After successful start, Lion Air eyes more expansion

After successful start, Lion Air eyes more expansion

Budget airline Lion Air is considered to be one of Indonesia's
success stories since the economic crisis hit the nation in 1997
and plunged many businesses into bankruptcy.

The firm, which started operating in 2000, continued its
expansion this year and has now become the second largest airline
in the country after national flag carrier PT Garuda Indonesia.

The Jakarta Post's Sari P. Setiogi talked with the firm's
founding president Rusdi Kirana in Singapore and Jakarta on
his business and the airline industry in general.

Question: What got you interested in the airline business?

Answer: When I decided to start the business, flying was still an
exclusive way of travel which was unaffordable to most of
Indonesians. Well, that might have been true a decade ago, but
today it should not be like that anymore. I want to give more
opportunities to our people to experience flying. At that time,
only about 1 percent of the population could afford to fly. I was
thinking why not launch an airline with ticket prices that are
affordable to most people.

The second reason is that geographically, Indonesia consists of
many islands. Aside from land and sea transportation, the nation
needs mass-oriented air transportation to ferry people across the
nation.

How much was the initial investment and who are actually behind
Lion Air? Rumors have it that you had strong and powerful people
behind you

The (initial) investment was about US$10 million. But, we have
put in additional investment since then, but it would be better
for me not to mention the numbers. At the moment, we have
achieved a return on our investment, and have been making profits
since day one.

Lion Air is purely a family business. On the rumors, let's look
at it this way: Even if there are strong and powerful people
behind us, could they actually make people fly with us? I don't
think so.

Strong, powerful backing might be useful for a monopoly, but in a
service industry, we can't rely on such backing. We needs to
offer better services each and every day.
I believe such rumors are coming from people who are prepared to
do anything in their efforts to compete with us.

But with such low ticket prices, how could you keep flying?

Lion Air have cut ticket prices by about 75 percent and we are
not only surviving, but can also make a profit. In January next
year, we will move to the ex-BHS (Bank Harapan Sentosa) building
in Harmoni, where our offices will occupy all 12 floors of the
building (Lion Air now has its offices in a house on Jl. Teuku
Cik Ditiro, Central Jakarta).

Despite a small profit, we can still keep the company flying. Why
should we charge more if it will cause suffering for our people?
I am dedicated to giving people the lowest possible ticket prices
and I'm going to stick to that.

If we, who can sell tickets cheaply, can still make a profit, why
are those who sell their tickets at higher prices than ours still
suffering losses? There must be something seriously wrong
somewhere.

We work efficiently so as to keep our prices low. By only
operating one type of aircraft (MD-82), we can save a lot. We
only have to hire one type-able pilot and buy spare parts for one
type of aircraft only.

Is it true that after Lion Air started offering low prices,
domestic passenger numbers here significantly increased?

With low prices, more people could fly and, thus, frequency of
flying increased. In the past, when ticket prices were relatively
high, a person might only have been able to afford to fly once a
year. Maybe now, the same person might be able to fly three times
or even five times a year.

Once our public relations manager, Hasyim (Hasyim Arsal Alhabsi)
flew with a 70-year-old man from Jakarta to Medan. During the
flight, there were tears rolling down his cheek. Hasyim thought
he was sick or felt uncomfortable. But, the old man said he was
very emotional as it was his very first flight after being on
this earth for 70 years. Before, it was only in his dreams that
he would ever fly in an airplane. I'm really happy to have made
his dream come true as his first flight was with Lion Air.

According to government data, during the "expensive air travel"
era, the number of domestic air passengers hit a record 12,8
million in 1997. Due to the crisis, it had decreased to 6.3
million by 2000, when we entered the market. After this, the
numbers soared to 9.1 million in 2001 and 12.3 million last year.
It is estimated that 15 million will travel by air this year.

I am happy that our's is the first airline to offer low-price
tickets without neglecting passenger service. Today, we fly to
about 32 cities across the country, carrying an average of
500,000 passengers every day.

Given such low-price fares, many people have doubts about the
safety of Lion Air. What do you have to say about this?

We place a high priority on safety. About 30 percent of our total
operating costs is spent on maintenance. We give our maintenance
work to three companies abroad: Italy's Alitalia, Scandanavia's
SAS and Switzerland's SR Techniques.

When we first got into the business, we leased aircraft from
Russia. These aircraft were highly reliable. In three years, they
only experienced trouble three times and could easily be fixed in
one day.

However, Indonesians did not feel comfortable with the Russian
aircraft. For them, they looked like war planes. Many of our
passengers were scared flying on them.

We were the first airline in ASEAN to use Russian aircraft after
a lapse of 35 years. To be honest, without them, Lion Air could
not be as big as it is today. We learnt a lot from them. Russian
pilots are very loyal, hardworking and highly dedicated.

Many new airlines have tried to get into the business and many of
them have since collapsed. Why do you think this is the case?

People think the airline business is simple and easy. In fact,
it's a 24-hour business. People are easily tempted to get
involved in the business but with poor management and mistaken
calculations, they might just as easily find themselves kicked
out of the business. It's a tough business. I often cried out in
exasperation during the early days of Lion Air.

What are your plans for 2004?

At the moment, we have 18 aircraft, seven of which are owned by
Lion Air. In 2004, we will add 15 more, which will bring the
figure to 33, and we plan to add a further 15 in 2005. With more
aircraft, I expect Lion Air's productivity can be doubled by the
end of next year. If today we have about 142 flights daily, I
expect the frequency to reach about 300 per day next year. On
passengers, I also expect the number to double to 1 million a
month in 2004.
We will also fly to more international cities. This year we
established our Jakarta-Singapore-Ho Chi Minh City route with a
four-times-daily service. Soon we shall establish our India
route. It will be from Medan to three cities in India: Madras,
Calcutta and Bombay. Many Malaysians, Thais and Singaporeans are
flying from Medan to those cities, and vice versa. Later, we will
also fly to Guangzhou, China.

By 2004, all of our pilots will be Indonesians. At the moment,
the ratio between foreign and Indonesian pilots is still 40 to
60. We recruited the pilots mostly from Argentina, Sweden and
Denmark.

Our employees now total about 1,700 people.

I am also keen to open a new airline in Argentina. The country
only has one airline, while the demand is actually high. We will
acquire a local defunct airline. It will show that I'm not only a
'lion' in my own country.

We will also open a leasing company, offering aircraft and crews.

Any plans for an initial public offering (IPO)?

Some overseas parties have said they are interested in buying
Lion Air shares, but thus far we don't have any plans for an IPO.
Maybe, we shall look for a strategic partner. There is a foreign
bank at the moment that is interested in teaming up with us in
this regard.

How do you see the business next year?

Competition will be tighter, more no-frills and less-frills
airlines might join the market as people are now aware of the
possibilities in low-price air travel.

Our competitors will not only be local players, but also foreign
airlines. In The New Paper (a Singaporean newspaper) of Dec. 10,
Richard Branson (founder of Australian-based budget airline
Virgin Blue) said he was eying the Asian market. He is unlikely
to be eying Hong Kong or Singapore given the high airport charges
in both countries and their small domestic markets. Most likely
he is eying Thailand, Indonesia and Malaysia, and he has said
that he would be up against Lion Air in Indonesia. That would be
a challenge for Lion Air, and for the rest of us.