By Andjarsari Paramaditha
Indonesian budget carrier PT Citilink Indonesia, a unit of state-owned carrier PT Garuda Indonesia (GIAA.JK), plans to expand its fleet to 50 planes and sell a 30 percent stake in a public offering by 2015, the company’s CEO said on Friday.
The growth race among airlines in Southeast Asia is heating up after passenger traffic in the Asia-Pacific region more doubled between 1998 and 2012, putting air travel activity on a par with North America.
But the region’s low cost carriers are struggling to make a profit due to thin margins, with many lacking the huge cash flows required to sustain loss-making fares, stump up money to acquire coveted landing slots and fund new aircraft.
“This year we don’t plan as a profitable company … in order to make sure we got the market share and we have to have enough capacity,” Citilink’s chief executive, Arif Wibowo, told Reuters in an interview.
“We have to improve our performance and then we are considering an IPO.”
The company posted a $28.4 million loss on operating revenue of $73.4 million in 2012. It aims to reach $1 billion in revenue by 2015 by flying 16 million passengers in 50 aircraft.
Citilink had 2.8 million passengers last year, while rival AirAsia had 4 million passengers. With its current 17 percent market share in the low cost carrier segment, Citilink is targeting 19 percent by end of the year and 29 percent in the next 5 years.
That would mean more pressure on domestic market leader Lion Air and the region’s biggest budget carrier AirAsia Berhad (AIRA.KL), which is struggling to expand in Indonesia despite a major push to set up its regional office in Jakarta.
Citilink is also planning a regional expansion next year, eyeing 7 destinations in Singapore, Malaysia, Thailand and northern part of Australia, Wibowo said from the cockpit of his firm’s newest Airbus A320 aircraft in its Cengkareng airport facility.
(Reporting by Andjarsari Paramaditha; Writing by Janeman Latul; Editing by Mark Potter)
Garuda Indonesia has announced it will join KLM, AeroMexico and other carriers in the SkyTeam airline alliance from March next year.
Announced today, the airline will be the alliance’s twentieth international member, first Indonesian carrier and second Southeast Asia member.
Garuda Indonesia president Emirsyah Satar said over the past few years the airline had commenced cooperation with SkyTeam airlines including Korean Air and Vietnam Airlines, with the objective of joining the alliance.
“As the first Indonesian airline to join this world-class alliance, our strategic target is to continuously strengthen profitability and boost international market competitiveness,” Mr Satar explained.
Mid-last year, the SkyTeam received its first South American member, Aerolineas Argentinas and could welcome Virgin Atlantic to its team, with reports the airline is considering the SkyTeam alliance.
Brazil, Russia, India and China (BRIC) are no longer the fastest growing group of countries in terms of seat capacity, having been overtaken by Turkey, Indonesia, Mexico and the Philippines (TIMP), according to OAG, the market leader in aviation intelligence.
The OAG FACTS (Frequency and Capacity Trend Statistics) report for June shows that in the last five years, the TIMP countries have seen a combined average annual growth in domestic capacity of 16%, compared to 10% for the BRIC nations.
The TIMPs have been grouped together due to their high levels of economic growth and favourable demographics. In fact, the International Monetary Fund forecasts increases in gross domestic product this year of 3.5% for Turkey and Mexico, 4.8% for the Philippines and 6.3% for Indonesia.
In the last decade, China and India have averaged 12% annual growth in their domestic markets, while Brazil and Russia have experienced average annual growth rates of 9% and 8% respectively. However, these growth rates are usurped by both Turkey and Indonesia, which recorded average annual increases in domestic capacity of 21% and 14% respectively during the same period.
International seat capacity growth has also been stronger for the TIMP countries in the last five years, having recorded average growth of 10% annually, compared to 8% for the BRICs.
John Grant, executive vice president, OAG, says: “While the four BRIC countries account for nearly a quarter of the world’s total economic output, the TIMP countries are all experiencing strong levels of economic growth and this is reflected in the significant expansion of capacity in each of their aviation markets.
“One of the biggest contributors to this capacity growth is the geographical positioning of each of the countries. Turkey and Mexico undoubtedly benefit from their locations at the mid-point of key trade routes – Europe to Asia and North America to South America – while Indonesia is also very well positioned to take advantage of the ASEAN-China Free Trade Area, which came into force in 2010.”
