Myanmar is Next

Myanmar is Next
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In the last three months since Malindo Air’s launch in March, Indonesian tycoonRusdi Kirana has not been to the Kuala Lumpur office, simply because operations had taken off the way he had planned it.

And seven months into its launch, Malindo has flown over half-a-million passengers. It now plies 17 routes and has a dozen more routes in mind and will have 20 aircraft by the end of its second year. At present, it has nine aircraft and operates out of two hubs, the KL International Airport (KLIA) and Subang SkyPark.

Rusdi’s PT Lion Grup owns a 49% equity stake in Malindo, with the rest held by Nadi Sdn Bhd. He was in Kuala Lumpur last week to attend a test flight on Runway 3 of KLIA2. Later, he met StarBizWeek at Malindo’s office in Ara Damansara, where he says, “If there is a problem, I will be here more often, but I don’t have to because Malindo has taken off and its growth is within our expectations.”

Once initial expectations have been met, future aspirations tend to grow. With that, Rusdi says moving forward, Malindo has to grow faster and bigger.

Malindo began operations by plying the KLIA-to-Kota Kinabalu and KLIA-to-Kuching routes, using two brand new B737-900ER aircraft. In August, it started its second hub, flying the ATR out of Subang to destinations within Peninsular Malaysia. Of its nine aircraft, six are jets and three ATRs. Its 17 routes include three international routes - Dhaka in Bangladesh, Jakarta and Bali.

The airline’s next market is India, with flights to Mumbai, New Delhi and Kochi initially planned, but it is waiting for the necessary approvals. Flying to Chennai would come later. If it can achieve that this year, it would be a big feat, something which chief executive officer Chandran Rama Muthy is counting on.

“We did not expect our flights to Dhaka to be so popular. That was a pleasant surprise, and we are now looking at adding Chittagong on our route map,” he says.

After India, the next market Malindo is targeting is China. The airline is hoping to materialise that some time next year.

China is a big market and Kuala Lumpur will be the hub for Indonesians flying there. Malindo is looking at several cities for flights into China, but for now, both Rusdi and Chandran are keeping mum on the destinations.

Once China is in the fold, the airline will be much bigger than what it is now. Rusdi expects Malindo to be 150% bigger in 18 months’ time.

“I think it is not surprising for Malindo to meet expectations for now because it has a lot of support from us (at Lion Grup) in terms of aircraft, human resources, experience and expertise,” says Rusdi.

While Malindo’s growth has surprised many, it is normal to Rusdi, given this support and a market that is demanding for such services. The low-cost theme is not new in Malaysia, as AirAsia has given travellers the first bite into this segment.

“It is different from the time I started Lion Air. We had little money, one aircraft and things were not like what they are now. This is why it has grown and I have told Chandran that Malindo has to grow bigger and faster,” Rusdi adds.

For that, Rusdi says Malindo needs to open more routes and “we have to improve on our marketing”. “They have (sorted) things in the first year, set the basic foundation, operations and maintenance services, and offer good service. Now, we really need to grow in scale and become bigger, and I have given them the next one year to grow,” he adds.

But is there a big enough market for Malindo to tap into to be of that size?

“Today’s growth is within expectations even though competition is tough. But we needed to make a difference when we entered the market and as a result both yields and fares are down,” says Rusdi.

Since Malindo’s entry, some airlines have been dumping fares to get passengers and a report said that as of August, Malindo had managed to secure a 7% share of capacity in the Malaysian domestic market, with both Malaysia Airlines and AirAsiaresponding by increasing capacity to fight the competition.

Malindo’s target is to carry one million passengers by March 2014, and if the Indian routes are added, this is possible, says Chandran.

Adds Rusdi, “By the end of its second year of operations, Malindo would have flown 2.5 million passengers.”

By then, he expects Malindo to break even, although he remains optimistic that it could happen even earlier.

“I am optimistic it will happen in 1.5 years’ time.”


What’s next?

And while Rusdi has high expectations for Malindo, he has also mapped out a growth strategy for his entire airline group.

He and his brother Kusnan Kirana started Lion Air over a decade ago with one aircraft. Today, the group has over 100 aircraft. The company, PT Lion Grup, has ordered 700 new aircraft to become a regional player, competing with the likes ofAirAsia, Jetstar and even the full-service carriers (FSCs).

Unlike his rivals who started expanding much earlier, Kuala Lumpur is his first hub out of Indonesia via Malindo. Kuala Lumpur, as a matter of fact, will be Lion Grup’s gateway to the world.

But recently, Rusdi’s Lion Grup ventured into Thailand by setting up Thai Lion Air with some non-airline investors. The airline is expected to take off by year-end.

Although Rusdi declines to discuss how big his airline group is aiming to be, he is pretty ambitious. Part of that big game plan is to see the Lion name being hubbed at many points in Asean and Asia as a whole. And to build that base, he is looking the way of partnerships.

“We try to be humble,” Rusdi says.

The move into Thailand surprised many, as it has many players. Can Thai Lion Air make it when many others have failed then?

“Thailand has many players but offers a big tourism potential. And with the Asean Open Skies Policy to be implemented, it is good to have a hub in Thailand. Our first flight will leave Bangkok for Kuala Lumpur and this will give the Indonesians and Bangladeshis that we are now carrying on Malindo a new place to go,” says Rusdi.

For starters, Thai Lion Air, which will have two aircraft, has gotten the nod from the Thai authorities to fly both domestic and international routes.

If he can pull Thai Lion Air off, then he would have launched three airlines this year, the other two being Malindo and Batik Air, an FSC operating domestic routes in Indonesia.

“Batik Air is seeing good growth, as although it is an FSC, its fare pricing is 40% lower than other FSCs,” Rusdi explains, adding that “the Lion Air group now carries 100,000 passengers daily and the numbers are just growing”.

Lion Air controls nearly 50% of the domestic air market in Indonesia.

“Although we have Batik Air and Lion Air, Malindo will still offer international connectivity for the group,” he says.

Batik Air was originally planned to be a long-haul airline operating international routes, but has moved on to become an FSC since that plan was shelved.

Apart from Lion Air, Batik Air, Malindo and Thai Lion Air, the airline has two more airlines within its group, namely, Wings Air and Lion Business Jet services. Wings Air offers rural air services in Indonesia, while Lion Business Jet services, which it started two years ago, offers executive jet services.

“With Thai Lion Air, we will have five airlines. We are targeting one more next year,” Rusdi discloses. His target market? Myanmar, although Vietnam is also on his radar screen.

“After three (launches in a year), we need to consolidate, although we will focus on (setting a new partnership) next year,” Rusdi adds.

“Our sixth airline will be launched next year and Myanmar could be next,” he reveals.

Cost-wise, Rusdi says the airline has built a large enough infrastructure to support growth, and that even in an economic slowdown, its unit cost will remain low.

On an Asean scale, he expects consolidation, as he feels there are too many airlines, with no expectations for new entrants into the market either.

“What we will see is bigger airlines but fewer number of players,” he says.

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