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LCC FOCUSThe Malaysia and Thai markets have proved fruitful for AirAsia,but tough competition means Indonesia is proving a tougher nut to crackBATTLEGROUNDBy David Fullbrookin Cengkareng, IndonesiaTo dominate Southeast AsiaIndonesia AirAsia needs astrong foothold in the biggestmarket, Indonesia. It is havinga tough time there, facinghardened competitors, jammed airports andpowerful agents.It may get tougher. Deep-pocketed rivalsare sniffing around too. Qantas Airways hasbeen weighing up the options with a viewto investing in an Indonesian carrier, whichwould benefit its low-cost subsidiary, JetstarAsia.It has talked to a number of airlines,including low-cost carrier (LCC) AdamAir.Singapore government investment fundTemasek, which has a stake in Singapore’sLCC, Tiger Airways, is also understood tohave met with AdamAir and Lion Airlines,Indonesia’s largest private carrier.Indonesia’s allure is Southeast Asia’slargest population marooned on thousandsof islands. Carriers that do well in Indonesiawill have the profits to expand elsewhere andbuild a truly Southeast Asian airline as theregion’s red tape slackens.Of Indonesia’s 220 million people it isreckoned between five and seven million onlytravel around the 4,800 km (3,000 mile) widearchipelago by airliner. In 2005, they tookabout 29 million trips. That is likely to growby 20% this year, as it has done every yearsince deregulation became a reality in 2000.At this rate, the market will equal 60 milliontrips by 2010 if the economy holds up.It may grow even faster if more peoplerealise they can afford to f ly. ManyIndonesians simply do not believe the pricesairlines advertise. “Most people earning2,000,000 rupiah (US$215) a month areprobably not flying yet, but they should beable to afford to fly once a year. It is aboutmaking them realise they can afford to fly.Mostly now it is people at manager level andthe middle class,” said Sendjaja Widjaja,Indonesia AirAsia’s president director.Sendjaja claims to have built market shareto 3% since starting operations in December2004 after entering a joint venture totakeover Air Wagon International (Awair), adefunct carrier that still held an air operator’scertificate. A year later, after seeing off legaland regulatory challenges from some otherdomestic carriers, Awair became IndonesiaAirAsia.Competitors, par ticularly Lion,AdamAir, Batavia, Srivijaya and nationalcarrier, Garuda Indonesia, will not surrenderpassengers easily. They have been battlingfiercely and know how to fight and win inthis market.“A big challenge is increasing our marketshare to 5% this year. In order to do that wecannot be passive. We have to build ourreputation by putting a lot of money intoadvertising. We are spending 7% to 10% ofour budget on advertising,” said Sendjaja,who has been friends with AirAsia founder,‘Competition is verykeen [in Indonesia].If you only add onefrequency on a routeyou can be dead meat’Sendjaja WidjajaPresident DirectorIndonesia AirAsiaTony Fernandes, since their days at WarnerMusic.Part of that might come easily from thedozen or so barnstormer airlines that pinchcrumbs from the big boys. But taking marketshare from the likes of Lion and AdamAirwill prove that AirAsia can compete in areally tough market. Malaysia was easy.Thailand was not so difficult. However, inIndonesia it is a no-holds-barred, streetfightingcompetitive environment.“We should not spread our wings toowide, because the competition is verykeen [in Indonesia]. If you only add onefrequency on a route you can be dead meat,other airlines can dump seats and cause a lotof damage,” said Sendjaja.AirAsia has a fighting chance. It entersthe arena with plenty of experience fromMalaysia and Thailand, plus that of investorsand advisers from Europe, including ConorMcCarthy, the brains behind Ryanair.Picking the right routes is another paththat could add passengers and expand46 ORIENT AVIATION MAY 2006