SE Asia fleet: Lion slows growth; AirAsia, VietJet more aggressive

Summary

• The Lion Group has further slowed new aircraft deliveries and is on pace to take delivery of only 17 aircraft this year. After taking delivery of 57 aircraft in 2015, Lion slowed its intake of new aircraft to 36 in 2016 and 29 in 2017.
• Lion's Malaysian affiliate, Malindo Air, has stopped expanding and has not added any aircraft this year.
• Batik Air and Thai Lion have have slowed their rate of fleet expansion in 2018, but are still growing, while Lion Air and Wings Air have barely expanded.
• Lion is the largest airline group in Southeast Asia and has over 300 in-service aircraft.
• VietJet has the most aggressive order book compared to the current fleet size, followed by AirAsia.

Lion is Southeast Asia's largest airline group by fleet size

Lion is the largest airline group in Southeast Asia based on fleet size. As of the beginning of Aug-2018, the Lion Group had 305 aircraft across five airlines: 302 aircraft in service and three inactive aircraft, according to the CAPA Fleet Database.

Its rival airline group AirAsia operated 223 as of 1-Aug-2018 when the seven AirAsia and AirAsia X branded airlines in Southeast Asia are included. AirAsia operated 243 aircraft when its two airlines outside Southeast Asia (in India and Japan) are also included.

Top five airline groups in Southeast Asia ranked by fleet size: as of 1-Aug-2018

Rank	Airline Group	Number of in service aircraft
1.	Lion	302
2.	AirAsia/AirAsia X	223
3.	Singapore Airlines	196
4.	Garuda Indonesia	193
5.	Malaysia Airlines	112

Source: CAPA Fleet Database.

The Lion Group fleet consists of 115 aircraft at the main LCC brand Lion Air, which is the second largest individual airline in Southeast Asia by fleet size after Garuda Indonesia.

The group also has 55 aircraft at its Indonesian full service subsidiary Batik Air, as well as 55 aircraft at its Indonesian low cost turboprop subsidiary Wings Air.

Its two overseas joint ventures, the Malaysian full service airline Malindo and Thailand-based LCC Thai Lion, have 47 and 33 aircraft respectively.

Malindo Air stops expanding

Malindo, in particular, has slowed its rate of expansion. Malindo has not added any aircraft so far in 2018, and the airline has now gone a year without any deliveries, with no plans to take delivery of any aircraft for the rest of 2018.

By the end of 2018, Malindo is considering potentially adding two 737-800s or -900ERs that are currently operated by its sister airline Batik. However, even if two Batik 737s are transferred to Malindo, resulting in a fleet of 49 aircraft, 2018 would mark by far the slowest year of fleet expansion for Malindo since it launched in 2013. Malindo's fleet expansion initially slowed in 2017 as it added only five aircraft, compared to a high of 15 aircraft in 2016.

Malindo Air fleet summary since launching operations in 2013

Aircraft	01-Aug-2018	01-Jan-2018	01-Jan-2017	01-Jan-2016	01-Jan-2015	01-Jan-2014
ATR 72-600	18	18	16	11	11	5
Boeing 737-800	23	23	20	10	2	0
Boeing 737-900ER	6	6	6	6	6	6
TOTAL	47	47	42	27	19	11

Source: CAPA - Centre for Aviation.

Malindo's total seat capacity has declined in 2018 and it could end the year carrying less passengers than the 7.2 million transported in 2017. However, Malindo has increased ASKs and aircraft utilisation as it has continued to expand in the international market while reducing domestic capacity.

Malindo has been focusing on consolidating its position and improving profitability. This is a sensible strategy, given that it has not been profitable since operations began five years ago, and the intensely competitive nature of the Malaysian market.

Thai Lion adds only five aircraft in 2018

Lion Group's other overseas JV, Thai Lion, has also slowed fleet expansion in 2018, but not as significantly as Malindo. Thai Lion added three aircraft in 1H2018 and plans to add two more aircraft by the end of the year.

Four of the five aircraft being added by Thai Lion in 2018 are 737 MAX 9s. The fifth aircraft is a 737-800 that was transferred from Lion Air at the beginning of 2018.

