AirAsia and Indonesia's Batavia Air have agreed to co-operate in several operational areas after the Malaysian low-cost carrier failed to bid for a stake in Batavia's parent firm.
"After extensive study and discussion, the diverse nature of the two businesses has prompted an alteration to the initial agreement," says AirAsia.
"The precise scale of integration, including a re-fleeting exercise as well as streamlining an amalgamation of cultures is expected to take up considerable time and effort, joint resources which can be more efficiently utilised in a targeted manner."
Under a revised agreement, AirAsia Indonesia and Batavia Air will collaborate on ground handling, distribution and inventory systems. The two carriers will also set up a training joint venture equipped with classrooms, simulators and fixed wing training.
On 11 October 2012, sources told Flightglobal that AirAsia and trading firm Fersindo Nusaperkasa, which owns 51% of AirAsia Indonesia, had dropped their bid to buy a stake in Batavia's parent Metro Batavia for $80 million in cash. Metro Batavia is the holding company for Batavia Air and aviation training school, Aero Flying Institute.
Although Indonesian authorities gave the deal a green light in August, negotiations broke down because of a disagreement over the final price.
AirAsia group chief executive Tony Fernandes says AirAsia still plans to have an initial public offering for AirAsia Indonesia. "In our minds, the timing [of the Batavia deal] was perhaps not appropriate as it would have induced too many risks and would ultimately be earnings dilutive to our shareholders," says Fernandes.
AirAsia Indonesia chief executive Dharmadi says the airline will triple its fleet size in the next five years to meet an annual passenger growth rate of 24% for international and 28% for domestic sectors. "We will continue to strengthen our network by adding more hubs and developing our services to eastern Indonesia."
Capacity in Indonesia, as measured by ASKs, has doubled over the last five years – from 31.6 billion in 2007 to 65.8 billion in 2012, according to data from the International Civil Aviation Organisation. This means that there are now 489,430 domestic departures in Indonesia annually, an increase from 286,063 five years back.
Trailing behind leaders Lion Air and Garuda Indonesia, Batavia Air has a market share of about 8.5%. The carrier, however, is ahead of smaller players such as Merpati Nusantara Airlines, Mandala Airlines and Sriwijaya Air. AirAsia Indonesia, rebranded and launched in 2005, has only managed to capture about 3% of the market so far.