11-Jan-2016 12:21 PM

Southeast Asia’s low cost airline fleet expands by 13% in 2015 as short haul capacity growth slows

Analysis

Southeast Asia's low cost carrier fleet has passed the 600 aircraft mark as the region's 23 LCCs added about 70 aircraft in 2015, resulting in 13% growth. The region's LCC fleet has expanded by 50% in only three years, from 400 to just over 600 aircraft.

Nevertheless, LCC capacity growth within Southeast Asia slowed significantly in 2015 for the second consecutive year, as several carriers made adjustments in response to challenging market conditions. For the first time since the birth of LCCs in Southeast Asia 15 years ago there was a drop in the LCC penetration rate within Southeast Asia.

There was faster LCC capacity growth in medium/long haul markets connecting Southeast Asia with other regions, driven by a 37% expansion of the Southeast Asian LCC widebody fleet. There are now seven LCCs in Southeast Asia operating widebody aircraft, compared with only seven in the rest of the world.

Southeast Asian LCC sector surpasses 600 aircraft

Southeast Asia's 23 LCCs ended 2015 with 610 aircraft, according to the CAPA Fleet Database. The fleet grew by about 13% in 2015, matching the growth rate from 2014 but significantly slower than the 20% growth rate in 2013.

Southeast Asia's LCC fleet has grown by over 50% since the beginning of 2013, when it consisted of about 400 aircraft.

Southeast Asia LCC fleet by carrier: Jan-2016 vs Jan-2015, Jan-2014, Jan-2013

Rank	Carrier		Country	LCC Group	Fleet at 1-Jan- 2016	Fleet at 1-Jan-2015	Fleet at 1-Jan-2014	Fleet at 1-Jan-2013
1	JT	Lion Air	Indonesia	Lion	110	103	94	91
2	AK	AirAsia	Malaysia	AirAsia	80	80	72	64
3	IW	Wings Air	Indonesia	Lion	48	31	27	27
4	5J	Cebu Pacific Air	Philippines	Cebu Pacific	47	48	48	41
5	FD	Thai AirAsia	Thailand	AirAsia	45	40	35	27
6	QG	Citilink	Indonesia	(Garuda)	36	32	24	21
7	DD	Nok Air	Thailand	Nok	28	24	17	15
8	VJ	VietJet Air	Vietnam	VietJet	27	18	10	5
9	OD	Malindo Air	Malaysia	Lion	27	19	11	0
10	TR	Tigerair	Singapore	Tigerair	24	24	25	21
11	QZ	Indonesia AirAsia	Indonesia	AirAsia	24	29	30	22
12	D7	AirAsia X	Malaysia	AirAsia X	20	23	18	11
13	3K	Jetstar Asia*	Singapore	Jetstar	18	18	19	18
14	SL	Thai Lion Air	Thailand	Lion	18	8	2	0
15	PQ/ Z2	Philippines AirAsia#	Philippines	AirAsia#	13	16	17	17
16	BL	Jetstar Pacific	Vietnam	Jetstar	12	8	5	5
17	TZ	Scoot	Singapore	(Singapore Airlines)	11	6	6	4
18	DG	Cebgo^	Philippines	Cebu Pacific	8	4	5	5
19	XJ	Thai AirAsia X	Thailand	AirAsia X	5	2	0	0
20	Y5	Golden Myanmar Airlines	Myanmar	Golden Myanmar	3	3	2	0
21	XW	NokScoot	Thailand	Nok	3	0	0	0
22	XT	Indonesia AirAsia X	Indonesia	AirAsia X	2	0	0	0
23		Thai VietJet Air	Thailand	VietJet	1	1	0	0
N/A	RI	Tigerair Mandala	Indonesia	Tigerair	0	0	9	5
		TOTAL			610	537	476	399

Notes: *Valuair included in Jetstar Asia figures for Jan-2013 and Jan-2014. Valuair was a Jetstar Asia subsidiary prior to being folded into Jetstar Asia in 2014.
^Cebgo was known as Tigerair Philippines until 2015. It was acquired by Cebu Pacific in 2014 and took over Cebu Pacific's turboprop fleet in 2015, while returning its A320s to Cebu Pacific. This resulted in a drop in the fleet size at Cebu Pacific, as Cebu Pacific had eight turboprops while Tigerair Philippines had four A320s.
#Fleet figures for all years combine Philippines AirAsia and Zest AirAsia. Zest was acquired by AirAsia in 2013 but operated under a separate AOC until late 2015.
Tigerair Mandala suspended operations in mid-2014
Source: CAPA - Centre for Aviation

Southeast Asia now has seven long haul LCCs

The widebody segment grew at the fastest rate, 37%, but on a relatively small base. There are currently 52 widebody aircraft operated by seven Southeast Asian LCCs. At the beginning of 2014 there were 38 widebody aircraft operated by five Southeast Asian LCCs.