Thai Lion became the global launch operator of the 737 MAX 9 in Mar-2018. It took a second 737 MAX 9 in Apr-2018 and plans to take two more in Oct-2018, resulting in a projected fleet of 35 aircraft at the end of 2018.

Thai Lion's pace of fleet expansion initially slowed from 10 aircraft in 2015 to six aircraft in both 2016 and 2017. Five aircraft marks the slowest expansion for Thai Lion since operations began in late 2013.

Thai Lion Air fleet summary since launching operations in 2013

Aircraft	01-Aug-2018	01-Jan-2018	01-Jan-2017	01-Jan-2016	01-Jan-2015	01-Jan-2014
Airbus A330-300E	3	3	0	0	0	0
Boeing 737-800	11	10	8	5	0	0
Boeing 737-900ER	17	17	16	13	8	2
Boeing 737 MAX 9	2	0	0	0	0	0
TOTAL	33	30	24	18	8	2

Source: CAPA - Centre for Aviation.

However, Thai Lion has continued to expand seat capacity at a high double digit rate in 2018, driven partially by fleet expansion from 2H2017. It has also increased aircraft utilisation as it has focused on international expansion, particularly to China. The international expansion has enabled Thai Lion to improve its profitability; the airline is hopeful it will end 2018 with its first annual profit.

Lion Air and Wings Air expand slowly

In the group's original home market of Indonesia, Lion Air has resumed fleet expansion but is still growing at a very slow pace.

Lion took delivery of two 737-800s and one 737 MAX 8 in the first seven months of 2018 and took another 737 MAX 8 earlier this month. Lion is planning to add just one more aircraft for the rest of 2018, another 737 MAX 8s, resulting in a projected fleet of 117 aircraft at the end of 2018.

In a rather unusual move, Lion Air also reactivated a 747-400 in 2Q2018, according to the CAPA Fleet Database. Lion stopped operating its last two 747-400s in 1H2017.

While growth of five aircraft for the year (or four aircraft, if the reactivated 747-400 is excluded) is relatively modest, it represents a reacceleration compared to 2017, when Lion Air's fleet shrank by one aircraft. Lion Air added eight 737 MAX 8s in 2017 but removed nine aircraft from its fleet: two 737-800s, two 747-400s and five 737-900ERs. The two 737-800s were transferred to Thai Lion, while the five 737-900ERs and two 747-400s were retired (although one of the 747-400s has since been reactivated).

Lion Air (and the Lion Group) has not phased out any aircraft so far in 2018. It has only transferred one aircraft between subsidiaries (a 737-800 from Lion to Thai Lion at the beginning of the year) although a small number of transfers is possible later this year.

Lion Air fleet summary: 2015 to 2018

Aircraft	01-Aug-2018	01-Jan-2018	01-Jan-2017	01-Jan-2016	01-Jan-2015
Airbus A330-300E	3	3	3	3	0
Boeing 737 MAX 8	9	8	0	0	0
Boeing 737-800*	36	35	37	34	30
Boeing 737-900ER	66	66	71	71	71
Boeing 747-400	1	0	2	2	2
TOTAL	115	112	113	110	103

Note: one of the 737-800s has been out of service since the end of Apr-2018 due to damage from a runway overrun incident.
Source: CAPA - Centre for Aviation.

Lion Group's other LCC in the Indonesian market, Wings Air, has added only one aircraft in 2018. Wings Air added a staggering 17 aircraft in 2015 but has since slowed its expansion - adding only four aircraft in 2016 and two aircraft in 2017.

Wings, which operates an all-ATR turboprop fleet, is not expected to take any aircraft the rest of 2018. The Lion Group still has commitments for another 27 ATR 72-600s, but over the past couple of years has been deferring most of its deliveries.

Wings Air fleet summary: 2014 to 2018

Aircraft	1-Aug-2018	1-Jan-2018	01-Jan-2017	01-Jan-2016	01-Jan-2015	01-Jan-2014
ATR 72-500*	20	20	20	20	20	20
ATR 72-600*	35	34	32	28	11	7
TOTAL	55	54	52	48	31	27

*Note: one of Wings' ATR 72-600s has been out of service since a Dec-2016 landing gear collapse incident.
One of Wings' ATR 72-500s has been out of service after an Aug-2017 ground collision incident.
Source: CAPA - Centre for Aviation.