The LCC effect
Of the four TIMP countries, three of the domestic markets – with the Philippines being the exception – have seen double-digit growth in domestic seat capacity in the first six months of 2013 versus the same period last year.
Domestic seats in Indonesia have increased by 20% year-on-year during the first half of 2013. Turkey’s domestic seats have increased by 18% during the same period and Mexico has seen the number of domestic seats rise by 14%.
According to Grant, these increases can largely be attributed to the rapid expansion of low-cost carriers (LCCs). He says: “In Indonesia, Lion Air has 52% of domestic capacity and for the year-to-date has added 5.2 million seats compared to 2012. In the last year, Indonesia AirAsia has increased its seat capacity by 62% and has added a further 2 million seats so far in 2013. In Mexico, low-cost carriers have added 1.8 million seats so far in 2013, with the vast majority coming from Volaris and Vivaaerobus, while low-cost airline Pegasus has added nearly 1 million domestic seats in Turkey so far in 2013 compared to 2012.
“In the Philippines, however, it is a different story. The withdrawal of Philippine Airlines from the low-cost sector – in the guise of AirPhil Express, which was absorbed into full-service carrier PAL Express earlier this year – has seen domestic capacity growth stall.”
The increasing role of LCCs in the overall growth in seat capacity in the TIMP countries is further highlighted by the share of seats between LCCs and full-service carriers. In the Philippines, 86% of all intra-regional seats are provided by LCCs, while the figure stands at 63% for Indonesia. Mexico and Turkey follow a similar theme with LCCs offering 59% and 53% of all intra-regional seats respectively.
The OAG FACTS June report shows that airlines worldwide will see an increase of 1% in flights in June 2013 versus June 2012, while the total number of seats will increase by 4%. This means carriers will operate 13.4 million more seats, equivalent to 447,000 additional seats every day compared to June 2012. The fastest growing intra-regional market is the Asia-Pacific market, which will record an increase of 7% in flights and 8% in seats. The Middle East is the fastest growing to/from market with 8% more flights and 10% more seats in June 2013 versus June 2012.
Kuala Lumpur/Singapore. Malaysia’s AirAsia, which has dominated budget air travel in Asia with explosive growth over the past decade, faces serious competition at home just as it tries to scale up operations in the region.
Malindo Airways, an affiliate of fast-growing Indonesian budget carrier Lion Air, began operating in Malaysia two months ago, offering competitive fares on lucrative routes.
Malindo is also luring travellers with perks such as free snacks, a booked luggage allowance and enlarged seats.
The new player’s entry has since sparked a price war.
Median prices for the routes from Kuala Lumpur to the Borneo island hubs of Kota Kinabalu and Kuching fell between March and May by 12.6 percent and 18.6 percent respectively, data from travel website Skyscanner shows.
The intensifying competition in Malaysia is part of a wider battle for low cost carrier (LCC) dominance between AirAsia and privately held Lion Air, which has placed huge aircraft orders and plans to use its dominance in Indonesia to expand in Asia.
Shukor Yusof, a Singapore-based aviation analyst at Standard & Poor’s, said that while Malindo was not yet established enough to be a big worry for AirAsia, the Malaysia-based firm would be under pressure in the coming months from the aggressive pricing.
“That could also result in AirAsia’s bottom line being affected as they will have to retaliate in some ways, which means erosion in yields.”
Malindo’s chief executive Chandran Ramamurthy said the airline had clocked load factors – the proportion of seats occupied by paying passengers – of 79 percent on average but did not say if the routes were profitable.
The airline plans to expand to Sibu, Miri and Tawau in East Malaysia this month.
“Sustainable or not, we will come back to you maybe next year and tell you,” he told reporters last Thursday, referring to its pricing strategy.
Lion Air has a 49 percent stake in Malindo, a joint venture with Malaysia’s National Aerospace & Defense Industries.
Despite AirAsia’s rapid expansion to markets as far-flung as Japan and Indonesia – boosting its fleet to 124 planes – its Malaysian operation still makes up 80 percent of its profits, boasting plump group operating profit margins of 19.5 percent.
The challenge from Malindo comes as higher financing costs erode AirAsia’s earnings.