Thailand's NokScoot and Indonesia AirAsia X launched operations in 2015, joining Malaysia AirAsia X, Thai AirAsia X, Scoot, Cebu Pacific and Lion Air with widebody operations. Cebu Pacific and Lion operate widebody aircraft alongside predominately narrowbody fleets, while the other five carriers are purely widebody operators.

Southeast Asia LCC widebody fleet size ranked by operator: Jan-2016 vs Jan-2015

Rank	Airline		Country	1-Jan-2016	1-Jan-2015
1	D7	AirAsia X	Malaysia	20	23
2	TZ	Scoot	Singapore	11	6
3	5J	Cebu Pacific	Philippines	6	5
4	JT	Lion Air	Indonesia	5	2
5	XJ	Thai AirAsia X	Thailand	5	2
6	XW	NokScoot	Thailand	3	0
7	XT	Indonesia AirAsia X	Indonesia	2	0
		TOTAL		52	38

Scoot recorded the biggest growth among Southeast Asia's long haul LCCs, adding five aircraft. This Singapore Airlines long haul low cost subsidiary took delivery of 10 787s in 2015, while retiring five of its six 777-200s.

Thai AirAsia X, which launched in 2014, added three aircraft in 2015. Indonesia AirAsia X launched in 2015 with an initial fleet of two A330s. But parent Malaysia AirAsia X shrank its fleet by three aircraft as it phased out its inefficient A340s and restructured its network.

Lion took three A330-300s in 4Q2015. The new A330s are expected eventually to replace Lion's fleet of two ageing 747-400s but at least for now these two 747-400s are still being operated.

(Note: Indonesia AirAsia X has been operating some of Indonesia AirAsia's A320s to meet minimum aircraft regulations in Indonesia, but in this report these A320s are still counted under Indonesia AirAsia as they are still being operated under the AirAsia brand.)

Southeast Asian LCC turboprop also grew by more than 30% in 2015

The turboprop segment also grew rapidly from 58 to 77 aircraft, representing 33% growth.

Lion Group regional subsidiary Wings Air accounted for almost all the additional aircraft, expanding its ATR 72 fleet from 31 to 48 aircraft.

Thailand's Nok Air also added two Bombardier Dash 8 Q400s as its turboprop fleet expanded from six to eight aircraft. Malindo Air, Cebgo and Golden Myanmar are the other turboprop operators in the Southeast Asia's LCC sector, but none of these carriers added any turboprops in 2015.

Lion Group leads narrowbody growth

The remaining 510 aircraft in Southeast Asia's LCC fleet are narrowbody jets - a mix of 737 and A320 family aircraft. The narrowbody segment grew by a relatively modest 9% in 2015 but on a much larger base than the widebody or turboprop segments. There are currently 40 more narrowbody aircraft in service at Southeast Asian LCCs, compared with the situation one year ago.

Thai Lion Air underwent the fastest narrowbody growth, adding 10 737s. Its Malaysian sister carrier, Malnido Air, added eight 737s, while Indonesian parent Lion Air added four 737s.

As outlined above, Lion's Indonesian regional subsidiary Wings Air added 17 ATR 72s, making it the fastest growing LCC in Southeast Asia, based on aircraft numbers. The rapid growth of the Lion Group fleet in 2015, including growth at full service subsidiary Batik Air, was analysed in a separate report published on 9-Jan-2016.

Vietnam's VietJet Air added the second highest number of narrowbody aircraft among Southeast Asian LCCs: eight A320 family aircraft. The fast growing LCC ended 2015 with 24 A320s and three A321s, compared with 18 A320s at the end of 2014 (excludes wet-leased aircraft).

