AirAsia is buying a major stake in Indonesia’s Batavia Air, a move that will make the low-cost carrier the third-largest airline group in Indonesia and a serious competitor for Garuda Indonesia and Lion Air.

AirAsia Investment, a division of the Malaysian parent company, says it is buying 49% of Batavia Air in a deal that passes the remaining 51% to Indonesian company PT Fersindo Nusaperkasa to meet Indonesia’s foreign ownership laws. Fersindo also owns 51% of Indonesia AirAsia.

AirAsia Investment says the deal is subject to regulatory approval, but it expects to complete the acquisition in next year’s second quarter. The two investors will pay $80 million in cash for Batavia Air, including $1 million for the airline’s flying school. “The acquisition of 100% interest in Batavia. . .will be carried out in two stages—through acquisition of a majority 76.95% stake and subsequently followed by the remaining 23.05% held by its existing shareholders,” says AirAsia.

Indonesia AirAsia, which serves mostly international routes from Indonesia, says Batavia Air, the country’s fourth-largest carrier, will give it an extensive domestic network.

“The Batavia Air acquisition provides greater domestic connectivity and an extensive feeder network into Indonesia AirAsia’s existing hubs in Jakarta, Bandung, Denpasar, Medan and Surabaya,” says AirAsia.

“The addition of Batavia Air will also provide AirAsia immediate access to an enlarged fleet of aircraft, experienced pilots and flight crew and increasingly competitive slots at major Indonesian airports at a time when Indonesia’s travel sector is experiencing double-digit growth on the back of rapidly growing consumer demand for air travel,” the carrier adds.

Expanded Reach

Some of Indonesia’s busier airports have stopped issuing new slots at peak times because of capacity constraints, making existing slots increasingly important.

Indonesia AirAsia sells its tickets mostly through the Internet, but with the Batavia Air acquisition it will now have access to a base of travel agents, which are an important distribution channel in Indonesia. “Following the acquisition, the number of distribution channels in Indonesia will increase 10-fold to over 5,000 authorized agents and more than 70 sales outlets. With this enlarged agency footprint, AirAsia will be able to reach even more customers while complementing our Internet-based sales,” AirAsia notes.

This combination of the two low-cost operators follows the recent relocation of AirAsia Group CEO Tony Fernandes to Jakarta from Kuala Lumpur with the goal of growing Indonesia AirAsia, which until today has been a distant fifth in the Indonesian airline market behind Lion Air, Garuda Indonesia/Citilink, Sriwijaya Air and Batavia Air.

Fernandes had previously said Indonesia AirAsia should be much larger than it is, considering Indonesia is Southeast Asia’s largest aviation market.

Fleet Growth

Indonesia AirAsia is relatively small, with a fleet of 18 A320s, but Batavia Air will add a fleet of 34 aircraft comprising six A320-family aircraft, two Airbus A330s, 15 Boeing 737-300s, 10 737-400s and one 737-500, although Batavia Air recently returned some aircraft to lessors before their leases expired and was negotiating with International Lease Finance Corp. to break its 10-year lease on the two widebodies.

The acquisition is not surprising, as many in the industry were already predicting that the Tansari family, which controls the Batavia Air, would close the operation. Founder, Yudiawan Tansari, alluded to this in his comments about the consolidation, noting, “I am proud to have built Batavia Air into a leading Indonesian airline from its humble beginnings. Recent developments in the airline industry, however, have made me recognize that Batavia Air requires greater scale in order to compete and grow further, and I am so pleased that AirAsia will now take Batavia Air to even greater heights.”

AirAsia’s Fernandes added, “The Batavia Air acquisition is a fantastic opportunity for AirAsia to accelerate our growth plans in one of the most exciting aviation markets in Asia and further underlines our belief in the growth potential of Indonesia’s aviation sector.”