AirAsia reported a 39 percent fall in profit in January-March. Since the start of the year, analysts have trimmed net profit estimates for AirAsia for 2013 by 3 percent.
AirAsia’s charismatic boss Tony Fernandes dismissed the challenge from Malindo with a curt “no” when asked about it by Reuters last month.
Subhranshu Sekhar Das, who heads consultancy Frost & Sullivan’s aerospace and defence practice for Asia-Pacific, said Malindo was targeting a niche between full-service and budget.
Malindo steps into a void left by Malaysian Airline System Bhd’s turboprop arm Firefly, which gave up its service to Borneo destinations in 2011.
Along with the onboard perks, Malindo trumps its bigger rival as it flies from Kuala Lumpur’s well-connected main international airport rather than AirAsia’s low-cost terminal.
“Malindo gives us more. At almost the same price we can get a free sandwich and bottled drink on board… and boarding from a better airport,” said Mohamad Yazmi Fauzi, 19, who boarded Malindo for the first time from Kuching to Kuala Lumpur in May.
— Additional reporting By Alan Baldwin in London, Patturaja Murugaboopathy in Bangalore and Siva Govindasamy in Singapore
Southeast Asian airlines eye Airbus A350s, Boeing 787s
Malaysian Airline System Bhd is studying both the Airbus A350 and Boeing 787 as potential replacements for its existing medium and long-haul fleet of aircraft, an airline executive said on Monday.
Garuda Indonesia Tbk is also considering those two planes to augment its fleet of Airbus A330s that it uses on routes to other Asian countries.
Malaysia Airlines operates a total of about 30 Boeing Co 777s and Airbus A330s, and it eventually wants to fly only one type of aircraft in this segment to simplify operations and reduce costs, Germal Singh, the airline’s senior vice president of government and international affairs, told reporters on the sidelines of an airline conference in Cape Town. It may begin to replace these aircraft from around 2018, he added.
Garuda Indonesia is looking to buy A350s or 787s to meet its requirements beyond 2016, its chief executive, Emirsyah Satar, said at the same conference. The airline may turn to aircraft leasing companies to obtain the planes, he added.
KOTA BARU: More than two months after starting its operations, Malindo Air is already talking about expansion to India and Singapore.
After August, the hybrid airline will start operating flights to India and Singapore. It will fly to three destinations in India New Delhi, Trichy and Cochin.
To support its expansion, it will add aircraft to its fleet and by year-end, its fleet will consist of 14 aircraft, four ATR72-600 propeller aircraft and10 B737-900ER planes.
Head of corporate sales and governmental relations Raja Sa’adi Raja Amrin said that Malindo planned to add four new ATR72-600 planes from Toulouse, France next year, bringing its total short-haul fleet to eight planes.
“We are using the latest of the ATR series to service destinations in Peninsular Malaysia where jet operations are not that practical,” he said after the inaugural flight from SkyPark Terminal in Subang to Kota Baru, Kelantan yesterday.
Malindo started operations in Malaysia on March 23. With the ATR72-600 propeller planes, it currently flies to Penang and Kota Baru. Meanwhile, the two B747-900ER planes it has, service flights to Kota Kinabalu and Kuching.
Raja Sa’adi said that by the end of this month, Malindo would operate flights to Johor, Sibu, Miri and Tawau. The airline is also looking to add Langkawi and Terengganu to its destinations list.
“Our emergence from Subang SkyPark has been well received by the public. The great response since the launch of our ATR72-600 ticket sales on May 17 is so encouraging, and we are very pleased with a 100% passenger capacity from Kota Baru to Subang,” chief executive officer Chandran Rama Muthy said in a statement.
Raja Sa’adi said Malindo was a hybrid airline because its services were akin to full-serviced airlines while the fares it offered were lower than budget airlines.
Its all-inclusive fares include in-flight entertainment, food as well as baggage allowance. In August, the airline will offer in-flight WiFi services to passengers for a small fee, Raja Sa’adi said.
He added that it was possible for the airline to reach the million-passengers mark by year end, following addition of aircraft as well as upcoming Hari Raya celebrations.
In May, the airline recorded 100,000 passengers, double the number of passengers in the previous month.