Other Southeast Asian short haul LCCs growing their narrowbody fleets in 2015 included Thai AirAsia with five aircraft, Citilink with four aircraft, and Jetstar Pacific with four aircraft. The fleet of AirAsia Group's Malaysian subsidiary was flat, while the group's affiliates in Indonesia and the Philippines shrank their fleets as part of turnaround efforts. Jetstar Asia and Tigerair also did not grow their fleets in 2016, as both responded to challenging conditions in Singapore's short haul market.

LCC capacity growth within Southeast Asia slows

Decisions to slow expansion, by the AirAsia Group and some of the region's smaller players, led to a significant reduction in short haul LCC capacity growth in 2015. Within Southeast Asia LCC seat capacity was up by only about 9%, according to OAG data. Not surprisingly, this matches the 9% growth figure for Southeast Asia's narrowbody fleet.

FSC seat capacity within Southeast Asia was up by 14% in 2015, outpacing LCC growth for the first time since the first Southeast Asian LCCs launched operations about 15 years ago. As a result, the LCC penetration rate within Southeast Asia dipped for the first time, after 15 years of steady gains.

Southeast Asia annual LCC penetration rate: 2003 to 2015

LCC seat capacity between Southeast Asia and other regions continued to grow faster than FSC capacity, but on a much lower base. LCC seat capacity between Southeast Asia and other regions was up 14% in 2015, driven by rapid expansion of Southeast Asia's long haul LCC sector.

As the above chart illustrates, LCCs accounted for 18.6% of total seat capacity to and from Southeast Asia in 2015, and 56.4% of seat capacity within Southeast Asia.

Again in 2016 - relatively slow short haul LCC growth

2016 will likely experience a similar trend line, with relatively slow LCC capacity growth within Southeast Asia and more rapid growth on routes connecting Southeast Asia with other regions in Asia Pacific.

There are still opportunities for short haul LCC growth within Southeast Asia as the overall market continues to grow, boosted by economic growth and expansion of the region's middle class population. Pioneer markets such as Myanmar and Vietnam, particularly, have a lot of potential.

That said, with the LCC penetration rate on short haul routes within the region already approaching 60% the market overall is now relatively mature. The extremely rapid growth rates from prior years, such as the 30% growth in LCC seats that was recorded in 2013, are simply no longer a realistic outcome.

The market began slowing down in 2014, with LCC capacity growth for the year at 14% within Southeast Asia. The 9% growth figure from 2015 represents a reasonable figure for the future.

Medium haul markets should see faster growth

CAPA projects 70 to 80 aircraft will be added to the Southeast Asian LCC fleet in 2016, resulting in a similar rate of fleet growth as in 2015. Once again, capacity in 2016 will grow much faster in markets connecting Southeast Asia with other regions, particularly North Asia, using a combination of widebody and narrowbody aircraft. There are still huge opportunities for growth in markets such as Southeast Asia-China, given the relatively low penetration rate and surging demand.

There will still be some opportunities for domestic and short haul international growth. Southeast Asian LCCs currently have over 1,100 aircraft on order, but inevitably a large portion of the aircraft on order will be used to replace the 600 aircraft currently in service, and to grow in medium haul markets that are still relatively underpenetrated.

Southeast Asia LCC group fleet size and order book: as of 1-Jan-2016

Airline Group	Number of carriers	Current fleet size	Orders
Lion Group	4	203	507
AirAsia/AirAsia X	7	188	385
Cebu Pacific	2	55	51
Garuda (Citilink)	1	36	44
SIA (Scoot/Tigerair)	2	35	49
Nok	2	31	13
Jetstar	2	30	0
VietJet	2	28	88
Golden Myanmar	1	3	0
TOTAL	23	609	1,137

Fewer than 100 of the 1,100 plus orders are for widebody aircraft. New generation narrowbody aircraft account for the majority of the orders.

The 737 MAX and A320neo families come with improved range and efficiency, enabling Southeast Asia's LCC narrowbody operators to reach new markets outside the region and reduce their reliance on the relatively saturated short haul market.

The long term outlook for Southeast Asia's LCC sector remains bright as long as the airline groups continue to make adjustments, avoid aggressive expansion in saturated markets, and direct growth to markets where there are better opportunities.