My Account Menu

CAPA Login


Register to trial CAPA Membership!

Southeast Asia poised for another year of growth in 2013

3-Jan-2013

2012 was a dynamic year for Southeast Asia’s aviation market with more rapid growth, driven by low-cost carriers and the launch of five new airlines. The rapid pace of start-up activity will likely not be repeated in 2013 and some of the region’s LCC markets are approaching maturity. But the continued strength of the economies in ASEAN, led by booming Indonesia, and the continued rapid rise of the region’s middle class should ensure another big year of traffic growth for Southeast Asian carriers – particularly LCCs and, to a lesser extent, full-service carriers.

Low-cost carriers now account for over 50% of total seat capacity within Southeast Asia. Three of the five new jet operators in Southeast Asia which launched in 2012 are low-cost carriers – AirAsia Philippines, Singapore’s Scoot and Indonesia’s Mandala (the latter had been a full-service carrier prior to suspending operations 15 months earlier). The other two new carriers in Southeast Asia follow hybrid models – Thai Smile and Lao Central Airlines. VietJet would be a fourth new LCC for Southeast Asia had it not launched services at the tail end (Christmas Day) of 2011.

There will be more opportunities for LCCs in 2013 to increase their market shares in the pioneer markets of Myanmar and Vietnam, where LCC penetration rates remain well below the global average of 26%. In the five largest Southeast Asian markets, LCC penetration rates have increased steadily from virtually zero a decade ago and are now above the global average.

While the LCC penetration rates are unlikely to jump significantly higher during 2013 in these five markets – Indonesia, Thailand, Malaysia, Singapore and the Philippines– fast economic growth and continued expansion of the middle class should ensure continued growth. Traffic on long-haul routes is being impacted by the downturn in Europe but this has been more than offset by booming demand for travel within Asia.

Southeast Asia LCC penetration rates by country: 31-Dec-2012 to 06-Jan-2013

Country    

Total weekly capacity 

(millions of seats) 

Systemwide LCC

penetration rate  

Domestic LCC

penetration rate

International LCC

penetration rate 

Indonesia  2.5  53%  57%  42%
Thailand 1.7  29%  58%  18%
Malaysia 1.4  48%  49%  48%
Singapore 1.4  30%  N/A  30%
Philippines         1.0  61%  84%  35%
Vietnam 0.7  21%  29%  14%
Cambodia 0.1  12%  0%  13%
Myanmar 0.1  13%  0%  22%

LCC capacity share (% of seats) within Southeast Asia: 2001 to 2012

More rapid growth for Indonesia

Indonesia, Southeast Asia’s largest market and by far the most populous country in the region, has emerged as one of the most dynamic and biggest growth markets in the world.

Indonesia’s domestic market, which was expected to end 2012 with about 70 million passengers, is now the world’s fifth largest domestic market after US, China, Brazil and Japan. It has been growing at a double-digit clip since 2008 and this is expected to continue as all of Indonesia’s major players are planning ambitious domestic expansion in 2013.

Market leader Lion Air, which has grown ASKs by 34% over the last year according to Innovata data, continues to take delivery of new Boeing 737-900ERs at a rate of about two aircraft per month. This should ensure Lion maintains its over 40% share of the fast-growing domestic market and provide sufficient capacity to support the 2013 launch of new full-service subsidiary Batik Air.

Garuda budget subsidiary Citilink is growing even faster, albeit from a much smaller base. Citilink expects a 150% increase in passenger traffic in 2013 to 10 million passengers as it expands its A320 fleet and takes its first batch of ATR 72 turboprops, which will be used to compete against Lion’s regional subsidiary Wings Air on short routes. Garuda also continues to rapidly expand its full-service domestic operation as it looks to fend off the entrance of Batik and close the gap with Lion.

Two other LCCs – Indonesia AirAsia and Mandala – are also accelerating expansion in 2013. Both carriers plan to grow domestically, where they are very small, and in the international market. AirAsia is already the largest carrier in Indonesia’s much smaller but rapidly growing international market.

See related articles:

Consolidation in Indonesia is likely in 2013 given there are now seven or eight carriers competing on domestic trunk routes. The smaller domestic carriers, or those in the middle of the market stuck between the low-cost and full-service business models, are the most vulnerable.

