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Melbourne-Bali market: Garuda, Jetstar and Lion Group respond to under-capacity by adding flights

The Melbourne-Bali market will experience a surge in capacity in 2018, driven by increases by Garuda Indonesia and Jetstar Airways and the launch of services from the Lion Group. Capacity will increase by nearly 50%, offsetting a 40% decline since capacity peaked at approximately 9,000 weekly one-way seats in mid-2016.

While several major Australia international routes have been suffering from overcapacity, Melbourne-Bali had the opposite issue in 2017. AirAsia X suspended the route in Sep-2016, and Tigerair Australia in early 2017, leaving Garuda and Jetstar as the only nonstop competitors.

Garuda and Jetstar have benefitted from load factor and yield increases, but the market clearly can support more capacity. Both airlines have responded by adding capacity in the current southern summer season, and Lion Group affiliate Malindo intends soon to become a third competitor.  

Summary

  • Garuda recently expanded in the Melbourne-Bali market by introducing an eighth weekly frequency.
  • Jetstar is adding Melbourne-Bali capacity with four additional frequencies from Feb-2018, for a total of 14 weekly flights.
  • Lion Group’s Malindo Air plans to launch a daily Melbourne-Bali service in 2018, which will continue to Kuala Lumpur.
  • The new and increased Melbourne-Bali services will offset capacity declines following the earlier suspension by AirAsia X and Tigerair Australia.

Melbourne-Bali traffic dropped by 6% in FY2017

Bali is the sixth largest destination from Melbourne after Singapore, Auckland, Kuala Lumpur, Hong Kong and Dubai. However, the Melbourne-Bali market contracted in FY2017 when two of the four competitors suspended services.

There were 559,000 passengers on the Melbourne-Bali route in the fiscal year ending Jun-2017 (FY2017), according to Australia BITRE data. Traffic fell 6% compared to the 594,000 passengers carried in FY2016. These figures include passengers travelling beyond Bali or Melbourne, but exclude passengers travelling between the two destinations via intermediate points.

Bali accounted for a 5.6% share of Melbourne’s total international traffic in FY2017, compared to 6.4% share in FY2016. Overall, Bali accounted for 6.7% of Australia international passenger traffic in FY2017 and 6.8% in FY2016. This indicates that the Melbourne-Bali route became relatively underserved in FY2017.

AirAsia X and Tigerair suspension created a void

Melbourne Airport has been advocating for more capacity to Bali since the suspension of services on the route by Indonesia AirAsia X, in 3Q2016 (1QFY2017), and Tigerair Australia in early 2017 (3QFY2017).

AirAsia X dropped Australia-Indonesia services as the long haul low cost group’s Indonesian affiliate decided to suspend all scheduled services. Tigerair Australia pulled all its Bali services abruptly, because of regulatory issues with Indonesia.

While both suspensions included multiple Australia-Indonesia routes, Melbourne-Bali was the only route impacted by both. Other Australia-Indonesia routes had only one airline pull out, and therefore the impact was less significant.

Indonesia AirAsia X operated five A330-300 frequencies to Melbourne, with occasional reductions and increases during certain periods. Tigerair operated a daily service using 737-800s.

After both airlines exited, the Melbourne-Bali market was left with 17 weekly frequencies, including 10 from Jetstar Airways and seven from Garuda. The number of frequencies therefore declined by more than 40%, and seat capacity dropped by almost 40%.

The Melbourne-Bali route suffered from undercapacity for most of CY2017, forcing some traffic to travel via intermediate points such as Singapore and Sydney. Load factors were high (above 80%), along with yields.

Garuda and Jetstar add Bali-Melbourne capacity

Jetstar has operated a consistent schedule of 10 weekly 787-8 flights on Melbourne-Bali since Apr-2017. Garuda operated seven weekly frequencies for most of 2017 but its schedule was less consistent, with as few as five weekly frequencies during off-peak periods, and alternating between A330-200s and A330-300s.

Garuda introduced a new enhanced schedule on the Melbourne-Bali route at the end of 2017 in response to high demand. Garuda has added an eighth weekly frequency, which operates on Fridays using A330-200s. The preexisting daily flight is being maintained, and currently operates with A330-300s – although this flight is again scheduled to only five times per week during some off-peak weeks in 2018, resulting in a total of six frequencies.

