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Myanmar international airline market suffers from growing pains. Has capacity been added too fast?

11th November, 2013

Asian carriers continue to pour additional capacity into Myanmar, building on increases which were initially pursued in 2H2012 after the market quickly opened as economic sanctions which had been in place for two decades were lifted. The Myanmar international market will exceed 110,000 weekly international seats in Jan-2014, representing an increase of about 40% compared to Jan-2012 and almost 130% compared to Apr-2012, when Aung San Suu Kyi’s National League for Democracy won landmark elections.

But so far the additional capacity has outstripped demand. International passenger traffic in Myanmar has grown by about 70% over the past two years – an impressive figure but not sufficient to keep up with the capacity increases. As a result load factors to and from Myanmar are significantly below the global average.

Nearly all of the 14 foreign carriers which were already serving Myanmar before Apr-2012 have seen load factors on their Myanmar routes drop over the last year. The nine foreign carriers which have launched and retained services to Myanmar since the market opened have also so far recorded lower than normal load factors – generally in the 50% to 70% range.

 

The Myanmar market has huge potential and eventually the additional capacity will be absorbed. But for now the market is challenging and unprofitable. The 23 foreign carriers which now serve Myanmar are banking on the long-term opportunities. So far only two carriers have pulled out.

This is the third part in a series of reports on the Myanmar market. This report analyses the overall international market while the first report focused on the Myanmar-Thailand market and the second report analysed the Myanmar-Singapore market. Both Myanmar-Thailand and Myanmar-Singapore have seen rapid passenger growth but even higher capacity increases, leading to a reduction in load factors.

See related reports:

Thailand and Singapore account for nearly two-thirds of Myanmar’s international market

Thailand is by far the largest international market from Myanmar. As reported in the first instalment in this series, about 800,000 passengers flew between Myanmar and Thailand in the first three quarters of 2013, representing year-over-year growth of about 24%. In the first three quarters of 2013 Thailand accounted for 44% of the 1.8 million total passengers who flew to and from Myanmar.

Thai Airways is the largest airline group in the Myanmar international market, carrying about 358,000 passengers in the first three quarters of 2013, giving it a 20% share of the market. The group, which includes regional unit Thai Smile, will account for over 13% of international capacity in Myanmar in Jan-2014. If including LCC affiliate Nok, the Thai Airways Group will have a 19% share of capacity in Jan-2014.

The Myanmar-Singapore market recorded 28% growth in the first three quarters of 2013 to 363,000 passengers. This gives the market a 20% share of total international traffic to and from Myanmar.

Singapore Airlines is the third largest airline group in Myanmar’s international market after Thai Airways and AirAsia, carrying 153,000 passengers in the first three quarters of 2013. This gives SIA, including regional subsidiary SilkAir, an 8% share.

On a seat capacity basis, the SIA Group will have about a 6% share in Jan-2014. When also including its low-cost affiliate Tigerair, which launched services to Yangon in Oct-2013, the SIA Group share of capacity is about 9%. Bangkok Airways, which has been pursuing rapid growth in Myanmar, will also have a 9% share of capacity in Jan-2014.

Load factors hold up in Myanmar-Malaysia market

Myanmar’s third largest international market is Malaysia, which saw 29% growth in the first three quarters of 2013 to 223,000 passengers. This gives Malaysia a 12% share of the total market.

Myanmar international passenger share (% of passengers) by country: 9M2013

Malaysia is the only major market where passenger traffic growth has kept up with traffic growth. Capacity was up by about 30% year-over-year in the first three quarters of 2013, only slightly outstripping the 29% increase in passenger traffic. But the load factors of both Malaysian carriers serving Myanmar – AirAsia and Malaysia Airlines (MAS) – have dropped slightly.

Yangon-Kuala Lumpur passenger traffic and estimated load factor by carrier: Jan to Sep-2013 vs Jan to Sep-2012

Carrier

9M2013

Movements 

9M2013

Pax 

9M2013

Load factor 

 9M2013

Pax share

9M2012

Movements

9M2012

Pax 

9M2012

Load factor

 9M2012

Pax share

MAS 770 81,575 65%* (est.) 37% 548 63,567 71%* (est.) 37%
AirAsia 858 114,125 74% 51% 548 73,543  75%  43%
MAI 312 27,095 54%* (est.) 12% 372 34,963 52%* (est) 20%
TOTAL 1,940 222,795     744  172,073    

The Malaysia AirAsia load factor to and from Yangon decreased by only 1ppt from 75% in the first nine months of 2012 to 74% in the first nine months of 2013. Capacity discipline, with the carrier reverting back to a single daily flights for the off peak months of July through October after initially introducing a second frequency in Oct-2012, helped the carrier maintain a respectable load factor.