But overall the market has huge promise and a bright outlook for 2013. As CAPA reported in the most recent edition of strategy journal Airline Leader: 

The opportunities for aviation growth in Indonesia, which is the fastest growing emerging market in Asia and possibly the world, are mind-boggling. The combination of a large population with a rapidly expanding middle class, a booming economy and archipelago geography are already providing ingredients for soaring demand in domestic air travel. Indonesia’s domestic market grew by 16% in 2011 to 60 million passengers, and growth is projected to continue at an annual rate approaching 20%, reaching 100 million passengers in 2015 and 180 million passengers in 2021.

See related article: Indonesian growth skyrockets amidst a highly fragmented market

Thailand to see another year of LCC expansion

Thailand will also see more LCC expansion in 2013 with a focus on the relatively under-served international market. Thailand has the lowest international LCC penetration rate among Southeast Asia’s five largest markets.

Thailand’s two main LCCs, Thai AirAsia and Nok, are both planning to expand their fleets by 33% in 2013. Thai AirAsia plans to add nine aircraft in 2013 for a total of 36, while Nok expects to add six aircraft for a total of 24.

Nok, which now only operates scheduled services in the domestic market, plans to use additional 737-800s to launch international services. Thai AirAsia, which already allocates over 40% of its seat capacity to international routes, expects further growth in both the domestic and international markets. Thai AirAsia has the capital to invest in pursuing rapid expansion, having completed an initial public offering in 2012.

Nok and Thai AirAsia are both now benefitting from their positioning at Don Mueang Airport, which Thai AirAsia moved to in Oct-2012. Bangkok’s old downtown airport, which is now open to all LCC flights including international flights, provides an attractive alternative to local passengers over Bangkok’s newer airport Suvarnabhumi.

2013 will also see growth for new Thai Airways regional unit Thai Smile and independent boutique full-service carrier Bangkok Airways. Thai Airways will also expand its new A380 operation, using the new type to add capacity in the Tokyo and Paris markets starting in 1Q2013. The introduction of the A380 and a massive cabin retrofit programme, which will be completed in 2013 as the last batch of 747-400s and 777-200s are upgraded, are key to Thai's increased focus on the premium market.

But Thai is not in expansion mode. While the group plans to add 17 aircraft in 2013, including six additional A320s for Thai Smile and three A380s, it also plans to phase out 17 aircraft.

The Thai Airways group, which recently came under new management, could also see another adjustment in strategy during 2013. One area being examined is the potential launch of a long-haul low-cost subsidiary, which would help Thai compete in this emerging segment of the market. A decision on the long-haul low-cost carrier or operation (Nok, which is partially owned by Thai Airways, could be used) is likely during 2013.

See related article:

Excitement in Malaysia as MAS joins oneworld and Malindo launches

2013 could be a landmark year for Malaysia as the country’s flag carrier attempts to complete a restructuring and a new LCC aims to launch services.

Malaysia Airlines (MAS) began a massive restructuring and route rationalising effort at the beginning of 2012. The carrier is confidently entering 2013, having completed most of the restructuring and several adjustments to its new strategy. A key component of its new strategy is its membership in the oneworld alliance, which it will enter on 01-Feb-2013. MAS expects oneworld, and its related reinforced focus on the premium market, to boost yields despite difficult market conditions in the key European market, helping it return to break-even in 2013.

See related article: New oneworld member Malaysia Airlines seeks to finally turn the corner in 2013 but challenges remain

MAS plans to resume international capacity expansion in 2013, focusing primarily on routes within Asia. It also continues to expand its new A380 flagship fleet, which is already in service on the London route and will also be deployed to Paris from Mar-2013. The introduction of the A380, along with several other investments at the airport and in-flight, are aimed to reposition the carrier upmarket.

But MAS still has its challenges and could be in for another shake-up during 2013 should a new prime minister be voted in during national elections. MAS also continues to struggle against LCC AirAsia and faces the prospect of having to compete against a second LCC in its home market.

Malindo, a joint venture between Indonesia’s Lion and a Malaysian company, has moved up its targeted launch date to Mar-2013 and aims to operate a fleet of 10 aircraft by the end of the year. AirAsia in recent years has been pursuing more ambitious expansion in other markets but is planning to re-focus on Malaysia as Malindo launches. AirAsia Malaysia plans to add 10 A320s in 2013 for a total of 64 aircraft by the end of the year. As CAPA reported in Dec-2012:

The AirAsia Group had earlier indicated that capacity growth would slow at AirAsia Malaysia as the Malaysian LCC market is relatively mature. AirAsia Malaysia, also known as AirAsia Berhad, launched services in 2001 and in its 10th anniversary year, 2011, accounted for a leading 58% of passengers in Malaysia’s domestic market and 38% of the country’s international market. Malaysia is generally considered the most saturated LCC market in Asia with the possible exception of Singapore because Malaysia has a high number of LCC seats (about 700,000 per week) given its relatively small population (about 29 million).

