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.