11-Sep-2013 5:44 PM

Singapore-Jakarta emerges as world’s fastest growing major route as Tigerair, Garuda and SIA expand

Analysis

The Singapore-Jakarta market is seeing a 24% influx in capacity as several carriers have raced to add flights in 2H2013 following a breakthrough in the bilateral between Singapore and Indonesia. Tigerair and Garuda have led the way with significant increases while Singapore Airlines (SIA) and Jetstar have also pursued more modest additions.

Singapore-Jakarta has become the fastest growing major international route. It is now the second largest international route after Hong Kong-Taipei and the 12th largest overall.

A further 25% increase in capacity is likely in 2014 as carriers implement more of their newly awarded traffic rights.The sudden surge could result in short-term over-capacity. But over time the additional capacity should be absorbed given the fast-growing demand for services to and from Indonesia, which has emerged as one of the world's most dynamic emerging markets.

Summary

The Singapore-Jakarta market has seen a 24% increase in capacity following a breakthrough in the bilateral between Singapore and Indonesia.
Singapore-Jakarta is now the second largest international route and the fastest growing major international route.
A further 25% increase in capacity is expected in 2014, which could result in short-term over-capacity.
Singapore Airlines and Garuda Indonesia are the largest carriers on the Singapore-Jakarta route.
Tigerair has seen the biggest growth, adding five daily flights and increasing its market share from 5% to 14%.
LCCs account for 46% of capacity on the Singapore-Jakarta route, with opportunities for further growth limited by slot availability.

As CAPA initially reported in an earlier series of analysis articles, the Indonesia-Singapore market opened up in early 2013 after a new air services agreement was forged between the two countries which increased available capacity by 50%. The Indonesia-Singapore bilateral limits capacity in the four main routes between the two countries - Singapore to Jakarta, Bali, Medan and Surabaya - while there are no restrictions on secondary routes.

See related reports:

The four main Singapore-Indonesia routes have all since seen significant capacity increases. Singapore-Jakarta will reach about 65,000 weekly one-way seats in Nov-2013, up 24% from mid-Nov-2012, according to CAPA and Innovata data. There will be 298 weekly one-way flights between Singapore and Jakarta in Nov-2013, up 16% from Nov-2012.

The almost 130,000 return seats make Singapore-Jakarta the second largest international route in the world. No other route in the top 10 has seen growth above 20%.

Top 10 international routes based on capacity (seats) with year-over-year change: Nov-2013 vesus Nov-2012

Rank	Origin		Destination		Total Seats	1 Year Percentage Change
1	HKG	Hong Kong International Airport	TPE	Taipei Taoyuan International Airport	175,634	9%
2	SIN	Singapore Changi Airport	CGK	Jakarta Soekarno-Hatta International Airport	129,844	24%
3	SIN	Singapore Changi Airport	KUL	Kuala Lumpur International Airport	103,572	5%
4	HKG	Hong Kong International Airport	PVG	Shanghai Pudong Airport	94,656	14%
5	HKG	Hong Kong International Airport	BKK	Bangkok Suvarnabhumi International	91,325	20%
6	HKG	Hong Kong International Airport	SIN	Singapore Changi Airport	88,526	6%
7	DXB	Dubai International Airport	DOH	Doha International Airport	83,272	5%
8	SIN	Singapore Changi Airport	BKK	Bangkok Suvarnabhumi International	79,191	2%
9	JFK	New York John F Kennedy International Airport	LHR	London Heathrow Airport	76,226	9%
10	HKG	Hong Kong International Airport	PEK	Beijing Capital International Airport	68,996	3%

Singapore-Jakarta is the largest route for SIA and Garuda

Jakarta is the largest single destination for Changi and SIA while Singapore is the largest international destination for Jakarta and Garuda. In Nov-2013, the Jakarta-Singapore route will account for 9% of total capacity at Changi and 36% of total international capacity at Jakarta, according to CAPA and Innovata data. The route will also account for 10% of Garuda's total international seat capacity and about 8% of SIA's total seat capacity.