Batik Air rate of expansion slows

Over the past few years Lion has focused almost entirely on Batik for expanding in the Indonesian market. However, Batik has also significantly slowed expansion in 2018.

Batik added only four aircraft during the first seven months of 2018. Batik is expected to take three more A320s by the end of 2018 but may transfer two of its 737s to Malindo, which would give it a fleet of 56 aircraft at the end of 2018.

Batik Air fleet summary since launching operations in 2013

Aircraft	01-Aug-2018	01-Jan-2018	01-Jan-2017	01-Jan-2016	01-Jan-2015	01-Jan-2014
Airbus A320-200	41	37	27	13	6	0
Boeing 737-800	8	8	8	14	6	0
Boeing 737-900ER	6	6	6	6	6	6
TOTAL	55	51	41	33	18	6

Source: CAPA - Centre for Aviation.

Batik Air seat capacity has been relatively flat this year after growing rapidly from 2013 to 2017. Lion Air seat capacity has also been relatively flat in 2018, according to CAPA and OAG data. Market conditions in the Indonesian domestic market have been challenging over the past year.

Lion Group aircraft delivery rate slows for fourth consecutive year

The Lion Group is on pace to end 2018 with a fleet of 312 aircraft. This would represent growth of only 6% compared to 2017.

In 2017 the Lion Group fleet grew by a relatively modest 8%, from 272 to 294 aircraft. By contrast, in 2016 the fleet grew by 15%.

See related report: Lion Group 2017 fleet analysis: delivery deferrals & retirements mean slower growth once again

The number of aircraft delivered to the Lion Group slowed from a high of 57 aircraft in 2015 to 36 in 2016 and 29 in 2017. In 2018 deliveries will slow even further - to less than 20 aircraft. However, there have been no aircraft phase-outs or retirements, such as there were in 2017.

Lion's order book is less aggressive than AirAsia's or VietJet's

The slow pace of deliveries is somewhat surprising as Lion has around 450 aircraft on order. The group will need to reaccelerate deliveries at some point, given the huge size of its order book. However, a large proportion of the aircraft on order can potentially be used to replace existing aircraft.

As of 1-Aug-2018, Lion had 145 more aircraft on order than it in its current fleet. This equates to an order book to current fleet ratio of slightly less than 1.5:1, which is reasonable, given the anticipated growth in its three home markets.

AirAsia/AirAsia X has nearly 500 aircraft on order but a smaller current fleet, equating to an order book to current fleet ratio of more than 2:1.

VietJet has the most aggressive order book among Southeast Asian airline groups. VietJet currently has a fleet of 62 aircraft (it has taken delivery of three aircraft this month) and commitments for more than 320 aircraft, following recent top-up orders with Airbus and Boeing at the 2018 Farnborough Airshow. This equates to an order book to current fleet ratio of more than 5:1.

Top 5 Order books for airline groups in Southeast Asia: as of 1-Aug-2018

Airline Group	Order book	Fleet size	Ratio
AirAsia/AirAsia X	494	243	2.03:1
Lion	449	304	1.48:1
VietJet	328	59	5.56:1
Singapore Airlines	182	196	0.93:1
Garuda Indonesia	99	193	0.51:1

Notes: orders include MOUs that have not yet been converted to firm orders.
Lion's commitment with BOC Aviation for eight A330-900neos not included as this was announced after 1-Aug-2018.
Source: CAPA Fleet Database.

Even if VietJet replaces all the aircraft in its current fleet, there will be more than 260 growth aircraft. This is more growth aircraft than for AirAsia or Lion.

All three groups could potentially reduce their rate of fleet expansion by selling or leasing out aircraft to external airlines. Deferrals can also be pursued during challenging periods.

Lion's ability to slow its growth significantly in the past few years by negotiating deferrals highlights the flexibility it has with the manufacturers. (Lion has not sold or leased out any aircraft since 2014, even though it has a leasing subsidiary.)

Lion, AirAsia and VietJet have a combined order book of more than 1,200 aircraft. It is certainly hard to imagine all these aircraft being delivered. However, the flexibility each group has with their fleet plans provides some level of comfort that the situation is manageable.