Sister carrier Thai AirAsia, however, saw its load factor slipped to 67% on the Yangon-Bangkok route and 54% on Mandalay-Bangkok. The AirAsia Group accounted for about 18% of international passenger traffic in Myanmar in the first three quarters of 2013. The group’s planned seat capacity for Jan-2014 give AirAsia about a 16% share. AirAsia is by far the largest LCC brand in Myanmar, accounting for almost half of total international LCC capacity.

Myanmar sees 37% international passenger growth in first three quarters of 2013

Myanmar currently has air services to nine other countries – China, South Korea, Taiwan, Vietnam, India, Hong Kong, Qatar, Cambodia and Japan. The links with South Korea, Hong Kong, Qatar and Japan were all established between Sep-2012 and Jan-2013. These new services – from Asiana, Korean Air, Dragonair, Qatar Airways and All Nippon Airways (ANA) – have driven a large portion of the growth over the past year.

See related reports:

Myanmar’s total international market has grown at a clip of about 37% so far this year from 1.3 million passengers in the first three quarters of 2012 to 1.8 million in the first three quarters of 2012. This follows growth of 33% for the full year in 2012 to 2 million passengers. The rate of growth so far this year in the three biggest markets of Thailand, Singapore and Malaysia while rapid were all below the 37% average due to the launch of services in the five new markets.

China, which is now Myanmar’s fourth largest market, grew by 25% to about 150,000 passengers in the first three quarters of 2013. The fifth largest market, Vietnam, grew by 14% to 49,000 passengers and the sixth largest market, India, grew by 18% to 34,000. China’s three biggest carriers – Air China, China Eastern and China Southern – all serve Myanmar as does Air India and Vietnam Airlines. All five of these carriers were already serving Myanmar prior to the market opening up although all of them except Air China have added capacity over the past two years.

The only market that showed a decline in passenger traffic over the last year is Cambodia. But Myanmar-Cambodia is a tiny market, accounting for only 7,000 passengers in the first three quarters of 2013, down from 8,000 passengers in the first three quarters of 2012.

Of the 11 countries currently served from Myanmar, Cambodia is the only market that is not served by a foreign carrier. Myanmar Airways International (MAI) currently operates only three weekly flights to Cambodia on a Yangon-Siem Reap-Phnom Penh routing. MAI’s load factor on Myanmar-Cambodia flights has been poor – significantly less than 50% – an indication that the market is not yet big enough to sustain regular flights.

 

Myanmar-Taiwan market sees rapid growth, led by CAL

Not including any of the new markets, Taiwan has seen the fastest year-over-year growth so far this year. Almost 57,000 passengers flew between Myanmar and Taiwan in the first three quarters of 2013, representing growth of 63% compared to the same period of 2012.

Taiwan’s China Airlines (CAL) was the only carrier outside Southeast Asia and mainland China already serving Myanmar before the market opened up in mid-2012. Like nearly every foreign carrier that was already serving Myanmar, CAL added capacity after the market opened up, doubling its frequencies from three to six. But as is the case with most foreign carriers serving Myanmar, the additional capacity has not yet been absorbed.

CAL has cut back to five weekly frequencies on the Yangon-Taipei route. Its rival EVA also dropped service to Yangon in May-2013, only seven months after launching the route with three weekly flights.

EVA transported only 8,700 passengers on the 116 flights it operated to and from Yangon while it served the route. EVA used 162-seat MD90s on its Yangon flights, giving it a load factor of only 46%.

CAL has performed better, with an average of 107 passengers per Yangon flight in the first three quarters of 2013. CAL serves Yangon with 158-seat 737-800s, giving it an estimated load factor of 68%. But this represents a drop of 10ppt compared to the estimated 78% load factor from the first three quarters of 2012.

