AirAsia faces uphill battle in Indonesian domestic market after dropping plans to acquire Batavia

AirAsia's decision to drop plans to acquire Indonesian carrier Batavia Air leaves the group with the daunting task of having to rely on organic growth to increase its share of Indonesia's booming but crowded domestic market. Southeast Asia's leading LCC group is now the sixth largest player in the region's biggest domestic market, a glaring weakness in an otherwise strong portfolio that it was aiming to overcome by acquiring Batavia.

The Batavia acquisition, while against the grain of normal AirAsia strategy, would have given the group a respectable third place position in Indonesia's domestic market. Batavia would have also given AirAsia slots at Jakarta's congested airport and access to a valuable local distribution network. Perhaps most significantly the Batavia deal would have allowed AirAsia to compete more effectively against fast-expanding Indonesian LCC group Lion Air, which has emerged as a bigger rival to AirAsia than the more well known Jetstar or Tiger groups.