By WONG WEI-SHEN
After Malindo, its first foreign subsidiary set in Malaysia, low cost carrier Lion Air is now turning its interest towards Thailand with another subsidiary Thai Lion Air.
BANGKOK - Thailand Civil Aviation recently confirmed plans to the daily Bangkok Post that Lion Air, Indonesia’s largest carrier, was finalizing the opening of a new subsidiary at Bangkok Don Mueang airport in Thailand. The future Thai Lion Air would have initially a fleet of six Boeing 737-800. The news was announced by Woradej Harnpraseet, Director General of the Civil Aviation Department. Thai Lion Air started to recruit pilots, cabin attendants and ground staff but the future carrier did not received yet an application for an air operator’s certificate.
Like in the case of Thai AirAsia, Lion Air must have a Thai partner to create the new entity. By law, any foreign company must go through a joint venture with a thai partner owning at least 51% of the share. Some experts suggested that the defunct Phuket Air could be involved but the shaky reputation of the carrier who had a string of incidents would probably not be the best asset for the future Thai Lion Air.
“Lion Air’s entry is good for more healthy competition, giving passengers choice,” said Mr Woradej to the Bangkok Post, noting that Thai skies are open to airlines as long as they meet regulations. Thai Lion Air would operate domestic and regional flights, including to key cities in both Indonesia and Malaysia.
While 122 Boeing B737-900ERs expected to be delivered, Lion Air is looking to expand outside its Indonesian base. Despite promising growth in Indonesia, the saturation of the air space in the country makes the Indonesian carrier looking at venturing abroad. A spokesman for the airline recently stated “we cannot put that many airplanes in Indonesia alone”.
The airline reported to have reached an agreement to acquire 49% of an unnamed Australian company and base six aircraft in Australia – one more aircraft than Tiger Airways’ start-up fleet in Australia. A base still needs to be announced. The airline is mulling also options to set a foot in Vietnam, Bangladesh, Myanmar and the Philippines.
Lion Air recently launched domestic carrier Malindo Air as a joint venture in which it owns a 49% stake and is planning to set up full service carrier Batik Air in Indonesia later this year.
In Malaysia, Malindo air is currently serving ten airports on domestic routes. The carrier has announced to launch flights between Kuala Lumpur and New Delhi in June and serve China as well as Hong Kong out of Kuching and/or Kota Kinabalu in East Malaysia.
The earliest airports were grassy fields allowing aircrafts to approach at any angle. It was Wilbur Wright (one of the brothers) who established College Park Airport in Maryland in 1909. Today, billions of people around the world take the plane to travel. It’s only a matter of time for the world’s busiest airports to break the barrier of 100 million passengers per year.
Budget carrier Lion Mentari Airlines says it is keen to expand its presence in Manado, adding cruise shifts to the flights and accommodation it already offers in the North Sulawesi capital.
Lion’s full-service spinoff Batik Air flew its maiden flight from Jakarta to Manado on Friday, and the company also operates a 170-room four-star hotel in the city.
“We will provide cruise ships here, catering to tourists who want to see Bunaken and Raja Ampat,” president director Rusdi Kirana said over the weekend, referring to Bunaken National Park, a marine park north of Sulawesi, and the Raja Ampat islands of West Papua.
“We want to support Manado as a hub in eastern Indonesia,” Rusdi said, declining to give details on the timing or size of the cruise ship investment. The company will target tourists from east Asia, Rusdi said.
Batik Air plans to open its first international route between Manado and Guangzhou in China by the fourth quarter of this year, easing access to and from other east Asian cities such as Beijing, Shanghai, Tokyo and Seoul.
“Manado is nearer to East Asia compared to Jakarta, so the costs would be cheaper,” Rusdi said.
Lion also plans to open a pilot and aerospace school in Manado to support its business there, he added.
Hatta Rajasa, the coordinating minister for the economy, said the government is planning to expand Manado’s Sam Ratulangi Airport so that it can service long-haul aircraft used on many international routes. “Manado will be incredible. So we must be aggressive in developing our connectivity,” Hatta said.
In March, Lion launched Malindo Airlines through a partnership with Malaysia’s National Aerospace and Defense Industries to service Malaysia.
The airline has recently made massive purchases of fleet from Airbus and Boeing, but its safety record entered the spotlight after an April water landing in Bali.