AirAsia drops Batavia Air acquisition plan

"Too many risks," says AirAsia CEO

AirAsia Batavia Air Indonesia Tony Fernandes

AirAsia has dropped its plans to acquire Indonesia’s  Batavia Air, two months after it made the offer as part of a long-term expansion plan in one of the world’s most lucrative markets. 

AirAsia’s chief executive Tony Fernandes cited “too many risks” as the reason for the about-turn on the US$80 million deal, but maintained it was not a setback.

Instead, both carriers will revise their agreement to collaborate on operational areas like ground handling, distribution and inventory, as well as pilot training.

Indonesia’s sprawling archipelago of 17,000 islands, large domestic market and rising affluence has fuelled an aviation growth that is among the fastest in the world, spurring foreign players to aim for mergers to get a slice of the pie.

Local airlines in the low-cost sector like Lion Air command over half the domestic market, and foreign players have partnered with local carriers to tap and grow the local market, for example, Tiger Airways has tied up with Mandala Airlines.

AirAsia’s share of the domestic market is around eight per cent, but it is Indonesia’s biggest player on international routes, with a market share of 42 per cent.

Batavia Air has an 11 per cent market share, and nearly four per cent share of international routes out of the country.