Sector Watch: Spotlight on Defensive Strategy

About four and a half years ago, Folio Investing launched an equity (e.g. stock) portfolio that focused on reducing the impact of market volatility.  So-called defensive stocks are those which tend to be fairly insensitive to the mood of the market as a whole.  Conventional wisdom suggests that demand for band-aids, electricity and paper does not go up when the market is exuberant, but neither does it collapse when the market swoons.  The conventional wisdom also suggests that these stocks will tend to under-perform the broader market during rallies and, over the long-term, that a portfolio of these stocks will deliver modest returns.  Our research suggested, however, that it was possible to create a portfolio of defensive stocks that would provide returns to keep up with rallies in the broader market, while still substantially reducing the impact of market volatility.  Folio Investing launched theDefensive Strategy Folio that incorporated this research on February 28, 2008.

Performance

From February 28, 2008 through September 5, 2012, the Defensive Strategy Folio has provided an annualized return of 6.28% vs. 2.72% per year for the S&P 500 (including dividends).  The Defensive Strategy Folio has performed well over a 4.5-year period during which the S&P 500 has struggled.  This is what we expect for a defensive strategy.  What is truly notable, however, is that the Defensive Strategy Folio has kept up with the robust rally in the S&P 500 over the past three years as well.  The chart below shows the total return for an investment in the S&P 500, assuming dividends are reinvested, from August 31, 2009 through August 30, 2012.  Over the period, the S&P 500 has returned a cumulative 46.7% (annualized return of 13.6% per year).  Over the same three-year period, the Defensive Strategy Folio has slightly out-performed the S&P 500 with a total return of 48.3% and has done so with less volatility.  As the chart below illustrates, the Defensive Strategy Folio has followed the broad rally but has not swung up or down as much as the S&P 500 during short-term rallies and drops.  The chart of the Defensive Strategy performance is for funded performance for an account maintained at Folio Investing.

Defensive Strategy Folio vs. S&P 500 (8/31/2009-8/31/2012)

There are a number of possible explanations for the substantial out-performance of the Defensive Strategy since it was launched in February of 2008.  Certainly, there is an element of chance.  This Folio was introduced shortly before one of the worse market crashes in history and defensive industries tend to thrive in these conditions.  Our research in 2007 suggested that the Defensive Strategy would out-perform in down markets but also would out-perform the S&P 500 across a range of market conditions.  The fact that the Defensive Strategy Folio has slightly out-paced the S&P 500 during its impressive three-year rally supports our conclusions.

Strategy Overview

The Defensive Strategy Folio is not simply a collection of stocks picked from defensive sectors.  A key part of our analysis was to combine securities in the Folio that provided effective risk offsets.  In other words, these stocks were selected both on the basis of their individual attributes, and on how well they worked together to mitigate risk.  This was accomplished using a sophisticated statistical analysis that accounts for the correlations and risk levels of each stock on a trailing historical basis and using forward-looking Monte Carlo simulations.

On an individual basis, the stocks that comprise the portfolio tend to have low Beta, a statistical measure of how much the returns on a stock are driven by the broader market.  Defensive stocks tend to have low Beta.  The current Beta for the entire Folio is 73% as compared to 100% for the S&P 500.  There is a growing body of research that finds that low-Beta stocks out-perform their higher-beta counterparts (which are often ‘growth’ stocks) over the long run.  This research supports our own findings, albeit on the basis of a different line of reasoning.

Commentary: The Case for the Defensive Strategy

There are a variety of reasons why the type of strategy used in this portfolio may be attractive in the future.  First, while the economy is recovering from a deep recession, the economic growth as we emerge may continue to be modest.  In addition, the overhang of consumer debt may substantially limit the rebound of discretionary consumer spending.  For these reasons, companies which provide necessary basic products and services are quite likely to out-perform relative to stocks of companies that sell discretionary products.  While this narrative is plausible, any type of economic forecast is fraught with uncertainty.  The Defensive Strategy Folio allows investors to participate in economic recovery and growth, as we can see by the performance over the past three years, as well as providing some protection from market volatility.

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The Cost of Complexity

In [Donald] Yacktman's view, businesses with both low capital intensity and low cyclicality (Coke: KO, Pepsi: PEP, and P&G: PG are the specifics mentioned) are likely to earn the highest returns.

