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Garuda Indonesia is the national airline of Indonesia based at Jakarta’s Soekarno-Hatta International Airport. The carrier operates an extensive domestic and regional network of services throughout Asia, Australia and the Middle East. In Jun-2010, Garuda resumed services to Europe (initially Amsterdam via Dubai) after an extended EU imposed ban.
Garuda ihas undergone a thorough restructuring in what it labelled "The Quantum Leap", which involved a dramatic redesign of the airline's strategic direction, network, brand and fleet. The airline launched an IPO in 2011 which was substantially under-subscribed at the relatively aggressive pricing sought. In Apr-2012, the government announced that talks were under way for a consortium of local investors to absorb the overhang, still held by the underwriters.
Location of Garuda Indonesia main hub (Jakarta Soekarno-Hatta International Airport)
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Garuda Indonesia plans to start competing on the Kangaroo route in Nov-2013, when it launches services to London Gatwick. The carrier is expected to start offering services between Australia and other European destinations in 2014, when it aims to launch new non-stop routes from Jakarta to continental Europe.
The Indonesian carrier is expanding in the Australian market ahead of launching services to London, adding capacity to its three existing Australian destinations – Sydney, Melbourne and Perth. Garuda is also launching services to Brisbane in Aug-2013 and aims to launch services within the next several months to Auckland, which opens up the possibility of connections between New Zealand and Europe.
This is the second of a two-part series of reports on Garuda Indonesia’s international expansion plans. The first part analysed the carrier’s overall position in Indonesia’s international market and the 10 international routes it plans to add in 2013. This part looks at the carrier’s entry on the highly competitive Kangaroo route between Australia and Europe.
Competition in the Indonesia-Singapore market will intensify in 3Q2013 with Singapore Airlines (SIA) adding capacity while its regional subsidiary SilkAir and low-cost affiliate Tiger Airways each launch services to two new Indonesian destinations. Garuda Indonesia, Tiger affiliate Mandala Airlines and Jetstar are all planning to follow SIA, SilkAir and Tiger in adding capacity in the dynamic Indonesia-Singapore market.
The surge in capacity is in part made possible by a newly expanded bilateral agreement between the two countries. Slot constraints, however, threaten to impede growth for some carriers operating in the market and make it difficult to use newly awarded traffic rights. For example, Indonesia AirAsia has already been set back by slot constraints at Changi Airport in attempts to launch three new routes to Singapore.
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.
This is the second part of a report looking at the Indonesia-Singapore market and the impact of the recently expanded bilateral between the two countries. The first part looked at the Jakarta-Singapore route, which accounts for 55% of Indonesia-Singapore capacity and has not seen growth in recent years due to bilateral restrictions.
The other 13 routes currently connecting Singapore and Indonesia have not generally been constrained by the bilateral. But there are huge opportunities to expand capacity on these smaller routes, driven by Indonesia’s rapidly growing economy and Changi’s position as the leading international hub for secondary cities in nearby Indonesia.
Leading LCC groups – including AirAsia, Lion and Tiger – as well as full-service carriers, led by Singapore Airlines regional subsidiary SilkAir, are likely to launch new routes connecting Indonesia with Singapore as well as add capacity in existing markets.
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