Yangon-Taipei passenger traffic and estimated load factor by carrier: Jan to Sep-2013 vs Jan to Sep-2012

Carrier

9M2013

Movements 

9M2013

Pax 

 9M2013

Load Factor

9M2012

Movements

9M2012

Pax 

 9M2012

Load factor

 CAL 448  48,097   68% (est.) 282  34,813   78%
 EVA 116 8703   46% (est.)      

While below its average the CAL load factor is significantly better than its North Asian peers, which with the exception of EVA have stayed in the Myanmar market despite less than stellar initial performances. CAL is likely benefitting from having a presence in the Myanmar market for longer than its rivals from Hong Kong, Korea and Japan. CAL is particularly strong in the Myanmar-US one-stop market, which has become more competitive as passengers now have new options via Hong Kong, Seoul and Tokyo.

Korean and Asiana face initial challenges in Yangon market

Korean Air (KAL) carried 65,631 passengers to and from Yangon in the first three quarters of 2013. It operated 546 flights during this period, giving it an average of 118 passengers per flight.

KAL launched Yangon with an ambitious daily schedule using 226-seat A330-200. This proved to be too much capacity and KAL swapped out the A330 for a 737-800 from Jun-2013 to Oct-2013. It is not possible to calculate KAL’s load factors for Yangon but they almost certainly significantly improved following the gauge change but at a penalty of cargo and payload restrictions as Seoul-Yangon is a long flight for a 737 (over six hours). KAL recently returned to using the A330 on the route, hoping peak season demand can justify the larger aircraft.

Asiana has continued to operate 250-seat 767-300s to Yangon year-round despite low load factors. In the first three quarters of 2013 the carrier flew 22,699 passengers to and from Yangon on 168 flights. That equates to an average of 135 passengers per flight and an estimated load factor of 54%. But Asiana only serves Yangon with two weekly flights, leaving it less exposed than KAL.

Yangon-Seoul passenger traffic and passenger share by carrier: Jan to Sep-2013 

Carrier

9M2013

Movements 

9M2013

Pax 

9M2013

Pax share 

 9M2013

Load Factor

 Korean Air  546 64,631   74%  N/A
 Asiana  168 22,699   26%  54% (estimated)

 
Cathay Pacific subsidiary Dragonair has had a similar average load factor since launching Yangon in Jan-2013 with 172-seat A321s. The carrier flew 28,381 passengers to and from Yangon in the first nine months of 2013, giving it an estimated load factor of 55%.

ANA boosts capacity despite low initial loads

ANA had an average load factor of about 59% for its exclusive Yangon-Tokyo Narita service in first the first nine months of 2013. During this period ANA operated three weekly flights to Yangon using 737-700ERs in all-premium configuration with 24 business and 10 premium economy seats. ANA only carried 3,931 passengers to and from Yangon in the first nine months of 2013, giving it an average of 20 passengers for the 196 flights it operated during this period.

On 30-Sep-2013 ANA upgraded its Yangon service to a daily 767-300 flight in standard two-class configuration. As a result ANA now offers about 1,700 weekly one-way seats to Yangon compared to only about 100 seats previously.

ANA could find it challenging to fill a widebody daily, particularly during the off-peak season, similar to the experience of KAL. But ANA is banking on benefitting from its new partnership with local carrier Asian Wings, which includes a proposed 49% equity stake. Asian Wings will give ANA domestic connections in Myanmar and a local sales channel.

See related report: ANA's investment in Asian Wings Airways could make it Myanmar’s largest international airline

Japan is the third largest source of visitors for Myanmar after Thailand and China, which boosts ANA’s prospects in the market, particularly as it is the only carrier operating non-stop flights between the two countries. In the first seven months of 2013, there were 37,000 Japanese visitors from Myanmar. With the 767 ANA is now able to start carrying Japanese tour groups, which previously were flying to Myanmar via other Asian hubs as the 737-700ER does not have an economy cabin.

ANA’s initial all-premium 737-700ER service focused on premium business traffic. As Myanmar is now attracting significant foreign investment, there is a fair chunk of high yielding business traffic. These passengers help cushion the blow of the low load factors but ultimately the foreign carriers serving Myanmar will need higher passenger counts across both cabins to sustain their services. Myanmar’s emerging tourism sector should help but only gradually as there are now major challenges impeding the rapid growth of tourism in Myanmar, including a lack of hotel rooms and other infrastructure.

