2005, another 30 in 2006, another 40 in 2007, another 56 in 2008 and—by the time it was done—178 in total. It was buying these -900ERs, moreover, before buying -900ERs was cool (Delta, Alaska, Turkish and others have since jumped on the bandwagon). Lion now operates 55 of these planes, alongside two B747-400s mostly used for religious pilgrimage traffic to Saudi Arabia. Its only other planes are a handful of MD-80s and older-generation B737s that the -900ERs will eventually replace.

Indonesia’s airline market, as described in depth in a 2007 Airline Weekly feature (see cover story, January 22, 2007), almost defines the word potential: 240m people, a fast-growing economy, low labor costs, abundant natural resources including oil, an island geography that necessitates air travel, ex-colonial links with Europe, proximity to Australasia and large markets for inbound tourism, outbound migration and religious pilgrimage. And in one sense, sure enough, this potential is already being realized: Indonesia’s domestic market has grown from less than 24m passengers a year in 2004 to more than 50m last year. Jakarta-based Lion Air, armed with its new -900ERs, is a principal driver of this... (355 of 1,421 words)

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Not even the airline friendly ASEAN region is immune from the scourge of high fuel prices, too much capacity and worry about what lies ahead for the global economy. Malaysia Airlines is the latest to show signs of distress. And even its foe-turned-friend AirAsia, while still prospering, revealed some scars, most visibly at its Thai and Indonesian units.

One reason for trouble in the ASEAN region is trouble in Europe, a major source market for tourists visiting places like Malaysia, Thailand and Singapore, along with so many other regions around the world. Which raises a number of questions: Just how bad will Europe’s economic crisis become, how far might it spread and what would happen if the euro area collapses as a single monetary zone? For an airline like Greece’s Aegean, although it’s so far kept losses to a minimum thanks to steady inbound flows of tourism, the future is scary.

That’s a good word to describe American’s prospects too. It faces a dark and cold winter with dwindling supplies of cash and still no deal with its labor unions. Making matters worse, a judge last week tossed out most if its charges against global distribution systems. Nevertheless, it’s proceeding with an earlier narrowbody mega-order, selecting A321s and A319s as its aircraft of choice.

JetBlue emerged victorious in a bid for slots at LaGuardia and Reagan airports, outhustling Southwest. WestJet, too, landed LaGuardia slots. In Europe, KLM has a new route to Africa and Lufthansa a new route to China. And speaking of China, Jetstar is now flying to Beijing.

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