Indonesia's Lion Air is among the least-known major airlines in the world. But recent moves to expand its fleet are putting the company on the map—and drawing attention to the country's potential as a top growth market for aviation.
That expansion could expose the airline to the same heated competition that is pinching other carriers in the region, however.
Lion Air on Wednesday said it would order 27 ATR aircraft to give the airline more flexibility to reach the smaller airports among Indonesia's far-flung islands. ATR is a joint venture of European Aeronautic Defence & Space Co. and Finmeccanica SpA's Alenia Aermacchi SpA unit.
The announcement of the ATR order, at the Singapore Airshow, came a day after the budget carrier said it had completed purchase plans unveiled last year to buy 201 of the 737 Max jetliners that Boeing Co. is developing and 29 of its current-generation 737-900ERs, in a deal valued at $22.4 billion at catalog prices. The package is the Chicago-based plane maker's largest commercial-aircraft deal.
Lion Air will use the aircraft to transport more of Indonesia's rapidly expanding middle class to new destinations across the archipelago and to other parts of Asia, said Director Edward Sirait.
"Indonesia's big domestic market will be our first priority," he said in an interview. But "in addition to the domestic market, we plan to expand to medium routes in Asia, focusing on Asia's southern markets." Lion Air also plans to offer full-service flights.
Bombardier Inc. said Wednesday that Lion's main competitor, Indonesian flagship carrier PT Garuda Indonesia, would buy six of the Canadian aircraft maker's CRJ1000 jets, valued at $300 million in total, and has options to buy another 18.
Despite its recent shopping spree, Lion Air is little-known outside Indonesia. It has focused primarily on the domestic market rather than international and longer-distance routes, as Malaysia's AirAsia Bhd. and other large Asian carriers have done.
While that has kept the Indonesian carrier's flying-lion logo out of the eye of many regional travelers, it has so far helped keep the airline out of the bruising competition that has squeezed profits on some regional routes. AirAsia X, AirAsia's long-distance associate, recently said it would cancel flights to parts of India and elsewhere because of high fuel prices and weakening demand.
One question is whether Indonesia's market is large enough to drive most of Lion Air's growth, or whether the carrier will need to expand overseas more aggressively than planned. That would throw yet another carrier into the mix as other Asian budget carriers add or expand long-distance operations.
With the world's fourth-largest population—behind China, India and the U.S.—Indonesia is seen by many analysts as one of the world's last big growth markets for airlines.
Only a small percentage of its population has ever flown, even though a lack of roads, trains and ferries makes air travel the only means to reach many parts of the 17,000-island country.
As Indonesian incomes have risen, the number of air passengers in the country has jumped close to 50% in the last two years to around 65 million last year, according to Indonesia's National Statistics Board. Meanwhile, business travel has jumped as domestic and international companies have flown to the far corners of the country in search of its rich natural resources, including coal, tin and palm oil.
Indonesia last year drew a record $20 billion in foreign direct investment and tallied the country's highest economic expansion, 6.5% growth in gross domestic product, in 15 years.
But Lion Air also has competition from Garuda and its growing low-cost carrier Citilink, as well as from AirAsia's Indonesian operations and smaller domestic airlines, such as Batavia Air and PT Sriwijaya Air. In recent years, many smaller airlines have attempted to conquer the Indonesian market and disappeared because of safety problems or heavy debt.
Started with one plane in 2000, Lion Air has succeeded by sticking to offering no-frills, low-fare flights for underserved and remote destinations. In recent years it has emerged as Indonesia's largest private carrier, with flights to more than 36 cities in Indonesia and a few overseas destinations, including Singapore, Malaysia and Vietnam.
Speculation has been rising about Lion Air's plans, largely because of its aircraft orders and because the carrier had indicated it would sell 30% of the company in the first half of this year to raise $1 billion.
Founder and President Director Rusdi Kirana this week said Lion Air would defer an initial public offering for one to two years.
While it will be five years before the first of Lion Air's latest orders are delivered, the carrier will have to start developing new local and international routes if it wants to fill the new aircraft, analysts said.
"If they really take all of the aircraft, they will definitely be a threat," said John Rachmat, an analyst at Royal Bank of Scotland Asia Securities in Singapore. "It is not something to sneeze at."
The airline had looked at the possibility of expanding through joint ventures in Vietnam, Thailand, Malaysia and Australia, but decided to abandon those plans. Mr. Sirait, the Lion director, said Wednesday that the company has no plans to form joint ventures, the method AirAsia has used to expand in Asia.
"We are successfully recognized as a low-cost carrier and plan to step up into the full-service carrier business as well," he said. "We are looking at all potential markets with a focus on domestic and medium-range routes."
One factor that could hold Lion back is lingering concern over Indonesia's safety record.
The country long has had one of the worst accident rates in Asia, though its record has improved somewhat in recent years. In 2007, the U.S. downgraded the safety status of Indonesia's civil-aviation directorate, and the European Union put all the country's carriers on a list of banned airlines.
The EU in 2009 removed Garuda and some others from the list after they persuaded regulators that the airlines' safety procedures were sufficient. Safety officials in Brussels and elsewhere remain concerned, however, that while some Indonesian airlines run tight operations, the government's safety officials aren't sufficiently rigorous.
A Lion Air plane crash-landed in 2004, killing 25 people, and the airline has had a number of other safety incidents, including hard landings and overshot runways. Over the last several months, three of Lion Air's pilots have been arrested after testing positive for illegal drugs. The carrier is adjusting how it monitors its pilots' behavior to stop similar incidents, Mr. Sirait said.