Qatar benefits from flexibility

Of all the carriers which launched services to Myanmar in late 2012 or the beginning of 2013, Qatar Airways has had the highest initial load factor. Qatar transported 26,397 passengers to and from Yangon in the first three quarters of 2013 on 372 flights. As Qatar uses 110-seat A319LRs on the Doha-Yangon route, its average load factor for this period has been 65%.

Qatar has likely benefited from being the only non-Asian carrier that has entered the market with the exception of German leisure Condor, which briefly operated a weekly 767 service on a Frankfurt-Yangon-Phuket routing. (Among the 11 foreign carriers that have launched services to Myanmar after the market opened, Condor along with EVA are the only carriers that have already exited. But Condor was a tiny player, only operating 30 flights to Yangon in early 2013.)

As it is the only Gulf or European carrier currently serving the Myanmar market, Qatar offers some of the fastest connections between Myanmar and Europe. Passengers flying between Myanmar and Europe, which is a small but fast-growing market since EU sanctions on Myanmar were lifted last year, can also go via other Southeast Asian hubs. But this requires a slight backtrack as Myanmar is the westernmost country in Southeast Asia. Qatar also offers a much larger network of destinations in Europe – as well as in Africa, the Middle East and North America – than Southeast Asian carriers.

Unlike most of the other foreign carriers which have entered the Myanmar market, Qatar has not been reluctant to reduce frequency in the off-peak months to better match demand. Qatar originally planned to operate to Yangon daily on a year-round basis but ended up reducing the service to three weekly frequencies from early May-2013 to late Oct-2013. This move helped its average load factor and profitability.

The A319LR may not have attractive seat cost economics but it is the perfect aircraft to open new long and thin routes, a network strategy Qatar has used in multiple occasions that is not matched by its Gulf rivals. Most of the foreign carriers that have come into Myanmar with a widebody have discovered that at least for now there isn’t sufficient demand to fill a twin-aisle aircraft. When the market matures, Qatar will likely up-gauge to a widebody. By then Qatar will have built up a strong presence in the Myanmar market, leveraging its first mover advantage.

Myanmar has huge long-term opportunities despite the growing pains

Qatar is one of the smallest carriers in market, with 1,540 weekly seats giving it a less than 2% share of capacity in Myanmar’s international market. But as international capacity in Myanmar has quickly doubled, outpacing demand, being smaller means minimising losses while still strategically building up a presence.

Myanmar international weekly seat capacity by carrier: Jan-2014 vs Jan-2013 and Apr-2012

Rank Airline

 Weekly seats

Jan-2014

Weekly seats

Jan-2013

Weekly seats

Apr-2012 

1 TG Thai Airways/Thai Smile 15,092 12,096 8,456
2 8M Myanmar Airways International 13,608 16,744 12,692
3 FD Thai AirAsia 12,600 10,080 5,040
4 PG Bangkok Airways 10,136 5,516 3,696
5 Y5 Golden Myanmar 9,720 0 0
6 DD Nok Air/Nok Mini 6,244 0 0
7 AK AirAsia (Malaysia) 5,040 5,040 2,520
8 MH Malaysia Airlines 4,592 2,240 2,240 
9 MU China Eastern Airlines 4,468 3,228 3,228
10 SQ  Singapore Airlines  3,990 4,102 0
11 3K Jetstar Asia 3,600 2,520  1,440
12 NH All Nippon Airways 3,388 102 0
13 KE  Korean Air  3,164 3,920 0
14 MI SilkAir 2,964 2,560 4,714
15  TR Tigerair Singapore 2,520 0 0
16 VN Vietnam Airlines 2,314 2,158 1,910 
17 CA Air China 1,600 1,580 1,540
18 CI China Airlines 1,560 1,896 948 
19 QR Qatar Airways 1.540 1,540 0
20 KA Dragonair 1,376 1,376 0
21 OZ Asiana 1,000 1,000 0
22 CZ China Southern Airlines 976 976 392 
23 AI Air India 832 836 576 
N/A DE Condor  0 261 0
N/A BR EVA Air 1,104 0
    TOTAL 112,234 80,875 49,392

There may be growing pains and challenges but the Myanmar market offers tremendous opportunities over the medium to long term. The 23 foreign carriers that now serve Myanmar, including the nine that have entered since the market opened up, will eventually reap the rewards.

Part 4

In the fourth and last report in this series, the outlook for Myanmar’s colourful and crowded group of local carriers will be analysed.

 

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