Indonesia’s Sriwijaya Air that is in the spotlight this week after its Boeing 737-500 crashed into the Java Sea on Saturday with 62 people on board, started with just one plane in 2003 and now it’s the country’s No.3 airline group, aided by its strategy of acquiring old planes at cheap prices and serving routes neglected by competitors.
The mid-market airline also has few international flights.
Brothers Chandra and Hendry Lie, whose family was involved in tin mining and the garment industry, and their business partners launched Sriwijaya 17 years ago with a single plane that flew from their hometown of Pangkal Pinang on Bangka Island to Indonesia’s capital Jakarta.
Its focus on second and third-tier routes gave it a loyal customer base and helped it snare nearly 10% market share behind Lion Air and national carrier Garuda Indonesia.
They used a conservative business model of acquiring older planes on the cheap rather than taking advantage of low-cost financing to purchase large fleets of new aircraft like other fast-growing carriers such as Lion Air, Malaysia’s AirAsia Group Bhd and Vietnam’s VietJet Aviation JSC.
The fleet of Sriwijaya and regional offshoot NAM Air is nearly 20 years old on average – nearly three times older than Lion Air group, according to website Planespotters.
The plane involved in the crash, a 737-500, was one of only 77 remaining in service globally, aviation data provider Cirium said. Other current operators including the likes of Nigeria’s Air Peace and Kazakhstan’s SCAT Airlines.
The smaller seating capacity of 120 are more appropriate for certain routes like Jakarta to Pontianak on Borneo flown by the plane that crashed on Saturday and the 737-500 could land at airports with short runway lengths. Sriwijaya and NAM together have 34 planes for operations
Older jets can be operated just as safely as newer ones if maintained properly, though the cost of doing so is higher, as are the operating costs because they are less fuel efficient.
Rising upkeep costs and low fare prices due to heated competition meant that by 2018 Sriwijaya had accrued large debts owed to Garuda’s maintenance arm, GMF AeroAsia. As of Sept. 30, 2020, Sriwijaya and NAM owed around $63 million in unpaid bills to GMF AeroAsia and Garuda had warned of impairment losses on $37.5 million owed by Sriwijaya as part of a failed cooperation agreement, according to GMF AeroAsia and Garuda.
The pandemic has only worsened their financial situation, hence analysts fear if the crash during Covid-19 would cripple the airline overall.