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Lion Group's Malindo Air opts for single class configuration on 737-8 as MAX deliveries begin

Malaysia’s Malindo Air has opted for an all economy 180-seat configuration for its new fleet of Boeing 737 MAX 8s, a decision which represents an unexpected strategic adjustment, given that it has been reinforcing its position as a full service airline. Malindo currently operates 29 current generation 737-800/900s in two class configuration on more than 30 international routes.

Malindo, which is part of Indonesia’s Lion Group and will soon be rebranded as Batik Malaysia, plans to use its initial fleet of four 737 MAX 8s primarily on existing routes to South Asia and China that have limited premium demand. Dhaka in Bangladesh, Kathmandu in Nepal, and Lahore in Pakistan are among the initial regular routes for Malindo’s MAX fleet. Kuala Lumpur-Singapore will be the first revenue flight for the MAX, scheduled for 22-May-2017, but this is a one off for ceremonial, rather than commercial, purposes.

Malindo, along with Southwest and Norwegian, are the launch customers for the MAX and deliveries to all three airlines are slated to begin by the end of May-2017. Malindo is the launch operator and will have five more seats in its 737 MAX 8s than Southwest, but nine fewer seats than Norwegian.

Malindo will be the first airline to operate the 737 MAX

Malindo took delivery on 16-May-2017 (Seattle time) of its first 737 MAX 8, which is the first variant in the re-engined 737 MAX family to enter service. The aircraft is slated to arrive at Malindo's base in Kuala Lumpur International Airport (KLIA) on 18-May-2017. Malindo is planning to operate the first commercial flight with the 737 MAX 8 on 22-May-2017.

Malindo will be the first operator of the 737 MAX, beating Norwegian by a few weeks. Norwegian plans to put its first 737 MAX 8 into service on 15-Jun-2017 – on a new route from Stewart Airport, in New York, to Edinburgh. Using Norwegian's initial batch of 737 MAX 8s the group plans to launch another 11 new trans-Atlantic routes, which will be launched by early Jul-2017 and connect three secondary airports in the northeast US with six destinations in the Ireland, the UK and Norway.

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Southwest was the original launch customer for the 737 MAX, but is not planning to begin operating commercial flights with the new type until 1-Oct-2017 – at which point it is slated to have nine aircraft already. Southwest plans to use its first batch of 737 MAX 8s to phase out its 737-300 fleet, and has included MAX flights to 20 cities in its Oct-2017 schedule.

Malindo's parent Lion, Norwegian, and Southwest are among the largest customers for the 737 MAX family. Lion has 201 MAX aircraft on order, Southwest 200 aircraft, and Norwegian 108 aircraft.

The first commercial flight for the MAX globally will be operated by Malindo from Kuala Lumpur to Singapore. Malindo has scheduled this flight – which will host VIPs and media – for 22-May-2017, operating as OD flight 803 departing Kuala Lumpur at 1030 and departing from Singapore at 1220 as OD flight 804. This is a normally scheduled flight – one of Malindo’s four daily frequencies from Kuala Lumpur to Singapore – and is usually operated by Malindo with 162-seat two class 737-800s.

Malindo’s initial regular routes using the MAX will be to South Asia

Malindo has not yet scheduled any other flights for the MAX 8. Malindo plans to start loading its initial batch of regular 737 MAX routes within the next few days – or once the aircraft has arrived at Kuala Lumpur and the airline has ensured the MAX is ready for normal operations.

Kuala Lumpur-Singapore is not intended to be a regular or permanent route for the 737 MAX 8. The MAX is better suited for longer routes, where the fuel efficiency benefits compared with the 737NG are much more pronounced. Kuala Lumpur-Singapore is a very short route, with a flight time of less than one hour.

Malindo CEO Chandran Rama Muthy tells CAPA the first batch of regular routes for Malindo’s 737 MAX are likely to be Kuala Lumpur to Dhaka in Bangladesh, Kathmandu in Nepal, and Lahore in Pakistan. These are all relatively long narrowbody routes, with limited premium demand.

Malindo has already made the necessary arrangements to fly the 737 MAX to Bangladesh, Nepal and Pakistan. Mr Muthy says the procedures in these countries were reasonably straightforward, only involving the registering of the new aircraft with authorities and preparing for ground support.

Malindo also plans to operate the MAX to China

At a later stage Malindo is also planning to deploy the 737 MAX on some of its routes to secondary cities in China and India where there is similar limited premium demand. Malindo currently serves five cities in China (four secondary cities and Guangzhou), and six cities in India (four secondary cities along with Delhi and Mumbai).

Malindo has two destinations in Bangladesh (but Chittagong is served much less frequently than Dhaka) and just one destination in both Pakistan and Nepal. Malindo has 11 destinations in South Asia, when the six Indian destinations and Colombo in Sri Lanka are also included.

South Asia accounts for slightly more than one third of Malindo’s international seat capacity, while China accounts for less than 5%. In terms of total number of international destinations, South Asia also accounts for slightly more than one third.

737 MAX is Malindo’s first jet without business class and IFE

Malindo will not be deploying the MAX 8 to destinations with significant premium demand because it has configured its first batch of 737 MAX 8s with 180 all economy seats. Malindo has only operated 737s in two class configuration since it launched operations in Mar-2013.

Malindo currently operates 23 737-800s in 162 seat two class configuration (150 economy and 12 business), and six 737-900ERs in 180 seat two class configuration (168 economy and 12 business). Malindo also has 16 ATR 72-600s, but these have always been in single class configuration – which is typical for turboprops.