But Lion Air’s announcement in Sep-2012 of plans to launch a new joint venture LCC in Malaysia with Malaysia’s National Aerospace and Defence Industries (NADI) has significantly changed AirAsia’s plans for its original home market. AirAsia Malaysia is now slated to receive five additional A320s in 4Q2012, more than any other AirAsia affiliate, and another 10 A320s in 2013. As a result, the size of the carrier’s fleet will expand by 20% in only 15 months – rapid growth for a market which is relatively mature.

See related article: AirAsia accelerates fleet expansion as battle with Indonesia’s Lion Air moves up a gear 

Singapore growth to return to single digits in 2013

Singapore’s Changi Airport passed the 50 million passenger milestone in 2012, an incredible achievement for a country of only five million. But traffic growth at Changi will likely slow down and return to the single digits in 2013, after surging 11% in 2011 and another 10% through the first 11 months of 2012, as the island’s LCC market starts to approach saturation.

LCCs have grown rapidly in Singapore over the last 10 years from a base of virtually zero and now account for 30% of capacity at Changi. Singapore’s three largest LCCs – AirAsia, Jetstar and Tiger – will continue to grow in 2013 but at much more modest levels. Faster growth will come from Scoot, SIA’s new long-haul low-cost carrier which launched in mid-2012.

Unlike short-haul routes within Southeast Asia, medium-haul markets to Australia and North Asia remain relatively untapped by LCCs. Scoot, as well as Jetstar (which has a small widebody operation in Singapore) are looking to fill this void.

SIA regional subsidiary SilkAir also plans to pursue rapid expansion in 2013, growing capacity at a clip that will likely exceed 20%. SilkAir expansion, the launch of Scoot and increased involvement in Tiger have emerged as important components in the new SIA Group strategy, which aims to pursue growth in new segments of the market to offset weak market conditions and flat capacity at its main SIA brand.

See related articles:

2013 could also mark an important year for Changi Airport as plans for a third runway and fifth terminal could be unveiled. As a result of the more rapid than expected LCC growth over the last decade, which has led to a huge increase in narrowbody movements, Changi has become congested during peak hours.

Singapore needs to start planning for the long-term future to keep ahead of the growth curve. This comes even as Changi breaks ground in early 2013 on Terminal Four, a new hybrid terminal which will replace the soon to be demolished Budget Terminal. Terminal Four is expected to open by 2017. As CAPA reported in Mar-2012:

The closure of Changi’s Budget Terminal will result in the airport’s total handling capability shrinking by 10% during what could prove to be a challenging four-year period before the new hybrid Terminal 4 opens. Singapore also faces a pressing need to decide on the opening of Changi’s third runway, which is now only available to military aircraft, if it wants to stay ahead of the growth curve. Growing LCC operations have seen aircraft movements grow higher than passenger numbers.

A third runway and even a fifth terminal will eventually be needed for Singapore to maintain its status as a leading hub. Singapore and Changi have always made the investments to ensure there is plenty of space for growth and first class facilities for passengers. But the highly profitable airport has come under scrutiny over the last year: first for its unusual decision to start charging a tax for transit passengers and now for its decision to close its Budget Terminal only six years after it opened.

See related article: Singapore Changi’s decision to close budget terminal could backfire as need for third runway grows

Philippines market could see consolidation in 2013 along with launch of long-haul LCCs

The Philippines will see the launch of at least one and possibly two long-haul low-cost operations in 2013.

The new long-haul unit from short-haul LCC and Philippine market leader Cebu Pacific will open a new chapter in the Philippines’ dynamic LCC sector. LCCs already account for over 80% of domestic capacity in the Philippines but there are still opportunities for LCCs to make inroads in the international market, particularly on medium-haul routes.

Cebu Pacific plans to launch its new A330 operation in mid-2013 on routes to the Middle East as well as within Asia and potentially Australia. It will become the fourth widebody low-cost operator in Asia, joining Jetstar, Scoot and AirAsia X.

Philippine Airlines (PAL) could fight off its rival by expanding its LCC subsidiary, AirPhil Express, into the long-haul market. The PAL group is considering allocating some of the A330s it is due to receive in 2013 to AirPhil, which is expected to be re-branded as PAL Express sometime this year.

