Citilink

Competition between Indonesian market leaders Lion and Garuda to intensify as Batik Air launches

Competition in Indonesia’s dynamic domestic market will further intensify in May-2013 as market leader Lion Air launches its new full-service subsidiary, Batik Air. Batik will initially serve three domestic routes alongside budget brand Lion and operate 737-900ERs in two-class configuration. Several more domestic routes are expected to be launched by the end of 2013 with international service to follow in 2014 or 2015.

Garuda will be most impacted by Batik’s launch as the flag carrier’s biggest competitor becomes stronger and more diversified. All of Batik’s initial routes are already served by Garuda and most are also served by Indonesia’s second largest full-service carrier, Sriwijaya. Batik will also face indirect competition from Garuda budget subsidiary Citilink, AirAsia Indonesia and Tiger Airways' affiliate Mandala but the Lion Group will mainly use its powerful budget brand to compete with these rapidly expanding LCCs.

Indonesia’s Lion Air Group has the growth opportunities to support the 600 aircraft on order

The Lion Air Group has a massive 600 aircraft on outstanding order following its landmark order for 234 A320 family aircraft, which was signed on 18-Mar-2013. The figure at first glance seems overly ambitious given the intensifying competition in Southeast Asia’s low-cost carrier market. But Lion enjoys a very strong position in its massive and fast-growing home market of Indonesia, which could easily support, over the next decade, at least half of the additional aircraft it has committed to acquiring.

Lion also has ambitions of establishing new affiliates and subsidiaries, following the model of rival LCC group AirAsia. The Lion Air Group is launching Malindo, a joint venture carrier in AirAsia’s original home market of Malaysia, on 22-Mar-2013.

The group also has the option of placing some of the 600 aircraft it has on outstanding order with airlines outside Lion through its new leasing subsidiary. This gives Lion unique flexibility should its growing portfolio of airlines not require all 600 aircraft for their own growth and replacement needs.

Indonesia poised for more rapid domestic growth in 2013, driven by low-cost carriers

The Indonesian domestic market is poised for more rapid growth in 2013 despite the bankruptcy and suspension of operations at Batavia, which had been Indonesia’s fourth largest carrier. The void left by Batavia has been quickly filled by other carriers, primarily Tiger Airways affiliate Mandala and Garuda Indonesia subsidiary Citilink. Nearly all of the country’s other remaining carriers are also pursuing rapid expansion in 2013.

Indonesia’s domestic market grew by 20% in 2012 from 60.2 million to 72.5 million passengers, according to preliminary data from Indonesia’s DGAC. This makes Indonesia the fifth largest domestic market in the world (after the US, China, Japan and Brazil) and one of the fastest growing.

The 20% increase in domestic passenger traffic for 2012 follows 16% growth in 2011, 18% growth in 2010 and 17% growth in 2009. As a result Indonesia’s domestic market has nearly doubled in only four years – from 37.4 million passengers in 2008.

Mandala, Indonesia AirAsia and Citilink to benefit most from Batavia bankruptcy

Indonesia's Batavia Air suspension of operations on 31-Jan-2013 provides a dose of healthy consolidation for the fast-growing Indonesian market. The nation's three largest domestic players – Lion Air, Garuda Indonesia, and Sriwijaya Air – will benefit and see their market shares increase even further.

But Indonesia AirAsia and new Tiger Airways affiliate Mandala could be the biggest beneficiaries as Batavia's exit make it easier for the two LCCs to succeed in their attempt to establish a meaningful presence in the domestic market. Indonesia’s fastest growing carrier from 2012, Citilink, will also benefit as Batavia’s suspension comes just as the Garuda Indonesia budget subsidiary pursues more rapid expansion.

The bankruptcy and suspension of operations of Batavia does not provide a big and sudden shock to the Indonesian market as the carrier had already reduced significantly in size during 2012. Batavia had captured 11% of the domestic market in 2011, back when it operated a fleet of over 30 aircraft. But the airline had already seen its market share slip significantly in 2012 as it cut back its network and as a large portion of its fleet was repossessed. Indonesia’s other major carriers, meanwhile, expanded rapidly in 2012 and were already planning more rapid capacity expansion in 2013, allowing them easily to fill the void now left by Batavia.

Tiger's Indonesian affiliate Mandala starts to pursue faster expansion but faces tall order

Tiger Airways Indonesian affiliate Mandala Airlines has unveiled further network expansion plans as it aims to establish a meaningful presence in Indonesia’s fast-growing domestic and international markets. The carrier has grown slowly – extremely slowly for Indonesian standards – since resuming services in Apr-2012, following a 15-month suspension.

Slightly faster growth is now being pursued, with three routes being added in Jan-2013 following the launch of four routes in Dec-2012. But Tiger and Mandala will need to invest in accelerated growth if it is to become a significant player in the dynamic Indonesian market.

With the latest expansion Mandala will operate 11 routes – seven international routes and four domestic routes – with a fleet of five Airbus A320s. Further expansion is expected over the next six months as Mandala doubles its fleet to 10 A320s, meeting an Indonesian DGAC requirement for all airlines to have at least 10 aircraft, including five owned.

Citilink regional expansion will further intensify competition between Garuda Indonesia and Lion Air

Competition is to further intensify between leading Indonesian airline groups Garuda and Lion as Garuda accelerates expansion of its budget airline subsidiary Citilink to include regional domestic routes. Citilink now plans to operate a fleet of 80 aircraft by the end of 2015, including 30 70-seat turboprops, which should make it the second largest carrier in the Indonesian domestic market after Lion.

Citilink only carried 1.6 million domestic passengers in 2011, compared to 25 million for Lion and just over 12 million for Garuda mainline. But Garuda is committed to closing the gap with Lion, which became Indonesia’s largest carrier in 2009, by focusing on rapid domestic growth at both ends of the market.

Closing the gap at the budget end of the market will not be easy as the Lion Air Group, which includes regional subsidiary Wings Air, has its own ambitious expansion plans. But Citilink’s expansion comes off a much smaller base as the carrier is slated to end 2012 with a fleet of only 18 aircraft.