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Southeast Asia airline market sees more rapid growth & high international low-cost penetration rates

2nd October, 2013

Southeast Asia continues to post some of the highest growth rates in the global aviation industry, driven primarily by expansion in the region’s booming low-cost sector.

LCCs now account for over 50% of capacity in Southeast Asia’s four largest domestic markets – Indonesia, Malaysia, the Philippines and Thailand. Even more impressively, LCCs have been able to rapidly claim about a 50% share in the intra-Southeast Asia international market.

But there has also been growth in 2013 at nearly all of the region’s flag carriers. A large portion of this growth has been on regional routes as full-service operators have been able to join the LCCs in taking advantage of the generally favourable economic conditions in Southeast Asia.

Southeast Asia international market grows by 20% in only 18 months

Southeast Asia’s international market has grown by about 20% over the last 18 months from about 4.7 million weekly seats in Apr-2012 to 5.6 million weekly seats in Oct-2013, according to CAPA and Innovata data. All countries in the region have seen double-digit seat capacity growth except tiny Brunei.

Myanmar has seen the most rapid growth, as the market opened up in mid-2012 following landmark elections, but on a very low base. In terms of total international seats added, Thailand and Malaysia have seen the biggest gains with over 230,000 and 200,000 weekly seats added respectively.

See related report: Myanmar poised for more rapid growth in 2013 as foreign carriers expand and local LCC launches

The Malaysian international market has grown by 25% over the past 18 months while the larger Thailand international market has grown by 21%. After Myanmar, Indonesia has seen the fastest growth rate, 29%, but on a relatively low base given that Indonesia is by far the largest country in Southeast Asia.

Southeast Asia weekly international seat capacity by country: Apr-2012 vs Oct-2013

Country

Population (in millions)

Seats per week
Apr-2012

Seats per week
Oct-2013

  Seat
Change

Singapore

 5.5

1,267,858

1,407,505

 11%

Thailand

 64.7

1,119,984

1,353,086

 21%

Malaysia

30

830,825

1,035,999

 25%

Indonesia

248

573,590

   738,971

 29%

Philippines

 97.5

394,489

   441,344

 12%

Vietnam

 91.5

330,038

   386,298

 17%

Cambodia

 15.4

  93,650

    119,792

 28%

Myanmar

65

   48,444

     85,647

 77%

Brunei

 0.4

   40,100

     41,218

 3%

Lao PDR

6

   14,640

      18,691

 28%

Total

624

4,713,618

5,628,551

 19.4%

During this period the region’s population has grown by only 6%. But Southeast Asia’s middle class has expanded at a much faster rate, leading to a much larger sector of the population that can afford to fly. At the same time intense LCC competition has reduced fares in many markets, stimulating demand, particularly among the region’s new middle class.

Malaysia and Indonesia have Southeast Asia's highest international LCC penetration rates

The LCC penetration rate in two international markets – Malaysia and Indonesia – is now approaching 50%. Singapore, which is purely an international market, also now has a LCC penetration rate above 30%.

The Philippines has a marginally smaller international LCC penetration rate, at 29%. But this will increase significantly as the Philippines-Japan market has just opened up to expansion from Philippine carriers, ending five years of restrictions.

See related report: Cebu Pacific, AirAsia Zest, Tigerair and Philippine Airlines race to add flights to Japan

The Philippines domestic market already has the highest LCC penetration rate in Asia, at 67%. (This figures counts PAL Express, formerly AirPhil Express, as a full-service carrier as it transitioned away from the LCC model in early 2013.)

Southeast Asia LCC penetration rates by country: Oct-2013

Rank

Country

System-wide weekly capacity (millions of seats)

System-wide LCC penetration rate

Domestic LCC penetration rate

International LCC penetration rate

 1.

Indonesia

 2.8

56%

60%

46%

 2.

Thailand

 1.9

30%

56%

20%

 3.

Malaysia

 1.6

50%

53%

48%

 4.

Singapore

 1.4

31%

Not Applicable

31%

 5.

Philippines

 1.0 

51%

67%

29%

 6.

Vietnam

 0.7

24%

37%

13%

 7.

Myanmar

 0.2

16%

3%

27%

 8.

Cambodia

 0.1

12%

0%

13%

 9.

Lao PDR

 0.04

5%

0%

7%

 10.

Brunei

 0.04

16%

Not Applicable

16%

The Singapore penetration rate is a particularly remarkable accomplishment because medium and long-haul routes accounts for a much larger portion of the Singaporean market compared to neighbouring Malaysia and Indonesia. Southeast Asia accounts for 46% of total international seat capacity in Singapore, 54% in Malaysia and 67% in Indonesia.