Malindo Air fleet: as of 15-May-2017

Aircraft In service
ATR 72-600 16
Boeing 737-800 23
Boeing 737-900ER 6
Total: 45

All of Malindo's 737-800s and 737-900ERs feature inflight entertainment (IFE) monitors at every seat, and 32in pitch in economy. However, with the 737 MAX 8 Malindo will not have any IFE initially and will provide a 31in pitch. Malindo plans to install IFE monitors on the 737 MAX 8 eventually, but has not yet set a date for the retrofit.

Southwest will have a seat pitch of 32in on its 737 MAX 8 and is configuring its aircraft with 175 seats, compared to the 180 seats on the Malindo aircraft. Norwegian has opted for the maximum seat configuration of 189 seats, which provides an average seat pitch of 29in to 30in.

Lion Air will also operate 180-seat 737 MAX 8s

Boeing markets the 737 MAX 8 as a 162-seat aircraft in average two class configuration, and up to 189 seats in single class configuration. This is identical to the 737-800NG, which has the same fuselage length as the 737 MAX 8 but less range (approximately 1,000km less).

The Lion Group, until now, has followed the standard low cost high density configuration of 189 seats on the 737-800 for its two LCCs – Indonesia based Lion Air and Thai Lion Air – and used the standard two class 162 seat configuration for its two full service airlines – Indonesia based Batik Air and Malindo Air. However, on the 737 MAX 8 the group is using the same spec for Malindo and Lion Air – hardly ideal, given that the two airlines are positioned differently. Malindo is essentially following the Lion spec for the 737 MAX 8, resulting in an LCC like product which could frustrate passengers who are accustomed to a roomier seat pitch and IFE when flying Malindo.

Lion Group plans to take delivery of eight 737 MAX 8s in 2017. The first four have been allocated to Malindo and the next four have been allocated to Lion Air. All eight aircraft will be delivered in the same 180 seat configuration, without IFE.

All four of the Malindo deliveries are slated for 2Q2017. Mr Muthy says the second 737 MAX 8 is expected to be delivered at the end of May-2017, followed by two more aircraft in Jun-2017. Malindo is adding a total of seven 737s in 1H2017, resulting in a jet fleet of 33 aircraft, when the three 737-800NGs that were delivered in 1Q2017 are also included.

Malindo 737 MAX 8 is the first of 201 MAX aircraft for Lion Group 

The Lion Group has 201 737 MAX family aircraft on order. The order was placed in early 2012 and has always included a mix of 737 MAX 8s and 737 MAX 9s. The MAX 8 can seat up to 189 passengers (matching the 737-800), while the 737 MAX 9 has been designed to seat up to 220 passengers – five more passengers than the 737-900ER. Lion and Thai Lion now operate 737-900ERs with the maximum 215 seats, whereas Malindo and Batik use a two class 180-seat configuration for the 737-900ER.

In 2014 Boeing launched the 737 MAX 8-200, which has been designed to seat up to 200 passengers. Ryanair is the launch customer of this variant, with deliveries starting in 2019. Potentially, Lion could convert some of its orders to this variant, since they predate the MAX 8-200. It could also convert some its orders to the larger 737 MAX 10, which Boeing has been offering customers since Dec-2016 but has not yet secured a launch order for. 

Of Lion's 201 MAX commitments, currently it has specified only 10, including eight 737 MAX 8s and two 737 MAX 9s. The remaining 191 orders are not currently specified, according to the CAPA Fleet Database. Lion has a very flexible fleet plan and often decides on a variant and operator for each new 737 less than a year prior to delivery.

The group also has 183 A320neo family aircraft on order. So far Lion has only allocated these aircraft to Batik, which is also the only A320ceo operator in the group. 

Lion Group fleet summary: as of 15-May-2017

Aircraft In service On order
Airbus A320-200 33 10
Airbus A320-200neo 0 118
Airbus A321-200neo 0 65
Airbus A330-300E 3 3
ATR 72-500 20 0
ATR 72-600 31 32
Boeing 737 MAX 0 191
Boeing 737-8 0 8
Boeing 737-800 45 0
Boeing 737-9 0 2
Boeing 737-900ER 77 6
Boeing 747-400 2 0
Total: 211 435

Malindo to stick with full service model

Malindo plans to maintain its full service model, despite its decision to drop a business class product on some of its international flights. Mr Chandran says Malindo will maintain the two class configuration on its existing 737NGs and will have a business class product on its future fleet of A330-300s. Malindo plans to take three two class A330-300s in 2H2017, and does not have any additional single class 737 MAX deliveries in 2H2017.

In its early years of operation Malindo referred to itself as a low cost or hybrid airline, but adopted a full service positioning in early 2016. As CAPA has highlighted in prior analysis reports, Malindo’s product did not change in 2016, but the airline decided to start marketing itself clearly as full service.

The reinforcement of its full service position came as Malindo moved back to the main terminal at KLIA after nearly a year at KLIA2, which is used by AirAsia and other LCCs. It also coincided with a new network airline strategy aimed at focusing more on transit traffic – within Malindo, with other Lion Group airlines, and with airlines outside the group. Malindo began interlining with three foreign full service airlines in 2016, planning to add several more interline partnerships in 2017 and begin codesharing with some of its partners.

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For the past year Malindo has also been planning a rebranding, aimed at further reinforcing its full service position. In 2H2017 Malindo now aims to adopt the Batik Malaysia brand formally, which leverages the brand of its sister full service airline in Indonesia. All of Malindo’s additional aircraft over the past several months have already been delivered with the Batik Malaysia brand in anticipation of the rebranding exercise, and Malindo’s first 737 MAX 8 has also been painted in Batik Malaysia colours. 

In the second half of this report CAPA will examine in detail how the 737 MAX 8 fits into the Malindo network and should improve its performance on several medium haul routes.

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