ANALYSIS: Lion embarks on ambitious quest for northern hubs

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Lion Air's ambitious growth plans make the establishment of new bases increasingly important for its continued success.

The Indonesian low-cost carrier expects to carry up to 40 million passengers in 2013 and it needs new hubs to channel Lion's feed for major destinations to the north.

It is for this reason that getting Malindo Airways, its Malaysian joint venture with National Aerospace and Defence Industries, up and running has become a priority.

The need for a hub has resulted in Malindo's launch being pushed forward two months to March 2013, effectively delaying the launch of its premium arm Batik Air to the third quarter of 2013. Lion's order for five Boeing 787-8s, originally meant for Batik, will also go to Malindo when they are delivered in 2015.

"Malindo is more important because we need a hub more urgently. Batik is mostly a point-to-point domestic carrier, which can still be covered by Lion Air," says Lion president director Rusdi Kirana.

He adds that bases in Singapore, Malaysia or Bangkok would be capable of bringing Lion's increasingly wealthy Indonesian passengers to high demand northern destinations such as China, South Korea and Japan.

That is why even with Malindo, which will start operations with domestic and short-haul international services, on the way, the group is still keen on setting up hubs in Singapore and Bangkok.

Lion has initiated talks with Singapore authorities about its interest in setting up an airline in the city-state and stressed that its aim is not to take a slice of the Singapore market, but rather to build on the Indonesian traffic and offer its passengers more connecting options.

Rusdi says that any carrier Lion starts in Singapore would not be a low-cost carrier because this market is saturated.

"We have at least 35 million passengers next year and they need to go somewhere. So we need to get more hubs. The more hubs you have, the better it is for your passengers," says Kirana.

Ascend's head of consultancy in Asia, Paul Sheridan, agrees that Lion is moving in the right direction: "The main advantage of a hub is in facilitating connecting traffic and Lion Air will be able to offer a wider range of routes to their customers by using hubs."

He adds that hubs provide operational advantages by giving the airline a place to centralise crew and park aircraft, while also allowing them to take up a significant portion of flight schedules at the hubs and have a good marketing presence.

Afterall, Lion has 333 Boeing 737s, including 201 of the re-engined Max variant, and five 787s on order. These aircraft need homes. It is also in talks with Boeing for 10 more 787s and wants the airframer to speed up the delivery of its aircraft to meet the group's ambitious growth plans.

The challenge for Lion now is manage its three different airlines - Lion, Malindo and Batik - effectively.

"The opportunities for growth are very clear in the Association of Southeast Asian Nations [ASEAN] region generally but there are risks in having different business models across the three airlines," says Sheridan.