The benefits owning shares in quality businesses long-term (especially if bought when occasionally selling at a fair or better than fair price) comes down to potential returns relative to risk.

Simple to understand? Certainly. Easy to implement as a core investing approach? A bit less so.  

The evidence to support the merits of owning shares in these kinds of businesses long-term isn't hard to find nor is it particularly complicated. A simple insight can sometimes trump details and complexity. When it occasionally does, use it. What's simple can beat the complex and, in fact, often does.

Yet simple isn't always better. It is just that what is used should be neither more simple nor more complicated than it need be.

It's possible, of course, to make things too simple.

Science views complexity as a cost. That additional complexity must be justified by the benefits. 

"In science complexity is considered a cost, which must be justified by a sufficiently rich set of new and (preferably) interesting predictions..." - From the book "Thinking, Fast and Slow" by Daniel Kahneman

Well, investors ought to view complexity in a similar way. 

Investing is always about getting the best possible returns, at the lowest possible risk, within one's own limits. Since it is already inherently enough of a challenge, there's no need to make it more so by adding unnecessary complexity. Don't use calculus when arithmetic will do the job. Save the more powerful tools for when they can actually add value (and especially avoid some of the worse-than-useless overly complex theories taught by modern finance).

Now, just because something is relatively simple doesn't mean lots of homework isn't necessary.

There absolutely is lots of hard work involved. 

The reason for and advantage of owning shares in some of the quality franchises -- superior returns at less risk if bought well -- is clearly not all that difficult to understand. Having enough discipline, patience, and the right temperament to stick with it is the tougher part. 

Well, that and maybe not becoming distracted by the various forms of investing alchemy cloaked in incomprehensible faux sophistication: 

"...most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising 'Take two aspirins'." - Warren Buffett in the 1987 Berkshire HathawayShareholder Letter

Quality stocks. Less drama. Little mystery. Effective. 

Think of them as the "two aspirins" of investing. 

I'm sure that many will still choose to own shares of the highest quality stocks primarily for "defensive" purposes. I doubt that changes anytime soon. Somehow, the thinking goes, they'll jump in and out while not having mistakes and frictional costs to subtract from total return. Sounds good in theory. I'm sure there are even some who can make that sort of thing work for them. There are likely even more who incorrectly think they can.

So, despite the evidence, investing in high quality businesses long-term remains an approach that's still not frequently employed.*
(I mentioned in the previous post that Jeremy Grantham has described these high quality businesses as the "one free lunch" in investing.)

It's a subject I've covered many times on this blog (okay...maybe too many times based upon the number of related posts I have listed below) because it just happens to have been and remains a cornerstone of investing for me.

Unfortunately, investors need more patience now compared to when valuations were quite attractive not too long ago (though at least it's not nearly as bad valuation-wise as it was a decade or so ago). Most of the best quality enterprises are rather fully valued right now.
(Over the shorter run -- less than five years -- anything can happen as far as relative performance goes. It's the longer time horizons -- more like twenty years or so -- that the "offensive" merits of high quality businesses become more obvious. A full business cycle or two. I realize that some, or maybe even many, market participants consider five years to be longer term these days.)

Still, it makes sense to embrace any simple, understandable, yet effective method of delivering above average risk-adjusted returns while generally avoiding the esoteric.**

Finally, the assessment of risk is necessarily imprecise and is certainly not measured by something like beta. Real risks does not lend itself to the all too popular quantitative methods. What can be measured, should be, but much of the important stuff can't be measured all that well. It requires a mixture of both quantitative and qualitative.

"You've got a complex system and it spews out a lot of wonderful numbers that enable you to measure some factors. But there are other factors that are terribly important, [yet] there's no precise numbering you can put to these factors. You know they're important, but you don't have the numbers. Well practically everybody (1) overweighs the stuff that can be numbered, because it yields to the statistical techniques they're taught in academia, and (2) doesn't mix in the hard-to-measure stuff that may be more important. That is a mistake I've tried all my life to avoid, and I have no regrets for having done that." - Charlie Munger in this speech at UC Santa Barbara

When it comes to managing risk (and many other things), it's often a mistake to allow the less important but easy to measure stuff to triumph over what's more meaningful if tougher to measure. 

