Jakarta Soekarno-Hatta International Airport

Jetstar aims to catch up in Indonesia after squandering first mover advantage inherited from Valuair

The Jetstar Group is preparing to increase its presence in the booming Indonesia market with additional services from its Singapore hub. The expansion follows several years of relatively flat capacity to Indonesia for Jetstar while its LCC competitors have pursued rapid growth.

Jetstar faces challenges as it tries to catch up on several years of missed opportunities in the Indonesian market. The group may struggle to compete with larger players, most of which are also pursuing rapid capacity expansion. Jetstar lacks an Indonesian affiliate, making it difficult to sell in the local Indonesian market, which remains heavily dependent on travel agents.

But the opportunities in Indonesia are too humongous for the usually conservative Jetstar to pass up. It needs to make a push or risk being shut out entirely in one of the largest and fastest growing markets in Asia.

Tiger and SIA/SilkAir lead race to expand in Indonesia-Singapore market with AirAsia lagging behind

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 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.

South Korea's Asiana targets growth in 2013 within Asia, in advance of big long-haul growth in 2014

One of the highest growth rates in North Asia in 2013 will be from South Korea's Asiana, which is projecting a 9% increase in RPKs. This compares to 4% RPK growth at Korean Air and modest growth from All Nippon Airways and Japan Airlines. Many Chinese carriers will have similar or higher growth, but notably Air China will be lower as it runs out of slots.

The focus in 2013 for Asiana, globally the 54th largest airline based on capacity and sixth largest for intra-Asia international capacity, is regional flights, increasing capacity to cities including Chongqing and Yangon and launching new services to Denpasar and Jakarta. This traffic will help feed its long-haul network, due to commence notable expansion beginning in 2014 as A380s replace 777-200ERs, facilitating their re-deployment to new routes.

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.

Jakarta-Singapore route poised for big capacity increase, led by Tiger and Mandala

Jakarta-Singapore, one of the world’s largest routes, will see a major surge of additional capacity in 2013 as a newly expanded bilateral between Indonesia and Singapore is implemented. Singapore-based low-cost carrier Tiger Airways and its new Indonesian affiliate Mandala Airlines will be the biggest beneficiary as the Tiger Group currently only has a paltry 5% share of capacity in the Jakarta-Singapore market. Tiger and Mandala are each preparing to add several daily flights on the route, supplementing Tiger’s current schedule of only two daily flights.

Other LCCs – including Indonesia AirAsia, Lion Air and Jetstar Asia – will also benefit from the new bilateral while full-service carriers are likely to see their market share drop, including market leader Singapore Airlines (SIA). AirAsia and Lion will be keen to add Jakarta-Singapore flights to maintain their leading shares of LCC capacity in the market as Tiger/Mandala attempt to quickly match or surpass their existing thicker schedules. AirAsia and Lion each currently operate six daily flights on the route.