Budget airlines bet big on growth

 SINGAPORE: Lion Air’s record aircraft orders underline the ambitious plans the privately held Indonesian group is hatching to emerge as a pan-Asian low cost carrier, throwing a serious challenge to AirAsia, the region’s biggest budget airline.

The rivalry intensified last Friday when Lion Air launched its first service in Malaysia, barging onto AirAsia’s home turf, but the pace of expansion has raised questions about whether airlines are overextending themselves.

Financiers and industry executives, however, say the party is just starting, with the region’s budget carriers just beginning on the rapid growth path enjoyed by Ryanair Holdings Plc and Easyjet Plc in Europe and Southwest Airlines Co, the pioneer of the model, in the United States.

“I think it’s been pretty rational in the sense that it is underpinned by economic prospects,” Eric Eugene, BNP Paribas’ global head of transportation banking, told Reuters in an interview in Singapore.

 “It’s underpinned by the number of people capable of paying fares and flying.”

The staggering bets being placed by both airlines rest on the dominant market shares they enjoy in their home countries and the hope that rising disposable incomes will drive Asia’s growing middle class to keep flying to new destinations. – Reuters