Adam

Long positions in KO, PEP, and PG established at much lower than recent market prices. No intention to buy or sell shares near current valuations.

Related posts:
The Quality Enterprise: Part II - Aug 2012
The Quality Enterprise - Aug 2012
Consumer Staples: Long-term Performance, Part II - Dec 2011
Consumer Staples: Long-term Performance - Dec 2011
Grantham: What to Buy? - Aug 2011
Defensive Stocks Revisited - Mar 2011
KO and JNJ: Defensive Stocks? - Jan 2011
Altria Outperforms...Again - Oct 2010
Grantham on Quality Stocks Revisited - Jul 2010
Friends & Romans - May 2010
Grantham on Quality Stocks - Nov 2009
Best Performing Mutual Funds - 20 Years - May 2009
Staples vs Cyclicals - Apr 2009
Best and Worst Performing DJIA Stock - Apr 2009
Defensive Stocks? - Apr 2009

* To me, the shares of many of these businesses are not especially cheap these days even if they have been at times over the past few years. It's worth waiting for a good price then acting decisively when valuation is attractive. Since each is unique, the necessary homework to build some depth of knowledge and understanding can be done while waiting for the right price. These may be lower risk but they're certainly not no risk. Margin of safety still matters. There's no way around the preparation and patience required in investing. After figuring out what's attractive at a certain price lots of waiting is inevitably necessary.
** Some may become bored by the straightforwardness. A few may even choose more complicated, high risk journeys just to enhance the challenge. Long-term Capital Management (LTCM) comes to mind. Charlie Munger said it best in this 1998 speech:

"...the hedge fund known as 'Long-Term Capital Management' recently collapsed, through overconfidence in its highly leveraged methods, despite IQ's of its principals that must have averaged 160. Smart, hard-working people aren't exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods." - Charlie Munger's 1998 speech to the Foundation Financial Officers Group

Uncomplicated, understandable, yet effective ways to produce attractive risk-adjusted returns should be embraced. Sophisticated or esoteric methods, especially those involving leverage, should not. Best to be wary of overconfidence in any profession. It can get even the most talented into trouble.

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Ingens, Panaroma Activity 2 Show

KUALA LUMPUR: Shares of Ingenuity Solutions Bhd fell 25.7% in afternoon trade on Tuesday ahead of a press conference called by substantial shareholder Chin Boon Long to clear the air over the recent developments.

At 4.19pm, the share price of the ACE Market-listed company was down nine sen to 26 sen. There were 96.36 million shares done.

Ingenuity-WA fell 1.5 sen to nine sen with 39.92 million units transacted.

The FBM KLCI slipped 0.27 of a point to 1,653.63. Turnover was 1.14 billion shares valued at RM1.089bil. There were 238 gainers, 468 losers and 320 counters unchanged.

Ingenuity, a tech firm which made a net profit of RM3.2mil in its latest quarter, has attracted trading interest in recent days following events leading to the announcement of a possible takeover of Ingenuity.

In the latest development, Chin was quoted saying on Tuesday he would be addressing the media and stakeholders in his personal capacity. The press conference will be held Wednesday at 10.15am in Federal Hotel, Jalan Bukit Bintang, Kuala Lumpur.

He sent out an invite to the media and hopes to extend the invite to all shareholders of Ingenuity Solutions, 1 Utopia Bhd as well as other concerned stakeholders. Chin is also the managing director of 1 Utopia.

To recap, last Thursday, Ninetology Marketing Sdn Bhd, a relatively unknown technology firm with a paid-up capital of RM2, announced it had "ready funds" to take over Ingenuity.

Ninetology had offered to acquire a 39.44% stake in the company at 55 sen per share. If the deal goes through, this would trigger a mandatory general offer to acquire all the remaining shares Ninetology has not already owned in Ingenuity.

Ingenuity it had received an offer letter from Ninetology to purchase all of the shares held by Chin, Firstwide Success Sdn Bhd, Landasan Simfoni Sdn Bhd and Titanium Hallmark Sdn Bhd amounting to a total of 214,297,656 shares, representing 39.44% of the total equity interest of Ingenuity, at an offer price of 55 sen per share.

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LOL, Ingens is another clown in the Ace circus. Offer letter at 55 sen yet the counter dropped to the lowest price of the day today, 22.5 sen. Nobody believe the deal will go through I guess whatever the press conference tomorrow will say. Any chance for CONTRA trades tomolo ?