SIA introduced in late Jul-2013 a ninth daily frequency and is now looking to add a tenth frequency. So far SIA has not yet been able to secure an additional slot at Jakarta to support the unprecedented tenth frequency, which would be a milestone of sorts as the carrier has never had so many frequencies to a single destination.

Garuda in Aug-2013 added a ninth daily frequency and has also up-gauged four of its frequencies from 737-800s to A330s, resulting in a year over-year-capacity increase of about 46%. Garuda in Nov-2013 will account for about 20% of capacity in the Singapore-Jakarta market, compared to 17% in Nov-2012, while SIA has seen its share slip slightly from 31% to 30% despite the additional frequency as the overall market has grown at a faster clip.

SIA and Garuda expansion made possible by slot swap

The ninth daily flights for Garuda and SIA have been controversial for LCCs competing in the market as they have come with a behind the scenes slot trade between Indonesian and Singaporean authorities. Garuda has gained an extra peak hour evening slot at Changi and SIA an additional peak hour evening slot at Jakarta.

Both airports do not have any available slots during the morning or evening peaks, forcing carriers to add flights at off peak hours or allocate additional capacity to other markets. The two airports made a special exception to accommodate the additional Garuda and SIA flights.

Some carriers have at their disposal extra unused slots or are able to introduce extra peak hour flights to a particular high demand destination by moving some of their slots around. But carriers generally only have this flexibility at their home airport, particularly full-service carriers as they have been around for longer.

SIA and Garuda account for almost all full-service capacity in the Jakarta-Singapore market. The only other full-service carriers are Indonesia's Sriwijaya Air and Turkish Airlines, both of which serve the route with only one daily flight and have not added any capacity over the last year.

Tigerair records the biggest growth

Some LCCs have been able to add flights in the Singapore-Jakarta market by using a combination of their existing peak slots and new slots secured for non-peak hours. The Tigerair Group has been the biggest mover, adding five daily flights for a total of seven. Tigerair will have a 14% share of capacity in the Singapore-Jakarta market in Nov-2013, up from only 5% in Nov-2012.

Tigerair has an advantage over any other group in the market as it is the only one with affiliates and subsidiaries in both Singapore and Indonesia. This allows it to schedule flights that leverage peak hour slots in Singapore held by Tigerair Singapore and slots in Jakarta held by Tigerair Mandala.

The LCC group has been the biggest beneficiary of the new bilateral as Tigerair Singapore had traffic rights for just 14 weekly flights under the old agreement while Tigerair Mandala was previously not able to enter the route at all because when it launched in Apr-2012 there were no available traffic rights for Indonesian carriers. Tigerair Mandala now operates four of the group's seven daily flights on the Singapore-Jakarta route while Tigerair Singapore has added a third frequency of its own. Tigerair Mandala operates most of its Singapore flights in the middle of the day or late in the evening, periods that Changi generally still has additional available slots.

Tigerair Mandala was able to launch its first flight from Jakarta to Singapore in Apr-2013, using traffic rights and slots previously held by now defunct Batavia Air. In recent months it has added three more daily flights using traffic rights for the Indonesian side made available by the new bilateral agreement while Tigerair Singapore has also added one daily flight using new traffic rights made available for the Singaporean side.

Singapore-Jakarta one-way weekly seat capacity and frequency by carrier: Nov-2013 versus Nov-2012

Airline group	Nov-2012 frequency and frequency share	Nov 2013 frequency and frequency share	Nov-2012 seat capacity and capacity share	Nov-2013 seat capacity and capacity share
Singapore Airlines	56, 22%	63, 21%	16,374/31%	19,332/30%
Garuda	56, 22%	63, 21%	8,736/17%	12,754/20%
Lion	42, 17%	42, 14%	8,946/17%	8,946/14%
AirAsia	42, 14%	42, 14%	7,560/14%	7,560/12%
Jetstar	21, 8%	25, 7%	3,780/7%	4,500/7%
Tigerair	14, 5%	49, 16%	2,520/5%	8,820/14%
Turkish	7, 3%	7, 2%	1,932/4%	1,932/3%
Sriwijaya	7, 3%	7, 2%	1,078/2%	1,078/2%
Batavia	7, 3%	N/A	1,008/2%	N/A
Philippine Airlines	4, 2%	N/A	624/1%	N/A
TOTAL	256	298	52,550	64,922

