Expanding low-cost operator AirAsia has confirmed that it has entered into a Conditional Share Sale Agreement together with its partner PT Fersindo Nusaperkasa through its fully-owned subsidiary AirAsia Investment Ltd to acquire PT Metro Batavia, which operates the Indonesian airline, Batavia Air, and Aero Flyer Institute, an aviation training school. In accordance with Indonesian civil aviation ownership regulations, AirAsia Investment will hold a 49 per cent stake in the businesses with the 51 per cent majority held by its Indonesian partner, Fersindo, already the 51 per cent shareholder of Air Asia’s airline interest in the country Indonesia AirAsia.

The $80 million deal witll be completed in two stages, an initial purchase of a 76.95 per cent stake, subsequently followed by the remaining 23.05% held by its existing shareholders. The acquisition is expected to complete by 2nd quarter 2013 and is subject to regulatory approvals in Indonesia.

This new acquisition will complement the existing operations of Indonesia AirAsia which has successfully captured strong market share in Indonesia’s international airline traffic and opened a growing domestic route network throughout the Indonesian archipelago. According to AirAsia, the Batavia Air acquisition provides greater domestic connectivity and an extensive feeder network into its existing hubs in Jakarta, Bandung, Denpasar, Medan and Surabaya.

Upon the completion of the deal, Batavia Air and IAA will fly more than 14 million customers serving 42 Indonesian and 12 international destinations. The addition of Batavia Air will provide AirAsia immediate access to an enlarged fleet of aircraft, and importantly additional pilots and flight crew, as well as 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 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,” said Tan Sri Dr Tony Fernandes, Group Chief Executive Officer and Director of AirAsia. “We are excited with the potential synergies this acquisition will bring to AirAsia Group and see this as a natural extension of the success we have achieved with IAA.”

Founded in 2002, Batavia Air operates a fleet of 33 aircraft serving 41 domestic routes and has recently expanded its route network to international destinations such as Singapore, Jeddah, Riyadh, Kuching, Dili and Guangzhou.

“I am proud to have built Batavia Air into a leading Indonesian airline from its humble beginnings. Recent developments in the airline industry have made me recognise 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,” said Bapak Yudiawan Tansari, Batavia Air’s founder.

The purchase will enable the AirAsia group to significantly expand its presence in the domestic and international markets in Indonesia. As the table below illustrates, Indonesian AirAsia is currently the sixth largest domestic operator in the country with just a 3.5 per cent share of the total seats this month. Batavia Air is currently ranked fourth, a position the airlines would retain upon completion of the deal, but with a much stronger 11.6 per cent share of the availability capacity, based on this month’s schedule.

The Indonesian domestic market has grown 5.9 per cent year-on-year, according to capacity data with both Batavia Air and Indonesian AirAsia reporting above average growth of 35.2 per cent and 18.4 per cent, respectively. Fellow low-cost carrier Lion Air is the dominant carrier in this market with a significant 42.2 per cent marketshare offering almost 2.8 million domestic seats in July 2012.

Indonesian AirAsia has a much stronger presence in the international market from Indonesia and as the table below shows, it is currently ranked the second largest carrier with a 15.2 per cent share of the total seat capacity this month. When you include the activities of the other AirAsia group airlines, the low-cost venture has a 24.3 per cent share, a figure that will grow to 26.2 when you also include the limited international operations of Batavia Air: the airline is the 13th largest carrier in this market with just under 200 monthly flights on ten routes.

Although Indonesian AirAsia has reduced its capacity year-on-year by seven per cent, a realignment of networks means that that the group’s capacity is actually identical to this month last year. The Indonesian international market is growing at a rate of 3.9 per cent but it is the growth of low-fare rivals Lion Air (61.6 per cent) and Jetstar Airways (23.5 per cent) that are the standout figures that will be influencing AirAsia’s future plans in this market. Batavia Air has increased its own capacity in the international market by 21.3 per cent when you compare July 2012 with the same month last year.