Southeast Asia has most of the world’s largest LCC international routes

Singapore now accounts for the largest three LCC international routes in the world – Singapore Changi to Jakarta Soekarno-Hatta, Kuala Lumpur International and Bangkok Suvarnabhumi. Another two Singapore routes, to Manila and Ho Chi Minh, are among the 12 largest LCC international routes in the world.

Top 15 LCC international routes based on weekly seat capacity: Oct-2013

Rank Origin Destination Total Seats
1 SIN Singapore Changi Airport CGK Jakarta Soekarno-Hatta International Airport 59,280
2 SIN Singapore Changi Airport KUL Kuala Lumpur International Airport 57,600
3 SIN Singapore Changi Airport BKK Bangkok Suvarnabhumi International 33,708
4 KUL Kuala Lumpur International Airport CGK Jakarta Soekarno-Hatta International Airport 31,626
5 DXB Dubai International Airport KWI Kuwait International Airport 30,270
6 KUL Kuala Lumpur International Airport DMK Bangkok Don Mueang Int'l Airport 27,720
7 BCN Barcelona El Prat Airport LGW London Gatwick Airport 23,804
8 MNL Manila Ninoy Aquino International Airport SIN Singapore Changi Airport 23,708
9 DXB Dubai International Airport DOH Doha International Airport 23,058
10 DUB Dublin Airport STN London Stansted Airport 20,412
11 KUL Kuala Lumpur International Airport SUB Surabaya Juanda Airport 20,160
12 SIN Singapore Changi Airport SGN Ho Chi Minh City Tan Son Nhat Airport 18,102
13 AGP Malaga Airport LGW London Gatwick Airport 17,920
14 FCO Rome Fiumicino Airport ORY Paris Orly Field 17,784
15 KUL Kuala Lumpur International Airport KNO Kuala Namu International Airport 17,640

Four other intra-Southeast Asian routes are also among the top 15 – Kuala Lumpur to Jakarta, Bangkok Don Mueang, Surabaya and Medan’s Kuala Namu International Airport. The fact Southeast Asia has nine of the largest LCC international routes in the world further illustrates the incredible success LCCs have had in stimulating growth in the region. A decade ago LCCs were virtually non-existent in Southeast Asia but today they account for over half of the short-haul market.

Lion and AirAsia dominate Southeast Asia’s LCC sector

The rapidly expanding Lion Air Group now accounts for about 13% of total capacity in Southeast Asia and 37% of LCC capacity within the region. For now almost all of this capacity is domestic, predominately in Indonesia and to a much lesser extent in Malaysia where it launched an affiliate, Malindo, in Mar-2013.

But Lion is starting to diversify with a new low-cost affiliate in Thailand preparing to launch by the end of 2013. It is also planning to expand in the international market using Malindo and its new full-service subsidiary Batik Air. Lion has nearly 600 additional aircraft on order – giving it plenty of capacity to expand in multiple Southeast Asian markets.

See related reports:

The AirAsia Group is slightly smaller than the Lion Air Group within ASEAN, with a 32% share of LCC capacity within the region. But AirAsia is much larger than Lion in the international market and also has sizeable operations connecting Southeast Asia with North Asia and Australia. Lion is not yet serving either of these markets.

LCC capacity within Southeast Asia by group: Oct-2013

Rank

Group

Weekly seats

Capacity share (as %

of total LCC seats)

 1.

Lion Air

1,116,000

37%

 2.

AirAsia

964,000

32%

 3.

Cebu Pacific

305,000

10%

 4.

Tigerair

163,000

6%

 5.

Thai Airways (Nok)

140,000

5%

 6.

Garuda (Citilink)

123,000

5%

 8.

Jetstar

119,000

4%

 9.

VietJet  

81,000

3%

 10.

Golden Myanmar

8,000

<1%

 11.

Orient Thai  

7,000

<1%

 12.

SIA (Scoot)

6,000

<1%

Combined Lion and AirAsia account for nearly 60% of LCC capacity within Southeast Asia. Tigerair and Jetstar are much smaller groups, accounting for 6% and 4% respectively. But Tigerair has been pursuing rapid growth in 2013, like AirAsia and Lion.

Much younger VietJet has been growing even faster and now accounts for a 3% share. The Vietnamese LCC is attempting to join Lion, AirAsia, Tigerair and Jetstar by adopting a similar pan-Asia group strategy. VietJet plans to launch an affiliate in Thailand in 2014 as well as a possible affiliate in Myanmar.

