Tony Fernandes AirAsia will buy Indonesian low-cost carrier Batavia Air

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JAKARTA: Malaysian budget airline AirAsia Bhd will buy Indonesian low-cost carrier Batavia Air to expand in Southeast Asia’s biggest economy, the two groups said today.

The move, AirAsia’s first airline acquisition, will likely lead to heightened competition among low-cost carriers in Indonesia. The field is already crowded with players like Lion Air, the nation’s biggest, Mandala Air, which is controlled by private equity firm Saratoga Capital, and Citilink, a unit of flag carrier Garuda.

The acquisition is also seen as helping AirAsia compete against regional rivals like Tiger Airways Holdings Ltd and Singapore Airlines Ltd once the Southeast Asian open-sky policy comes into effect in 2015. That policy will allow the budget carriers to fly more regional routes and removes various restrictions on passenger, cargo and charter services.

Batavia Air confirmed the acquisition, but declined to comment about details. Financial terms of the deal were not disclosed.

AirAsia’s founder and CEO Tony Fernandes called the acquisition a “huge step” for AirAsia and said on his Twitter feed that his airline was now a “major player in Indonesia”.

“This news in Indonesia will have a very positive effect on our earnings over the next few years,” Fernandes tweeted.
Fernandes said in early May his group was looking to list its Indonesian operations by the first quarter of next year as it moves its regional base to Indonesia to focus on further expansion.

“There will also be a positive impact on its Indonesian unit’s listing. The IPO will be helped by this acquisition,” said an aviation analyst with MIDF Research in Kuala Lumpur, who asked not to be named because he was not authorised to speak to the media.

The move is somewhat of an about-face for Fernandes because he previously said he was against acquisitions, calling them “value destroying” in an interview with Reuters a year ago.

AirAsia will benefit from Batavia Air’s strong agent network in Indonesia, said Ahmad Maghfur Usman, a Kuala Lumpur-based equity analyst with OSK Research.
“The Internet penetration in Indonesia AirAsia in terms of ticket bookings is not as great as Malaysia or Thailand. So that’s why AirAsia sees value through the purchase of Batavia Air,” he added.

AirAsia officials in Indonesia said a signing ceremony and press conference would be held later today in Jakarta. – Reuters