Does Lion really need 178 737-900ERs?

Has Rusdi Kirana gone crazy?

The president and founder of Indonesia’s Lion Air today ordered another 56 Boeing 737-900ERs, lifting his commitment to the new aircraft type to a whopping 178.

KiranaW200.JPGI know the Indonesian low-cost market has a lot of potential (in fact I’ve been hearing that since deregulation came to Indonesia 10 years ago) but 178 aircraft seems ridiculously ambitious. Rusdi (pictured here in 2006 when Airline Business paid him a visit for a cover interview) told our sister publication Air Transport Intelligence today after signing for the 56 additional aircraft at the Singapore Airshow that only about 60 of its 178 737-900ERs will be flown in Indonesia. That seems feasible – Lion now operates a fleet of about 30 aircraft including seven 737-900ERs and barring four short-haul international routes it is entirely a domestic operator. But the other markets Rusdi plans to put the aircraft – Australia and Thailand – are already oversaturated with low-cost carriers.
Lion, which began operations in 2000, plans to launch an affiliate in Australia in the second half of 2008 and start with domestic services. But the Australian domestic market has become fiercely competitive following the launch late last year of Tiger Australia, which is now engaging in a nasty fare war against Jetstar and Virgin Blue.

Lion Air Australia will have overcome a huge brand disadvantage because Lion is an unknown in Australia and has had safety problems in Indonesia, which its Australian competitors are already publicising. I don’t see Lion Air Australia viably operating more than 20 737-900ERs and I wouldn’t be surprised if the venture doesn’t take off at all.

Thailand, meanwhile, already has three low cost carriers – Thai AirAsia, Nok Air and One-Two-Go. These carriers say the market is already approaching saturation and none of them operate more than 15 aircraft. I don’t see Lion Air profitably putting more than 10 aircraft in Thailand’s limited domestic market.

Speaking of profitability, does anyone know how much Lion Air makes or where they get their financing from? Lion is now one of the 100 largest carriers in the world and it is also in the top 10 among low-cost carriers. But it is one of only a few carriers in either of these categories that does not report its financials and it is only carrier of this size that doesn’t report its traffic.

Last time we asked Rusdi said Lion carried about seven million passengers in 2005 but it never gave us a figure for 2006 when we were doing our low-cost carrier ranking last year. We estimate it carried 10 million in 2006 and 13 million in 2007.

When it comes to profit it is really anyone’s guess. Rusdi has claimed Lion is profitable and is only owned by him and his brother. But lots in the industry have questioned where Lion gets its money. Apparently Boeing is not concerned.

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2 Responses to Does Lion really need 178 737-900ERs?

  1. James Weber 20 February, 2008 at 12:28 am #

    I would be very suprised if Financing for Lion’s 737-900ER’s wasn’t covered by guarantees from the Export-Import Bank of the United States.

    When there are Ex-Im guarantees, financing usually becomes fairly straightforward since the US Government is effectively a co-signatory. That makes the transactions low risk, no matter how good or how bad the credit of the airline is.

  2. Lynn Wright 18 May, 2010 at 1:36 am #

    Nice writing. You are on my RSS reader now so I can read more from you down the road.

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