Jetstar finally pursues modest expansion

Jetstar on 4-Sep-2013 became the latest airline group to announce capacity increases between Singapore and Indonesia, including four additional flights to Jakarta from 27-Oct-2013. The new flights will give the Jetstar Group 25 flights on the route, including 23 from Jetstar Asia subsidiary Valuair and two from Australia-based Jetstar Airways. (The Jetstar Airways flights, which operate on Singapore-Jakarta-Perth routing, along with the Turkish Airways daily service from Istanbul to Jakarta via Singapore, do not count towards the cap in the bilateral as they are authorised as third country fifth freedom rights.)

The new Jetstar flights depart Singapore during the evening peak. Jetstar was likely able to free up the slots from an upcoming re-shuffling of flights which includes capacity increases on several Singapore routes but the suspension of services to Beijing and Osaka.

Jetstar will capture a 7% share of capacity in the Singapore-Jakarta market in Nov-2013, still down from 9% in Nov-2012. Jetstar was the first LCC on the route but has not added any capacity for several years while other LCCs entered and rapidly expanded. The four additional weekly flights to Jakarta, along with four additional to Medan and two additional to Bali, is still a very conservative figure given the much faster expansion in the Singapore-Indonesia market by rival LCC groups Tigerair and AirAsia.

Indonesia AirAsia seeks traffic rights and slots to support seventh daily flight

Of the six main carriers in the Singapore-Jakarta market, Lion Air and Indonesia AirAsia are the only carriers so far not to have added or announced additional capacity. But Indonesia AirAsia has been looking at adding a seventh daily flight, which would match the offering from Tigerair. Indonesia AirAsia is currently seeking to secure the traffic rights from Indonesian authorities to support the additional flight.

The seventh flight would operate Jakarta-Singapore in the late evening, overnight at Changi and return early the following morning. Slots at Changi are not generally an issue at these hours. Jakarta slots would be more difficult to support such flights and would probably require Indonesia AirAsia to juggle around existing Jakarta flights.

AirAsia is currently at a competitive disadvantage in the market as it does not offer an early morning departure from Singapore. Its first departure from Singapore to Jakarta is now scheduled at 0850, which is too late for same-day business travellers based in Singapore. Offering an early morning flight from Changi would improve revenues and yields but adds costs as it requires Indonesia AirAsia to overnight crews in Singapore, something AirAsia does not do anywhere with its narrowbody fleet, or base an aircraft at Changi.

The carrier has the capacity to open a base in Singapore as it has five additional A320s joining its fleet in 2H2013. So far it has taken two of these aircraft and based them in Bali and Medan. (Basing additional aircraft in Jakarta is challenging given the congestion there.)

Indonesia AirAsia has been presented with an opportunity to base one of its A320s at Changi, using a parking spot and an early morning takeoff slot that until recently was used by sister carrier AirAsia Malaysia. Overnight parking spots have become challenging to secure at Changi (more remote spots will become available with the opening of T4 in 2017). But Indonesia AirAsia has access to one parking spot which AirAsia Malaysia had used for a late night arrival and early morning departure for Kuala Lumpur. As CAPA previously reported, AirAsia Malaysia decided earlier this year to axe this flight and close its one-aircraft crew base at Changi, which it decided to open in late 2011, as it was unprofitable.

The value in having a crew base and overnight parking spot at Changi, which can also be expensive, is potentially higher for Indonesia AirAsia given it is otherwise impossible to offer an early morning departure. Kuala Lumpur is shorter flight and Malaysia is on the same time zone as Singapore while Indonesia is one hour behind. AirAsia Malaysia is still able to operate a 0745 departure from Singapore without having to overnight an aircraft at Changi. This is not possible for Indonesia AirAsia given the time zones and longer length of flight to Jakarta.

