Rusdi Kirana, the president director and co-founder of Lion Air, admits that he doesn't even like the airline business, but his appetite to make money at the controls of Indonesia's largest privately owner carrier is insatiable
Rusdi Kirana was a moderately successful travel agent in Indonesia in the late 1990s when he lost patience with the way the country's airlines were treating agents and passengers. Disgusted with frequent delays and flight cancellations, he and his brother cobbled together the equivalent of $900,000 and started Lion Air. In a short time Rusdi got his payback, as his carrier has changed the face of the airline scene in Indonesia and is now the biggest privately owned operator in the country.
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Rusdi's timing in establishing Lion was impeccable, however. Until then there were only a handful of scheduled airlines in Indonesia and no new scheduled operators had been launched in more than a decade. Little did he know when he applied for the right to start an airline that the government had just decided it was time to open up the market to new entrants.
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"If you are in Indonesia labour is cheap so you can do almost everything yourself" |
The first privately owned carrier to launch following deregulation was named AWAIR and just after that, in mid-2000, Lion started operations. While AWAIR ultimately fell into difficulty and shut down before being relaunched by new 49%-owner AirAsia late in 2004, Lion has established itself as the main privately owned airline in the country, offering two-class services over an extensive domestic and limited international network.
Lion is not always sophisticated in the way it does things. Its advertising slogan, "We make people fly", could be seen as a threat, and on the side of its aircraft that fly under the banner of its "Wings Air" subsidiary is the grammatically incorrect tagline "Fly is Cheap". It also does not have the best safety record, having already had a fatal accident. In addition, there are lingering questions about where its financing is really coming from.
Despite these reservations, passengers are flocking to the airline. While Rusdi closely protects operational figures, he indicates that Lion and Wings together carried more than 7 million passengers last year, with an average load factor in excess of 90%.
Launching a Boeing
Lion also has the most ambitious growth plans of all the new airlines in Indonesia and these will include the addition of at least 60 Boeing 737-900ERs from early next year. Boeing launched the larger-capacity, longer-range aircraft programme last year on the back of an order from Lion for 30 of the type and earlier this year Lion firmed up 30 options. Rusdi says more orders will almost certainly be placed in future.
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Passenger traffic has been growing at double-digit percentage rates each year in the Indonesian archipelago as ticket prices have fallen. Rusdi is confident this will continue for years, partly because the industry is still benefiting from the release of pent-up demand. There is catching up to do in a market where travelling by road can be difficult, and - because Indonesia is made up of thousands of islands - often impossible.
"When I started the airlines sold their tickets at 1.2 million rupiah [$132] for a two-hour flight and 600,000 rupiah for a one-hour flight. I sold my tickets at 500,000 rupiah for a two-hour flight and 200,000 for a one-hour flight, so people tried my airline," says Rusdi. "The main thing was my competitor, Garuda, sold tickets at too high a price. People ask me why I can sell so cheap with the fuel being so expensive when tickets were so much more before when fuel was cheap. I tell them they should ask me the other way around. Why were they so expensive at that time? If I could sell tickets like Garuda did at that time I could buy one Hilton hotel a month."
Rusdi says that in the beginning none of the major leasing companies would lease aircraft to him, which forced him to go to Russia to find Yakovlev Yak-42Ds to lease, using $100,000 of the $900,000 start-up capital. Another $650,000 was spent wet-leasing ageing 737-200s from a small US company.
Things are different today, however. Now the Lion and Wings fleet comprises 34 Boeing 737-300/400s, Boeing MD-82/83/90s and Bombardier Dash 8s, all of which will be replaced by the 737-900ERs in the coming years. The existing 737s are leased, but several of the group's MD-80-series aircraft are owned outright.
Do-it-yourself mentality
The group now employs 4,500 people and Rusdi says "almost everything we do ourselves - even the carpet in the aircraft we sew ourselves and the laundry we do ourselves". He adds: "My costs are very low. If you are in Europe it is fine to [outsource], but if you are in Indonesia labour is cheap so you can do almost everything yourself."
| Quick learner
Rusdi Kirana did not really know where to begin when he was starting Lion Air in the late 1990s and quickly found he had to do most things himself. That included going to Russia to lease Yakovlev Yak-42Ds, as well as designing flight attendant uniforms, which he did with the help of three fashion books. These days Rusdi heads an airline with 4,500 employees and he no longer has to do such things on his own. But those who know him say he remains a down-to-earth guy who works long hours and is a night owl, often holding meetings into the early hours of the morning. He spends his weekends in Singapore, where his wife and three young children live. Rusdi was born in Indonesia to parents of Chinese descent. A youthful-looking 43, Rusdi has no hobbies, as he is either working or spending time with his family. He does, however, enjoy association work and is involved in groups such as the Indonesian National Air Carriers Association and his school reunion organising committee. He has an economics degree from a local university. |
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The 2004 crash was devastating for Rusdi, who says he did not sleep for a week afterwards due to overwhelming guilt. He says the guilt eased after he was satisfied the crash was primarily due to airport problems that resulted in wet runway conditions, which caused the aircraft to hydroplane, although he quickly adds that many improvements were made internally.
"We have made big changes" to improve safety since the accident, he says. "We have a lot of expert people in our office now. We have foreigners helping us, like Boeing, who audited us. We know we always have to improve."
Many in the industry also still question where Lion gets its money. Rusdi insists the carrier remains 100%-owned by just him and his brother and that it has funded its growth entirely from cashflows. While he will not provide any financial information, he says the airline is solidly profitable and has never had to borrow a cent.