PAL is also planning to expand its own long-haul operation as the carrier takes delivery of another batch of 777-300ERs. PAL has struggled in recent years but is investing significantly in upgrading the carrier, including through fleet renewal, following the sale of a majority stake in Apr-2012 to Philippine conglomerate San Miguel. 2013 could see further strategy changes as San Miguel looks to make its mark at PAL but for now the carrier’s outlook remains relatively bleak.

Improvements in PAL’s unprofitable long-haul operation are highly contingent on the Philippines being lifted off the EU blacklist and upgraded from US FAA Category 2. PAL is banking on these occurring in 2013, enabling expansion to Europe and the US. But it could easily be another year or more before these occur.

In the domestic market, further LCC gains are unlikely given the Philippines already has the world’s highest domestic LCC penetration rate. Instead, consolidation is likely to hit the Philippines in 2013. There are now five LCCs competing in the domestic market, which is clearly too many.

Over-capacity and irrational competition already resulted in losses throughout 2012 at all Philippine carriers except Cebu Pacific. The outlook for 2013 would improve significantly for all Philippine carriers if there is consolidation. Given their positioning, Cebu Pacific and the PAL Group will almost certainly weather the storm and stand to benefit from the inevitable consolidation.

See related articles:

Vietnam poised for more LCC growth

Vietnam will see significant LCC growth as it starts to catch up with the more mature markets in Southeast Asia.

Within one year of launching operations, Vietjet has already surpassed Jetstar Pacific as Vietnam’s largest LCC. But Jetstar Pacific is planning to resume expansion in 2013. The carrier, which is partly owned by Australia’s Jetstar, has new life after a majority stake was transferred to Vietnam Airlines in early 2012.

Jetstar Pacific currently only operates domestic services but is expected to launch international operations in 2013. Vietjet has already set a Feb-2013 launch date for its first international route, Ho Chi Minh-Bangkok. Several more international routes as well as more domestic expansion is expected in 2013 as the carrier continues to grow its A320 fleet. Vietjet already accounts for 16% of Vietnam’s fast-growing domestic market,

Vietnam’s market is ideal for LCCs but currently only has a 21% LCC penetration rate, including 29% domestically.

See related article: VietJet overtakes Jetstar Pacific as largest Vietnamese low-cost carrier

Vietnam’s fast-growing economy and increasing popularity of a tourism destination should also support further rapid growth at Vietnam Airlines. 2013 could bring an initial public offering for the flag carrier, unlocking a new phase of growth. The carrier already has ambitious plans to expand its fleet by 35 aircraft over the next three years and grow its long-haul operation, which is very small compared to its Southeast Asian peers.

Myanmar to emerge as next major Southeast Asian market

Among Southeast Asia’s four smaller markets, Myanmar is a clear standout. The Myanmar market has been expanding at a breakneck speed since Aung San Suu Kyi’s National League for Democracy won landmark elections in Apr-2012.

International capacity to and from Myanmar almost doubled in the last nine months of 2012 and is likely to double again in 2013. Domestically several local carriers are also expanding as they aim to profit from the boom in tourism. While foreign carriers are benefitting mostly from the influx in international traffic as leisure and business demand explodes, a majority of passengers seek to travel beyond the international gateways of Yangon and Mandalay.

2013 will see more domestic growth as well as the likely launch of at least one new carrier and the country’s first LCC. There is potential for LCCs in both the domestic and international markets as Myanmar continues to open up.

See related article: Myanmar set to become Asia’s next big aviation growth market

For Laos, 2013 should also bring more growth as flag carrier Lao Airlines continues to expand its A320 fleet and start-up Lao Central continues to build up its 737 operation. Laos has progressed rapidly since late 2011, when Lao Airlines took its first A320. Previously the country’s carriers only operated turboprop aircraft.

In Brunei, Royal Brunei Airlines (RBA) will market a significant milestone in 2013 as it becomes the first carrier in Southeast Asia to operate the 787. RBA’s five 787s, all of which will be delivered by early 2014, will replace 777s and allow the flag carrier to complete a restructuring it began in 2011.

Overall market conditions in Southeast Asia remain favourable and conducive for growth. Rising discretionary incomes and rapid growth in the middle class is creating particularly favourable conditions for LCCs. Demand for travel within the region, and to a lesser extent from Southeast Asia to other parts of Asia and beyond, will once again grow in 2013.


Want more analysis like this? CAPA Membership gives you access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.
Find out more and take a free trial.