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Who is Right?

http://buzz.money.cnn.com/2012/08/23/stocks-funds-inflows-outflows/?iid=HP_River

Since beginning of this year, retail investors have been pulling money out from the stock markets while the stock markets continue to charge ahead.

The hedge fund managers are also holding a large chunk of cash though they are not in net short position. They are preparing to take advantage of market decline but their refusal to short stocks indicating the market can still rally ahead. Read the rest hereHedge funds are betting on disasters

It was reported recently on the internet that George Soros is holding 75% cash. Read here : George Soro fund maintains big cash position

When the markets (Dow Jones Industrial, S & P 500) were finally turning down after Dow did not make a new high but S & P 500 did, Mark Hulbert, a regular comentator of Market Watch, made  comments like rally was living on borrowed time. Read the rest here May-June correction was a failure

Is it true that the rally is living on borrowed time?

 Dow gained about 6% on the year-to-date basis. Let's look at the winners of Dow components that drive the gains.

• It is obvious that stocks that are beaten down badly last year like financial and housing sector are getting back a bit of justice.
• Industrial sector around the globe tanked but the US industrial sector looks pretty healthy as they are in expansion stage though the data is deteriorating rapidly.
• Safe haven stocks that paying good dividend yield like telecom, health care and consumer discretionary are the winners.
• Solid oil price is providing support for oil stocks.
• Technology is sending a mixed message, outside Apple, I think the sector is in trouble.

I found this data after I have done the donkey job of looking at gainers and losers of Dow components. The conclusions are pretty much the same. 

By sector breakdown, info tech is the largest piece of pie now. Market cap expanded by USD 1,785 b and Apple contributed to about USD 384 B or 21%. It is quite to safe to say that large gains were Apple driven and the question is can Apple continue to do the magic?

I would say consumer staple, discretionary and energy are getting very close to its valuation and in some cases over-valued, unless people would like to chase yield slightly above 5 to 10-yield of 1.7%.

That will leave us with financial and industrial sectors, can it be the next rally leader ? Some possibility on financial sector but I doubt industrial sector can.

Global financial markets are very interconnected nowadays. Mind you that some stock markets are very oversold in Europe and emerging markets especially China. A counter-rally in these markets will continue to provide positive reinforcement loop. Oversold counter rally markets will reinforce US market and in return US market will provide confidence to oversold markets to rally. Until either one is exhausted, tanking US market or exhausted counter rally loop is broken, trend trading will remain the best friend of brave and agile ones.

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How to Lose Money in the Stock Market

Instead of writing something positive like how to be a millionaire or how to be a successful investor I prefer to write about how to lose money in the stock market. After all, 99.9% of people are having IQ 150 and above, why write something that they are already good at -- smart and successful in the stock market. This post is not backed by research but by experiences that I heard throughout my life. I hope you can follow these simple tips if you want to lose money, shirt and underwear in the stock market. I will you pay you the difference if you don't lose money base on these tips.

Tip #1. This is my last job, babe. We are going to retire in Bahama tomorrow. Ignore whatever you heard okay, I will be just fine. Just wait for me at the port all right. Mr. Stock market, I am going ALL-IN with the rock solid advice from a few public listed directors info. They told me no one has heard about this tipsy. Market will be stunned with this corporate development announcement. Sure Gap-Up, Yes, 100% of my net worth on ONE stock. RM 500,000 just ONE stock. Warren Buffet is right, diversification is for birds. Simple. One stock. One shot. Hantam kuat kuat!

Tip #2. Be a smart ass. On the contrary of what you heard that retail investors are stupid and ignorant, as education level of general population are increasing, people are doing more research than you ever imagine. Find everything you can and read them - the WSJ, the Star, blogs(including this one), Fortune, Forbes. And don't forget to turn on Bloomberg and catch up with Creamer on CNBC. Read everything. Understanding everything.

Tip #3. Have a STOP-LOSS. Yeah you did that but how come??? It is your 9th times of hitting the stop-loss. Let's do the math. A $ 1,000,000 will reach 387,420.489 when you hit the 9th times of hitting stop-loss. It takes a genius to achieve this level of REVERSE-8-Wonder of the world. No worries, when you reach this level, call me at 1-800-STOP-LOSS. Understanding don't count. Only price. When you are wrong, stop-loss will be there to save you.