Many find that hard to believe, as its expansion has been so rapid and many assets have been purchased outright with no bank borrowings. In addition to several of its existing aircraft, for example, acquisitions have included a headquarters building in central Jakarta. An impressive-looking former bank building, which doubles as a 24-hour ticketing office and call centre, Rusdi says he paid the equivalent of $10 million in cash for it. On top of that, he says, all pre-delivery payment obligations for its 737-900ERs have been made in cash up to now.
The spending has even led to questions at government levels about whether there are secret financial backers in the background. Rusdi insists this is purely the fantasy of jealous competitors.
"I was in parliament for nine hours in 2003 because my competitor reported that I did money laundering and that I was financed by Singapore to destroy and conquer the airline industry in Indonesia. Some people have also said that my money comes from the military," he says.
"Do those people know that I work until 02:00 or 03:00 every day? Do they know that I wake up at 08:00 every day? Do they know that I flew to Russia when I couldn't get any aircraft to try to find aircraft, where I didn't know anybody and didn't speak the language? I took chances and those people who accuse me of things don't know that.
"But life is like that and I am fine with that. It was tense, yes, because from morning to evening I had to make presentations in parliament and defend myself but I said to myself that I should be thankful. There are 200 million people in this country, but only a few of them can go to parliament. I looked at it positively."
Rusdi says he tries not to think about the money questions or past safety troubles and is focused on growing the airline profitably. Next year will be a key one for Lion's growth, with the arrival of its first new aircraft and the launch of additional international services.
The carrier plans to add services from late next year to Guangzhou in China, Hong Kong, Bangkok in Thailand and Perth in Australia. Its only existing international destinations are Singapore as well as Kuala Lumpur and Penang in Malaysia. But Rusdi stresses there is still much growth to be had from the rapidly expanding domestic market and it will remain the main focus in the years ahead.
He also hopes that by the end of next year Lion will have shifted its entire operation to Jakarta's under-utilised Halim airport from the existing Soekarno Hatta facility. Halim, which is currently used only for charter and VIP flights, is only a few kilometres from the centre of Jakarta, as opposed to more than 20km for Soekarno-Hatta, which all scheduled airlines serving the capital use.
Lion recently secured final regulatory approval to take over the operation of Halim, which was previously controlled by the military, under a 25-year extendable lease, and Rusdi says that "we have paid and that airport is now legally our own".
"I hope that by the end of next year we can move," he says, declining to say how much he paid for the long-term lease. "We can do it now but we want to wait for our new aircraft to arrive." In addition to being so close to downtown Jakarta, Halim will provide efficiency gains and cost benefits as "in my own airport parking is free, landing is free and everything for me is free".
Capacity boost
Rusdi also expects to place more orders for 737-900ERs in the coming years as the 60 firm orders are "not enough", although he insists: "We don't want to be too rushed." Earlier this year he visited European and US banks to discuss financing for the new fleet. The first of the new aircraft is due for delivery in April and the 737s will continue arriving through 2012. The same size as the existing 737-900, which can seat up to 189 passengers, the -900ER will be able to carry up to 215 passengers in a single-class layout as it has additional exit doors and a flat rear pressure bulkhead.
Rusdi says it will give Lion a major boost over its competition as it will help to bring costs down sharply. Even so, deciding to make the switch to new aircraft was not taken lightly. "Airlines create addicts. You always see something new like a new kind of aircraft and you want it. That is why I say I am a businessman and not an airline person. If my costs were not going down with the -900ER I would not have taken it and would stay with my MDs. My MD-82 consumes 4,200 litres of fuel an hour, with 165 seats. But the -900ER consumes 3,000 litres, so I get 1,200 litres extra. It costs 30% less in fuel and goes up 30% in capacity. It is simple mathematics," he says.
"The airline business is all about ego. Everyone knows that the passenger doesn't really care about aircraft. I hear other airline people say they will go from old aircraft to new aircraft because their passenger likes it. But the passenger is already flying with you so who cares? Unless you are like Singapore Airlines where it is part of your image you should only change your aircraft if the cost is better. Here in Indonesia it is all about the ticket price."
Rusdi also expects that in a few years Lion will need to acquire widebody aircraft - he has hinted at 787s by 2010 - for use on its busiest domestic routes, by which time he hopes he can retire from running the airline. He says the carrier has had many buy-in offers from foreign companies, but he is not in a position to sell a stake now as the company is still maturing.
| Carrier at a glance Base Jakarta Destinations 21 Fleet Total of 34, made up of Boeing 737-300/400s, Boeing MD-82s/83s/90s and Bombardier Dash 8s Aircraft on order 60 737-900ERs Passengers carried 2005 Over 7 million |
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"If I could retire now I would, but I cannot because I have responsibilities. I have money now but I am still doing this because I have no choice. It is like riding a tiger. I cannot get off so I have to continue riding the tiger," says Rusdi.
"Do I like the airline industry? No. Do I like aircraft? No. My colleagues say they cannot wait to see the 737-900ER coming, but I don't have the same feeling. I don't see the aircraft as a toy, I just see it as something to help us make money. The airline business is just a business but the word "airline" makes a difference because people think celebrity and ego.
"It is not glamorous. The only reason I am still doing this is because I have become a leader of 4,500 people and I have committed to my suppliers and I cannot step back. In five years' time we will have the best operation, best performance and best image, and then I can give it to somebody like my commercial director or my general manager marketing to run. But for now I have to keep riding the tiger." ■
Source: Airline Business