Business passengers often fly Singapore-Jakarta round-trip in a single day. SIA and Garuda continue to offer the most attractive passengers and product for business passengers on the route. But several businesses, in particularly smaller firms and individual entrepreneurs, value LCCs on short-haul routes.

Tigerair now has an attractive schedule for business passengers as it is able to seamlessly offer flights operated by its Singaporean subsidiary and Indonesian affiliate. AirAsia, which has been trying to penetrate the corporate market, would be able to match this if it is able to offer an early morning departure from Singapore.

Lion market share slips

Lion will remain at a disadvantage in the business market as its first departure from Singapore is 0945. But unlike Tigerair and AirAsia, Lion does not have a strong local brand in the Singaporean market and focuses primarily on the outbound Indonesian market. As a result an early morning flight from Singapore would be of less importance.

Lion has seen its share of capacity in the Singapore-Jakarta market slip from 17% to 14%. But it still offers slightly more capacity than Tigerair and would also remain larger than AirAsia even if AirAsia adds a seventh daily frequency as Lion uses 213-seat 737-900ERs all its Singapore flights while the other LCCs use 180-seat A320s.

One of Lion's six flights continues onto Ho Chi Minh in Vietnam, which slightly reduces the amount of capacity available to local Singapore-Jakarta passengers. Lion unlike Jetstar or Tigerair does not offer any connections in Singapore with the exception of the same-plane Ho Chi Minh service, which would leave more capacity available for the local Singapore-Indonesia market (Lion does offer extensive domestic connections at the Jakarta end). AirAsia also does not offer connections in Singapore.

LCCs in Nov-2013 will have 158 weekly frequencies and almost 30,000 one-way weekly seats in the Singapore Jakarta-market, which equates to a penetration rate of 46%. This will make it the 10th largest LCC route in the world and the second largest international LCC route.

Top 10 LCC routes based on capacity (seats): Nov-2013 versus Nov-2012

Rank	Origin		Destination		Weekly Return Seats	1 Year Percentage Change
1	CJU	Jeju Airport	GMP	Seoul Gimpo International Airport	150,431	8%
2	CGK	Jakarta Soekarno-Hatta International Airport	SUB	Surabaya Juanda Airport	116,725	68%
3	CGK	Jakarta Soekarno-Hatta International Airport	KNO	Kuala Namu International Airport (MEDAN)	87,972	28%*
4	CGK	Jakarta Soekarno-Hatta International Airport	UPG	Sultan Hasanuddin International Airport (MAKASSAR)	76,529	33%
5	DEL	Delhi Indira Gandhi International Airport	BOM	Mumbai Airport	73,392	11%
6	SDU	Rio de Janeiro Santos Dumont Airport	CGH	Sao Paulo Congonhas Airport	72,934	-1%
7	CGK	Jakarta Soekarno-Hatta International Airport	DPS	Denpasar Bali Ngurah Rai Airport	66,402	14%
8	MNL	Manila Ninoy Aquino International Airport	CEB	Mactan Cebu International Airport	63,433	34%
9	SIN	Singapore Changi Airport	KUL	Kuala Lumpur International Airport	62,280	1%
10	SIN	Singapore Changi Airport	CGK	Jakarta Soekarno-Hatta International Airport	59,652	31%

If Indonesia AirAsia is able to add its seventh daily flight on the route, the LCC figure will grow to 165 weekly frequencies and over 31,000 one-way seats. Singapore-Jakarta is already the largest route for Indonesia AirAsia and the Tigerair Group. It is also the largest international route for Lion.

LCCs have opportunity to grow further - but slots will be a limitation

The LCC capacity figures on Jakarta-Singapore are impressive but there should be opportunities to add further capacity and grow the LCC share beyond 46%. This ultimately however could hinge on slots.