Tip #4.  Be a geek, speak only Greek. Don't bet on something is sure, it just too boring. Invest based on this secret formula.

Asset allocation = (Probability of sun will come out tomorrow)*Penny stocks*100% + (Probability of sun will not come tomorrow)*Fixed Deposit*100%

Tip #5. Break down your long term goal into actionable investment goal on T+3 basis. 20% return will translate into 0.083% business day. I am sure you are not that greedy, just buy and sell it for 0.25% gains on T+3. No matter how high is the stock market, all you need is 1.65% gain in 3 days, your gain is 0.25% after minus 1.4% broker and stamp fees. This is an easy peasy strategy. If a  3 year old kid can do it, you cannot do it meh? No balls-ah?. Sure you can-lar. Boleh-lar. Have a po-C-tip attitude.

Like I said, if you don't lose money based the above 5 tips that painfully gain by billions of investors and speculators, I will pay you the difference. Call me at 1-800-sure-lose-money-dot-Com. By the way, Time dot Com worth at least RM 5 based on 20% discount to its SOP on shareholding in Digi and fiber business.

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Reversion to Mean

Some stocks or commodities generated poor or good returns for good reasons. Poor fundamentals or stretched valuations but selling for a high price will produce worse results. Improving fundamentals or modest valuations will produce good returns. The European stock markets performed poorly is understandable. Shanghai Composite Index generated closed to 50% losses is getting more attractive by days. The average PE for A shares selling for 11 times PE is very cheap. I have completed my visit in China. There is no doubt that it was slower than before but I could not find any signs of hard landing.  The day of Reversion To Mean will come. My Dollar Averaging strategy has been activated recently. 20% of Turtle Portfolio cash will be moved into Chinese equities spread out over a period of 8 - 12 months.

Funds that worth investigating:

1. Morgan Stanley China A Share Fund. It's a closed end fund listed in NYSE(CAF). It is selling close to 10% discount to NAV but with 13% market distribution yield is very attractive.

http://www.closed-endfunds.com/FundSelector/FundDetail.fs?ID=111897

2. United SSE 50 China ETF http://www.uobam.com.sg/uobam/html/china_etf.html

It is an ETF that has direct exposure to A shares listed in Singapore Stock Exchange. It has just recovered slightly after hitting a new low of USD 1.54.

3. BRIC mutual funds 

4. Mutual funds specialize in H Shares

5. CIMBC25 listed in KLSE.  I sold off last year at RM 0.83/share. It is about time to get back in soon.

Have a good weekend everyone.

SUNDAY, AUGUST 5, 2012

iCapital. Deja Vu?

As of Aug 4, 2012, iCapital closed end fund was selling for RM 2.30 but NAV was RM 3.01, represents a discount of almost 24%. As of May 30, 2012, iCapital has net asset of RM 400 million and almost RM 133 millions are in cash. Investors may be sceptical that it can maintain its high elevated level.

The fund has never declare any dividend since it was launch in October 2005. In a few months time, the fund will be getting almost 7years. Using the market price around first week of October of every calender since it was listed we all can see that all the capital gain was in the first 2 years and return was practically non existent since 2008.

There are some interesting developments since last year with emergence of two foreign funds. One of them is  City of London Investment Management Company LTD with initial interest of 5.26% in November 2011 and increased their holding to almost 6.2% as of July 31, 2012. The other fund is Lexey Partners Limited with initial interest of 5.92%. They started buying some time April 2012. 


What Lexey Partners did reminded me of of a closed-end fund Amanah Millenia fund. That fund was forced to closed in 2007 after in existence of 10 years. Lexey Partners bought an initial interests of 5.05% with almost 29% discount to its NAV. After the initial interest, they kept buying until it reached 16.2% and forced it to close.

Amanah Millenia was way under-performing at that time in terms of NAV with 21.9% gains only over a period of 10 years while iCapital managed to improve its NAV over time of almost 3 times.

The question is will iCapital face a similar fate? Will this time be different with City of London Investment and Lexey Partners already accumulated combined interests of 12.7%.

Many of closed end funds in listed in NYSE actually paying dividend regularly. Many of closed end funds sweetened their investors with generous dividend to compensate for the discount to NAV.