Jetstar responded to the undercapacity situation by deciding to add four weekly frequencies from the beginning of Feb-2018. Jetstar will offer an all-time high of 14 weekly frequencies in the Melbourne-Bali market in Feb-2018. It will maintain the new twice daily schedule most weeks, with a reduction to 12 weekly flights during certain off-peak weeks.

Jetstar Airways (blue) and Garuda Indonesia (yellow) weekly one-way departures from Melbourne to Bali: Sep-2011 to Jul-2018

Melbourne-Bali to become Lion Group’s third Australia-Bali route

The Melbourne-Bali route will also regain a third competitor in 2018 with the launch of services from the Lion Group subsidiary Malindo Air.

Malindo plans to operate a daily flight from Melbourne to Bali using 162-seat two class 737-800s or 180-seat two class 737-900ERs. The flight will continue from Bali to Malindo’s base at Kuala Lumpur but, predominantly, is expected to carry local Australia-Indonesia traffic. The Melbourne-Kuala Lumpur route is well served with twice daily nonstop flights from both AirAsia X and Malaysia Airlines, making a one stop option via Bali relatively unattractive.

Malindo already operates a similar fifth freedom route from Brisbane to Kuala Lumpur via Bali, which was launched in Mar-2017 using 737-800s. This flight similarly relies mainly on local passengers for the Brisbane-Bali leg.

Lion Group also launched Perth-Bali in Jun-2017, using its Indonesian subsidiary Batik Air. The group seems to have been encouraged by the initial performance on Perth-Bali and Brisbane-Bali, prompting it to enter the Melbourne-Bali market. Sydney-Bali will also likely be launched, although Melbourne-Bali was the first priority as the group considered the route to be particularly underserved, and could benefit from a new competitor.

Lion Group to promote domestic connections in Bali

Australia-Bali is a large market that Lion Group has been keen to enter for some time, believing its low CASK can make it an effective competitor.

While Malindo and Batik are both full service airlines (providing food, drinks, seatback IFE, checked bags and seat assignments), the two airlines have very low unit costs for FSCs. Lion Group believes Australians appreciate a full service product at a competitively priced fare.

Malindo has not yet set a launch date for Melbourne-Bali. Malindo has already secured the traffic rights for Kuala Lumpur-Bali-Melbourne from Malaysian authorities, and tells CAPA that it will announce a launch date and start sales once all other approvals and slots are secured.

Malindo says it plans to schedule its Melbourne-Bali flight to connect with domestic flights from Bali operated by its Indonesian sister airlines Lion Air and Wings Air. Combined, Lion and Wings operate approximately 20 domestic routes from Bali, most of which will connect to the new Malindo flight from Melbourne.

Australia-Indonesia market could benefit from better domestic connections

Historically, a very small proportion of Melbourne-Bali passengers (and passengers Australia-Bali generally) have connected beyond Bali to other destinations in Indonesia. However, Melbourne Airport is now working with tourism authorities in Indonesia, and airlines, to promote connections beyond Bali. Secondary destinations such as Labuan Bajo are particularly appealing to Australians looking for alternatives to Bali.

There are also opportunities to promote inbound tourism to Australia from secondary cities in Indonesia such as Bandung, Surabaya and Yogyakarta. Historically, passengers travelling from secondary cities in Indonesia to Australia have flown through Kuala Lumpur or Singapore. Flying through Bali or Jakarta is more direct, but Indonesia-Australia flights are not generally timed to connect with domestic flights.

Garuda is now trying to boost connecting traffic on its Australia-Indonesia flights by retiming some flights and marketing connections better. By attracting more connecting traffic, Garuda should be able to continue adding capacity on routes such as Melbourne-Bali. Offering and promoting similar connections should also aid Malindo in making sure its new Melbourne-Bali service is viable.

While there is sufficient local demand to support more Melbourne-Bali capacity, for the market to grow over the long term a higher portion of connecting traffic is necessary.

Joint efforts by Melbourne Airport and Indonesian tourism authorities will be key in attracting more Victorians to travel beyond Bali to other Indonesian destinations. Joint efforts by Melbourne Airport and Australian tourism authorities could also stimulate inbound growth to Australia from secondary cities such as Bandung, Surabaya and Yogyakarta, which can be served via Bali.

Both efforts will help airlines diversify their traffic base in a market that has historically been dominated by outbound local traffic, driving overall Melbourne-Bali growth.

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