Flag carriers typically are better positioned for finagling additional slots, as proven by the controversial Indonesia-Singapore trade which resulted in new slots for Garuda and SIA. Full-service carriers also have the advantage of being able to up-gauge existing flights by switching to larger aircraft. Most of the Garuda capacity increase in Changi has come from switching from 737s to A330s, thereby making better use of its slots at both Jakarta and Singapore. SIA, which is an all widebody operator and uses SilkAir to operate short-haul flights to smaller Indonesian destinations, also has up-gauged over the last year some of its Jakarta flights from smaller to larger widebody aircraft.

Full-service carriers also benefit from carrying more connecting passengers. SIA in particular has a large number of transit passengers that originate and are destined for Jakarta as the Jakarta airport has a very limited long-haul network. But Tigerair and Jetstar are also now carrying a growing number of connecting passengers via Singapore, albeit at a much smaller base.

Local demand for Singapore-Jakarta also continues to grow, driven by Indonesia's strong economy. Business ties between the two countries continue to expand and Indonesia is a large and growing source market for Singapore's tourism sector.

Singapore has always been a popular destination for wealthy Indonesians, with its shopping malls particularly a big attraction. But Indonesia also now has a growing middle class population with discretionary income levels sufficient for a quick holiday in Singapore but not yet sufficient for a much more expensive trip to Australia, Japan or Europe. This fast-growing sector plays into the hands of the LCCs.

The 24% increase in capacity could see a slight slip in load factors over the short-term but the additional capacity should be absorbed quickly given the growth in demand and the fact the market has to catch up from a few years of very limited to no growth due to bilateral limitations. Airlines will likely continue to pour more capacity into the market with slots at both Jakarta and Singapore being the only potential detractor.

From a demand perspective, the market could easily grow by another 25% over the next year or two, resulting in the bilateral once again reaching the maximum capacity. In fact, it is believed that most of the traffic rights for this additional 25% allowed under the expanded bilateral have already been distributed.

Yet another bilateral extension could be forthcoming

As Indonesian carriers have so far accounted for more of the added capacity than Singaporean carriers, space is already running tight on the Indonesian side. In Nov-2013 Singaporean carriers will offer about 27,200 weekly one-way seats compared to about 35,400 seats for Indonesian carriers. That means there is space for only about 2,000 more seats for Indonesian carriers. Indonesia AirAsia could struggle to secure approval for its seventh additional flight as these 2,000 additional seats have already been tentatively allocated to other carriers - most likely to Garuda.

Among the LCC group Tigerair could have an advantage as it potentially can expand further using some of the available Singapore traffic rights, creating an even wider gap in terms of frequencies over AirAsia and Lion. Jetstar could also potentially expand but this is a less likely scenario given its more conservative posture and desire to stay out of markets that are seeing hyper-competition. While there is potentially sufficient demand for even more LCC services on Singapore-Jakarta, fares are now very low - often less than USD100 return including taxes.

Given the squeeze on the Indonesia side a further extension of the bilateral is possible. Typically Singapore is always open for new negotiations. It was Indonesian authorities which held up any extension to the bilateral for several years. Singapore had been clamouring for a new bilateral for some time, as its carriers wanted greater access to Jakarta. Indonesia eventually was willing to open up once its own carriers also wanted to expand.

Indonesia could resist a further opening of the bilateral, even with its LCCs desiring even more capacity, as it could revert to its original fear that more rights for Singapore carriers will result in Garuda losing sixth freedom passengers to SIA. Eventually common sense should prevail - as it did in early 2013 - and a new agreement will be forged. But that could take a while. In the meantime carriers will race to implement additional capacity increases, bringing the Singapore-Jakarta route to over 75,000 weekly one-way seats and putting it again at the cap allowed under the bilateral.

Part 2

In the second part in this series of articles to be published later this week, the rapid growth in the Singapore to Bali, Medan and Surabaya routes will be analysed. The second part will also look at growth in the number of flights from to secondary Indonesian cities, which are not capped by the current bilateral.