Having foreign funds buying is a good news to current holders and certainly adding pressures to its fund manager. The mentality of foreign funds are very different from small holders will just wait patiently hoping something will happen. They will make things happen and it will be a big dent to TTB's pride if his fund get liquidated!

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Airasia Acquiring Batavia Air

Airasia is acquiring 49% of Batavia Air while the remaining 51% is acquired by its Indonesian partner. I have mentioned that it is looking at Indonesia as the base for growth and in fact this deal is even better, accelerating further the growth of Airasia as a group.

If anyone is holding any airline stocks in the region be it SIA, MAS, Cathay Pacific, Qantas etc, do change your holding as this Malaysian company is moving mountains. The larger premium airlines should be very afraid as the future of airline business is in low costs not your premium business seats!

Do not even bother about looking at the acquisition price they are paying for, as there is no point comparing someone so flexible who can bend, squat, run, hide while the other national airlines can only sit and watch. There is no competition in the future when comes to a company which can do deals with anyone overseas. Against these players, Airasia is just competing on a different rule. The deal is just an example on how fast they can get things done. National airlines would have it much more difficult.

This is the real Airasia as it no longer is a Malaysian based airline.

See announcements below.
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AirAsia Accelerates Indonesian Expansion Plans

AirAsia and PT Fersindo Nusaperkasa acquire Batavia Air

Thursday, 26 July 2012 for immediate release

Jakarta, Indonesia: AirAsia Berhad (“AAB”) today announced that it has through its fully owned subsidiary AirAsia Investment Ltd entered into a Conditional Share Sale Agreement ("CSSA") together with its partner PT Fersindo Nusaperkasa (“Fersindo”) to acquire PT Metro Batavia (“Metro Batavia”), which operates the Indonesian airline, Batavia Air, and Aero Flyer Institute (“AFI”), an aviation training school (together “Metro Batavia Group”). The agreement was signed today between AAB, Fersindo and Metro Batavia at a signing ceremony in Jakarta.

In accordance with Indonesian civil aviation ownership regulations, AAB will hold a 49% stake in Metro Batavia Group with the 51% majority held by its Indonesian partner, Fersindo. Fersindo is also the 51% majority shareholder of PT Indonesia AirAsia (“IAA”). The total purchasing consideration for Metro Batavia Group is USD80 million (equivalent to approximately RM253 million) and will be settled in cash. The acquisition of 100% interest in Metro Batavia by AAB and Fersindo will be carried out in two stages, through acquisition of a majority 76.95% stake and subsequently followed by the remaining 23.05% held by its existing shareholders.

Correspondingly, the total purchasing consideration for 100% interest in AFI is USD1 million (approximately RM3.2 million). The acquisition is expected to complete by 2nd quarter 2013 and is subject to regulatory approvals in Indonesia.

This new acquisition will complement AirAsia’s existing Indonesian operations, IAA, which has successfully captured strong market share in Indonesia’s international airline traffic, with an extensive and well-established domestic route network throughout the Indonesian archipelago. The Batavia Air acquisition provides greater domestic connectivity and an extensive feeder network into IAA’s existing hubs in Jakarta, Bandung, Denpasar, Medan and Surabaya. Upon the successful acquisition, 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, experienced pilots and flight crew and 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.

Following the acquisition the number of distribution channels in Indonesia will increase ten-fold to over 5000 authorised agents and more than 70 sales outlets. With this enlarged agency footprint AirAsia will be able to reach even more customers while complementing our internet based sales. “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 CEO and Director of AAB.

Founded in 2002, Batavia Air has earned its reputation as a leading domestic airline with a strong safety track record throughout its operating history. Operating a fleet of 33 aircraft, Batavia has consistently held significant domestic market share through serving 41 domestic routes and has recently expanded its route network to international destinations such as Singapore, Jeddah, Riyadh, Kuching, Dili and Guangzhou. A certified flight school, simulator training centre and aircraft maintenance facilities also support Batavia Air’s operations.

“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.

“We are impressed with Batavia Air’s achievements over the past 10 years and will continue to build on Bapak Yudiawan’s legacy. 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 . Indonesian air travelers can all look forward to even more affordable fares soon,” remarked Tan’ Sri Dr Tony Fernandes.

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