Indonesia’s drop in poverty has created millions of new consumers… Including airline passengers.
The struggling French economy has just received a boost in the form of the biggest order ever for Airbus. Indonesia’s Lion Air has just placed an order for 169 A320s and 65 A321 jets worth 18.4 billion Euros with the French aircraft manufacturer.
Lion Air is a major player in Indonesia, holding about 45% market share there. Indonesia has experienced tremendous economic growth and a boom in air travel. Deregulation of the aviation sector in the 1990s has made air travel affordable for many of Indonesia’s 240 million inhabitants, leading to the appearance of dozens of airlines. Although Lion Air currently operates mostly domestic flights, it is likely to begin flying to destinations in other Asian countries.
This is not the first huge order for planes placed by Lion Air, although it is the first time that the company has ordered from Airbus. In 2011, it ordered 230 planes from Boeing, representing that company’s biggest order ever as well. This order was one of the factors that contributed to Boeing passing Airbus to become the world’s largest aircraft manufacturer.
The two companies are locked in a duopoly in the manufacture of large aircraft and are highly competitive with each other. The Airbus order from Lion Air could perhaps shift the momentum for the company to take the lead from Boeing again. Lion Air is a low cost carrier, and it is likely that other emerging low cost carriers will follow its example and order medium-haul jets from Airbus.
The potential for air travel in Indonesia is tremendous. Right now, only 6% of Indonesia’s population has traveled by airplane. It is estimated that 180 million people will fly domestically in Indonesia by 2021, which is three times as many as in 2011. Within the next 10 years, 900 new planes are expected to be delivered to Indonesia.
The potential in Indonesia is representative of the opportunities for aircraft manufacturers in Asia more generally. For example, although there 10 times as many people in Asia as in the United States, right now, there are about three times as many planes in the US.
The rapidly growing Asian economies have led to an emerging middle class. This will certainly increase the demand for air travel, as well as many other previously unattainable products and services, in this part of the world, and no one single aircraft manufacturer or other type of company will be able to meet the demand. This is very good news for both Airbus and Boeing as well as for many other companies looking to target Asia’s rapidly expanding middle classes.
In the case of Airbus in particular, the increased presence in Indonesia will have immediate benefits for the company and France as well as potential longer-term consequences for other European and French companies. Unemployment in France stands at 10% and layoffs from companies are common, so the economy will receive a boost from manufacturing the 234 planes, which will be conducted in France and involve 5,000 employees there. The order could also be influential in helping the rest of Europe. Airbus is owned by EADS, an aerospace and defense company whose shareholders include the Spanish, French and German governments.
French Prime Minister François Hollande hopes that the deal and successful cooperation of several countries in EADS will inspire similar cross-country cooperation in other industries, thereby strengthening European industrial output. There is certainly a huge opportunity to feed booming economies in the developing world, and European companies may need to work together in order to make the most of it.
– Caroline Poterio Martinez