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  • ANALYSIS: QZ8501 crisis deals blow to AirAsia strategy

ANALYSIS: QZ8501 crisis deals blow to AirAsia strategy

Indonesia AirAsia has always been a cornerstone of the AirAsia group strategy, but it has handed the pioneering low-cost carrier its toughest challenge yet with the disappearance of flight QZ8501.

Already AirAsia Berhad's shares dropped more than 7.82% in Bursa Malaysia trading on Monday as search and rescue teams continue to look for the missing Airbus A320.

AirAsia first bought a 49% stake in defunct Indonesian carrier AWAIR in 2004, before changing the carrier’s name to Indonesia AirAsia in 2005. The remaining 51% of the airline is held by private investors.

In ten years the Indonesian unit has grown to a fleet of 30 A320s, proving itself a worthy competitor against dominant Indonesian carriers.

It has, however, struggled to gain market share, with Lion Air and Garuda Indonesia, together with their subsidiaries, determined to keep a stronghold at home.

FlightMaps Analytics shows that as of December 2014, AirAsia Indonesia holds a 3.7% market share, in terms of seat capacity, on Indonesian domestic services. It falls behind Lion Air (41.2%), Garuda Indonesia (22.3%), Sriwijaya Air (9.4%), Wings Air (8.5%), Citilink (8.2%) and Batik Air (4.8%).

On regional routes out of Indonesia, it comes in sixth with a 5.3% market share.

FlightMaps Analytics also shows Indonesia AirAsia as operating domestic services within Indonesia and also regional services to Thailand, Malaysia, Singapore and Australia.

Its top four routes are from Jakarta to Denpasar Bali, Surabaya and Singapore, and from Surabaya to Kuala Lumpur.

Group chief executive Tony Fernandes always had big plans for Indonesia, going to the extent of opening a regional office in Jakarta in 2012, and taking the lead by relocating to the country to spearhead growth.

The aim was to use its Indonesian base to strengthen the group’s position, and for AirAsia and its subsidiaries to be well placed when the Association of Southeast Asian Nations (Asean) open skies policy kicks in in 2015. It also hoped to raise the profile of AirAsia Indonesia, as it considers Jakarta to be the “nerve centre” of Asean, and with Indonesia being the region’s largest market by far.

Fernandes also had plans to list Indonesia AirAsia, though that has been delayed several times and appears to be postponed indefinitely, due to the poor market conditions and also the weak financial performance of the unit.

Indonesia AirAsia reported an operating profit of Rp76.1 billion ($6.1 million) in the quarter ended 30 September, down from the Rp113.6 billion profit in the previous corresponding quarter. It made an operating loss of Rp272 billion in the second quarter of the year, and said that it was embarking on a route rationalisation programme and terminating loss making routes.

In 2013, the unit recorded an operating loss of Rp125.9 million, swinging from an operating profit of Rp392 million a year ago. It also recorded a net loss of Rp373.9 million, a reversal from the Rp191.8 million profit.

Although AirAsia states that its Indonesian foray has been successful, the group's growth in Southeast Asia's largest market has not been smooth. Setback's include its decision not to acquire Batavia Air, which subsequently went bankrupt, and the also the perpetual postponement of Indonesia AirAsia's initial public offering.

Even with its declining financial performance, however, the Indonesia unit has kept its safety record clean throughout its years of operation. Flightglobal’s Ascend Fleets database shows only a minor incident involving the carrier in 2007 from a hard landing, with no injuries to those on board.

Indonesia’s transport ministry has now said that it will review the operations of Indonesia AirAisa, following the disappearance of QZ8501. The review, routine after a major incident, will seek to ensure that the airline is keeping to standards in the areas of operations, safety and security.

Coincidentally, the incident comes just two days after its long-haul arm Indonesia AirAsia X was due to launch operations with a five-times weekly service from Denpasar to Melbourne.

In this trying time for the airline, the leadership of its flamboyant leader, who has so far appeared calm, will be needed to pull the carrier through. Fernandes has flown to Surabaya to speak with families of those on board, and also to Jakarta to communicate with Indonesia’s search and rescue agency.

“This is my worst nightmare. But there is no stopping,” he says in a tweet.

In another, he adds: “Keeping positive and staying strong. My heart bleeds for all the relatives of my crew and our passengers. Nothing is more important to us."

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