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Location of Citilink main hub (Surabaya Juanda Airport)
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider Citilink fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
190 total articles
16 total articles
Indonesia’s Merpati Nusantara Airlines is facing a financial crisis and is looking to recapitalise and restructure its network to survive. The government-owned carrier has already shrunk in recent years while all its competitors and Indonesia’s overall domestic market have expanded rapidly. But Merpati has held onto some trunk routes, where it competes against larger and stronger carriers.
The most logical solution is for Merpati to abandon competing against Indonesia’s main carriers and focus entirely on regional routes to remote areas. But the number of regional routes requiring government subsidy are declining.
More efficient Lion Air has a fast-growing regional subsidiary operating ATR 72s and is looking to add smaller turboprops to access an even larger chunk of Indonesia’s vast regional market. Garuda is also introducing ATR 72s in Nov-2013, leaving even less room for a government-backed regional carrier. The Indonesian government seems to recognise there is no longer a need to keep Merpati running.
Southeast Asia continues to experience rapid LCC expansion even though some key markets are approaching saturation. The region’s LCC fleet is poised to grow by about 20% in 2013, approaching 500 aircraft at year-end. With some of the largest airline orders in recent years coming from ASEAN-focused LCC groups, rapid growth for the sector is assured for the medium to long term.
The LCC penetration rate within Southeast Asia is now above 50%, having steadily increased over the last 10 years from less than 5% in 2003. Even in the intra-Southeast Asia international market, which is about one-third the size of the region’s domestic market, LCCs now account for 50% of total seat capacity – a remarkable figure given that ASEAN has not yet moved to a single market concept like the EU.
Opportunities still remain for LCC market share gains in some countries, particularly Myanmar and Vietnam. These important pioneer markets have the lowest LCC penetration rates among the seven main ASEAN countries but LCC start-ups from both countries are expanding rapidly.
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.
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.
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.
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.
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