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Originally published March 22, 2013 at 1:12 AM | Page modified March 22, 2013 at 6:44 AM

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Lion takes on AirAsia with record jet orders, launches new Malaysian airline

Indonesia's top discount carrier, which catapulted into the global aviation spotlight with record deals to buy Airbus and Boeing planes, is taking the battle for Asia's budget-minded travelers to the backyard of the airline that helped pioneer low cost flights in the region.

Associated Press

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Ordering 400 + aircraft, that's one BIG and BOLD move on behalf of Lion Airlines. I... MORE

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KUALA LUMPUR, Malaysia —

Indonesia's top discount carrier, which catapulted into the global aviation spotlight with record deals to buy Airbus and Boeing planes, is taking the battle for Asia's budget-minded travelers to the backyard of the airline that helped pioneer low cost flights in the region.

Lion Air, hardly known beyond Indonesia until giving Boeing and Airbus their biggest orders ever, made its first foray outside its home market with the launch Friday of Malindo Air in Malaysia, the base of AirAsia, which after a decade of rapid growth dominates cheap travel in the region.

Lion Air inked a $24 billion deal this week to buy 234 Airbus planes, the biggest order ever for the French aircraft maker. It also gave Boeing its largest-ever order when it finalized a deal for 230 planes last year. The planes will be delivered from 2014 through to 2026.

The two deals raised Lion's aircraft on order to a massive 600, the Sydney-based Center of Asia Pacific Aviation, or CAPA, said in a report. The Airbus announcement also meant Lion has the largest number of planes on order among airlines in Asia, surpassing AirAsia by 200 jets. The ambitious expansion by Lion, which has a 50 percent share of Indonesia's air travel market, is in part a bet on rising incomes in developing Asian nations and more open skies after 2015 when Southeast Asian countries aim to create a common economic community.

"Lion Air wants to assert itself and is trying to overtake AirAsia," said Shukor Yusoff, aviation analyst with Standard & Poor's in Singapore. "Malindo has to be successful to open more doors for its regional expansion. If it fails, it will mean trouble."

While Lion's plans may seem overly ambitious amid intensifying competition, CAPA said the airline enjoys a dominant position in Indonesia, which with its population of about 240 million could easily support over the next decade at least half the new aircraft it has ordered.

Lion Air President Rusdi Kirana told Indonesian reporters in Paris ahead of signing the Airbus deal that the first six planes will be delivered in mid-2014 to service routes in Asia and the Pacific.

He said Lion expects to have ordered 1,000 planes in the next few years.

"Those aircraft were targeted to expand our airline in the Asia-Pacific region," Rusdi said. "We are not satisfied just to develop our business domestically. We will go international, especially with the emergence of the open skies policy in the Asia-Pacific."

Lion, which grew out of Kirana's family-owned travel agency business, started flying in 2000, about a year before AirAsia. The Malaysia-based airline and its CEO Tony Fernandes pioneered low-cost air travel in Southeast Asia, opening up skies previously dominated by full service carriers such as Singapore Airlines, Malaysian Airlines and Thai Airways. These airlines today have their own low cost offshoots to vie with AirAsia.

AirAsia also has spread its wings with affiliates in Indonesia, Philippines, Japan, Thailand and India.

Lion Air, which has relied mainly on the Indonesian market for its growth, now wants a slice of global aviation.

It is banned from flying to Europe due to broader safety lapses in the Indonesian airline industry but this is expected to change with its new plane orders.

Malindo Air, which Lion jointly owns with a Malaysian company, is a critical first test for the longer-term plans. It made its debut Friday with a domestic flight in Malaysia.

Rusdi has said Malindo will start flying between Malaysia and Indonesia with a fleet of 12 new Boeing 737 planes in May, before expanding to other cities in Southeast Asia. He said 12 planes will be added each year to bring the total fleet to more than 100 in a decade, including adding Boeing 787 Dreamliner jets by 2015 to fly to routes to China, Japan and Australia.

Lion also plans to start Batik Air, a full service carrier in Indonesia, next month.

The plans add up to a looming dogfight with AirAsia. Fernandes has said he believes Malindo would not be able to offer cheaper fares than AirAsia.

Air travel in Asia is expected to grow 6.7 percent annually in the next 20 years, from 780 million passengers in 2010 to some 2.2 billion by 2030. Budget aviation now has a quarter of the air travel market in Asia, and growing.

AirAsia flew nearly 34 million passengers last year, while Lion carried 32 million people.

Lion is eyeing potential affiliates in other Southeast Asian countries and Australia, similar to AirAsia's model. CAPA however, warned establishing such ventures may be challenging as its brand is not well known outside Indonesia.

"AirAsia has a more powerful pan-Asian brand and also has first mover advantage in every market except Indonesia," it said.

CAPA said air travel in Indonesia has nearly doubled since 2008, hitting 72.5 million passengers in 2012 and is expected to reach 100 million passengers in 2015 and 180 million in 2018. It said Lion Air can easily absorb another 300 planes to grow its fleet in Indonesia to 400 by 2018 to cater to domestic demand.

Dozens of airlines have emerged in Indonesia since it deregulated its aviation industry in the 1990s, making air travel affordable for the first time for many of the country's people, and luring passengers away from ferries and trains.

With only a five percent share of seat capacity for Indonesian international flights, compared with about 25 percent for AirAsia and about 16 percent for national carrier Garuda, Lion can close the gap with its rivals internationally while keeping the big gap it enjoys domestically, CAPA said.

Standard and Poor's Shukor said Lion also appeared to be entering the lucrative aircraft leasing business with the establishment of an affiliate company in Singapore called Transportation Partners.

"Lion Air has secured plane delivery slots for the next decade. The game plan is to expand their airline business and at the same time, capture potential business in the leasing market," he said.

However, he said Lion Air has to first ensure it is able to secure trained pilots and other aviation professionals and grapple with the issue of how Indonesia's creaky airports can keep up with its growth.

At Malindo, Lion seeks to be a step above its competition.

Malindo's tagline - "Not just low cost" - reflects its aim to win market share by offering free checked-in baggage, in-flight entertainment and light meals. It is also flying out of Malaysia's main international airport where aerobridges offer convenience to travelers, compared with AirAsia which is operating out of the country's low-cost terminal.

Tickets prices will be competitive and planes are fitted with a lower-than-usual 180 seats, offering more legroom.

"It will not be easy to challenge a strong incumbent. Pricing is everything. It will depend on their strategy, and their luck," Shukor said.

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Associated Press writer Niniek Karmini in Jakarta, Indonesia contributed to this report.

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