See related report: VietJet Air places major A320 order. Is there room for another pan-Asia low-cost airline group?

LCCs to soon account for one-third of Southeast Asia’s fleet

The Lion, AirAsia, Tigerair, Jetstar and VietJet groups already account for nearly three-quarters of LCC capacity within the region. They will operate an estimated 383 Southeast Asia-based aircraft by the end of 2013, accounting for 77% of the region’s LCC fleet.

These five groups will grow their fleets by about 20% in 2013. The total Southeast Asia-based LCC will also grow by about 20% in 2013, reaching nearly 500 aircraft by the end of 2013.

Southeast Asia LCC fleet growth by carrier: end 2012 versus end 2013

Rank

Carrier                  

Country       

End 2012 fleet  

Projected end 2013 fleet  

 1.

Lion Air

Indonesia

91

100

 2.

AirAsia Berhad

Malaysia

64

70

 3.

Cebu Pacific

Philippines

41

48

 4.

Wings Air

Indonesia

28

27

 5.

Thai AirAsia

Thailand

27

35

 6.

Indonesia AirAsia

Indonesia

22

29

 7.

Citilink

Indonesia

21

29

 8.

Tigerair

Singapore

21

26

 9.

Nok

Thailand

20

23

 10.

Jetstar Asia

Singapore

16

19

 11.

AirAsia Zest

Philippines

15

13

 12.

AirAsia X

Malaysia

11

18

 13.

VietJet

Vietnam

5

10

 14.

Jetstar Pacific

Vietnam

5

6

 15.

Tigerair Mandala

Indonesia

5

12

 16.

Tigerair Philippines

Philippines

5

5

 17.

Orient Thai

Thailand

4

4

 18.

Scoot

Singapore

4

6

 19.

Valuair 

Singapore

2

0

 20.

Philippines AirAsia  

Philippines   

2

3

 21.

Golden Myanmar

Myanmar

0

2

 22.

Malindo

Malaysia

0

10

 

TOTAL

 

409

495

LCCs will account for about one-third of the region’s total fleet by early 2014.

Flag carriers also expand with focus on regional operations

Full-service carriers, however, will continue to have an important role in the Southeast Asian market, both on long-haul routes and regionally. Regional subsidiaries of flag carriers have been among the fastest growing carriers in the region in 2013, including Singapore Airlines' subsidiary SilkAir, and Thai Airways' unit Thai Smile.

MAS and Garuda have been the fastest growing mainline full-service carriers in Southeast Asia with regional expansion again driving the growth. Just during the past five months (May-2013 to Oct-2013), Garuda has grown total seat capacity by 7% and has added 14 aircraft. MAS has grown capacity by 6% over the same period while adding six aircraft.

Southeast Asia’s 10 flag carriers currently operate 646 aircraft (including their full-service regional subsidiaries but not their low-cost subsidiaries). This equates to about 44% of the total fleet in the region. With LCCs currently accounting for about 31% of the region’s fleet, that leaves about 25% of the fleet at smaller full-service carriers including independent regional operators.

Southeast Asian flag carriers ranked by seat capacity, fleet size and home market share: Oct-2013

Rank

Carrier

Weekly seats

Number of aircraft

% of international seat capacity

in home market

 1.

Singapore Airlines

592,000

128

33%

 2.

Malaysia Airlines

568,000

127

26%

 3.

Thai Airways International

553,000

97

29%

 4.

Garuda Indonesia

512,000

102

14%

 5.

Vietnam Airlines

366,000

83

40%

 6.

Philippine Airlines

307,000

68

26%

 7.

Royal Brunei Airlines

35,000

10

74%

 8

Lao Airlines  

31,000

21

44%

 9.

Cambodia Angkor Air

25,000

5

16%

 10.

Myanmar Airways International

10,000

5

12%

 

TOTAL

2,999,000

646

 

The region’s flag carriers currently provide about 3 million weekly seats, giving them about a 35% share of the total market. In virtually every case their market share has come down – in some cases drastically – over the last decade as LCCs have entered and expanded rapidly.

But most of Southeast Asia’s flag carriers have been able to retain significant shares of their home market and remain profitable. On average they have also continued to grow faster than their counterparts in other regions.

Southeast Asia remains a dynamic and fast-growing market. Competition is as fierce as it has ever been and will only intensify as several new carriers, primarily LCCs, plan to enter the market over the next year. But overall the outlook for the Southeast Asian market is bright.

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