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Lion’s Malindo Air to compete vs AirAsia, Jetstar & Tigerair on world’s top international LCC route

Lion Group Malaysian affiliate Malindo Air is planning to launch services on 3-Nov-2014 to Singapore, which will become the hybrid carrier’s 10th international destination from Kuala Lumpur International Airport (KLIA). Malindo will be the fourth LCC on the KLIA-Singapore route, which will become the largest international LCC route in the world based on seat capacity.

Lion will join Asia’s other three main LCC groups – AirAsia, Jetstar and Tigerair – in competing in the busy Singapore-Kuala Lumpur market. While Malindo may find the local market challenging, particularly from a Singapore point of sales perspective given its unfamiliar brand, the carrier will also offer connections passengers beyond Kuala Lumpur with a focus on South Asia.

Kuala Lumpur-Singapore will be Malindo’s first destination with 162-seat 737-800s. Malindo is taking two 737-800s in 4Q2014, supplementing its existing jet fleet of six 180-seat 737-900ERs. The 737-800s will also be used to launch service to Bandung in Indonesia and to add a second daily flight to Bangkok.

Malindo will launch three new routes from Kuala Lumpur International

Malindo currently operates 13 jet routes, four domestic and nine international, from its base at Kuala Lumpur International Airport (KLIA). Malindo also currently operates 10 turboprop routes, eight domestic and two international, from its second base at Kuala Lumpur’s old airport, Subang.

Malindo’s KLIA schedule currently consists of an average of 14 flights per day (six domestic and eight international) using 737-900ERs in two class configuration. Its Subang schedule consists of an average of 37 daily flights (35 domestic and one to two international) using ATR 72-600s in single class configuration.

Kota Bharu will become Malindo’s fifth domestic destination from KLIA on 26-Oct-2014, when one daily flight is launched. Singapore will become its 10th international destination from KLIA on 3-Nov-2014, when it launches three daily flights. Bandung in Indonesia will become its 11th international destination and 16th route overall from KLIA on 19-Dec-2014, when one daily flight is launched.

Malindo will compete against AirAsia on all three routes. Its other main competitor, Malaysia Airlines (MAS), serves Kota Bahru and Singapore but dropped Bandung in late 2011. KLIA-Singapore is also served by four Singapore-based carriers – Jetstar Asia, Tigerair, SilkAir and Singapore Airlines.

Singapore is significant as it is the largest destination from Kuala Lumpur

Singapore is significant as it will immediately become Malindo’s biggest route from KLIA. Currently Malindo’s nine international routes from KLIA are served with between two and eight weekly frequencies, including six which are served with seven weekly frequencies. Malindo’s four current domestic routes from KLIA are served with one or two daily flights.

Singapore is by far the biggest destination from KLIA with about 85,000 weekly return seats, according to CAPA and OAG data. Currently there are seven airlines operating about 240 weekly flights in each direction between Singapore Changi Airport and KLIA, according to OAG data. There are also 46 weekly return flights between Singapore and Kuala Lumpur Subang Airport, all of which are operated by Malaysia Airlines regional subsidiary Firefly.

Kuala Lumpur to Singapore capacity by carrier (one-way seats per week): 19-Sep-2011 to 29-Mar-2015

Malindo’s three daily flights will provide another 3,400 weekly one-way seats in the Kuala Lumpur-Singapore market, giving it about a 7% share of seat capacity. It will be the smallest of the six main competitors in the market. (Excludes Uzbekistan Airways, which is not a significant competitor as it only operates one weekly Singapore-Kuala Lumpur flight as part of a service that originates in Tashkent).

The MAS Group currently has a leading 28% share of capacity in the Kuala Lumpur-Singapore market when including Firefly-operated flights from Subang. AirAsia and Singapore Airlines (SIA) are both slightly behind MAS with approximately 26% and 25% shares. (The SIA Group share includes its full-service regional subsidiary SilkAir, which operates most of the group’s Kuala Lumpur flights.)

Jetstar Group affiliate Jetstar Asia currently has about a 12% share of capacity in the Kuala Lumpur-Singapore market while Tigerair has an 8% share. All five groups currently competing in the market will see their capacity shares drop slightly as Malindo enters and becomes the sixth main competitor.

Kuala Lumpur-Singapore will be the world’s largest LCC route

Malindo’s launch of services to Singapore is also significant as it will mark the second time the Lion Group will compete against all three of Asia’s other three LCC groups – AirAsia, Jetstar and Tigerair – on a single route. All four groups have competed since 2010 in the Singapore-Jakarta market. (Jetstar Asia subsidiary Valuair operates Singapore-Jakarta along with Indonesia AirAsia, Tigerair Singapore and Lion Air.)

Singapore-Jakarta is now the largest international LCC route in the world with over 47,000 weekly seats. The additional 6,800 return seats provided by Malindo will see Kuala Lumpur-Singapore overtake Singapore-Jakarta and become the world’s largest international LCC route.

Top 10 international LCC routes based on seat capacity: 6-Oct-2014 to 12-Oct-2014

Rank Origin Destination Total Seats
1 SIN Singapore Changi Airport CGK Jakarta Soekarno-Hatta International Airport 47,350
2 SIN Singapore Changi Airport KUL Kuala Lumpur International Airport 43,200
3 DXB Dubai International Airport KWI Kuwait International Airport 39,508
4 KUL Kuala Lumpur International Airport DMK Bangkok Don Mueang International Airport 33,250
5 KUL Kuala Lumpur International Airport CGK Jakarta Soekarno-Hatta International Airport 29,910
6 BCN Barcelona El Prat Airport LGW London Gatwick Airport 27,506
7 DXB Dubai International Airport DOH Doha Hamad International Airport 25,568
8 MNL Manila Ninoy Aquino International Airport SIN Singapore Changi Airport 22,988
9 SIN Singapore Changi Airport BKK Bangkok Suvarnabhumi International Airport 22,680
10 DUB Dublin Airport STN London Stansted Airport 21,546

While the entry of Malindo will further intensify competition in an already highly competitive market, Kuala Lumpur-Singapore is a big enough route to sustain four LCCs.

Capacity reductions by AirAsia, Jetstar and Tigerair leave an opening for Malindo

The Singapore-Kuala Lumpur route only opened to LCCs in 2008, following a breakthrough bilateral agreement between Malaysia and Singapore. Previously the route was a duopoly between Malaysia Airlines and Singapore Airlines.

The route has since seen rapid growth as low fares have stimulated demand and attracted thousands of weekly passengers who had been travelling between the two cities by bus, which takes about five hours to make the 350km journey. But after five years of rapid and steady growth capacity between Kuala Lumpur and Singapore has been on the decline over the past year. This is not necessarily an indication of a fall in demand but is more a response to overcapacity, which has plagued several routes within Southeast Asia.

AirAsia for example has cut back from 13 daily flights in mid-2013 to between nine and 10 daily flights currently. Jetstar has reduced its Singapore-Kuala Lumpur schedule from 50 weekly flights in early Oct-2013 to 30 weekly flights currently, according to OAG data. During the same span Tigerair Singapore has cut back from 28 to 23 weekly flights.

Total seat capacity between Kuala Lumpur and Singapore has come down by 11% over the past year, according to CAPA and OAG data. But LCC capacity is down by 26% year over year as the SIA Group has maintained flat capacity while the MAS Group has expanded. Currently the LCC share of capacity on Kuala Lumpur-Singapore is about 47% compared to 56% a year ago.

Kuala Lumpur to Singapore year over year capacity change (seats and seat share) by carrier

Airline Week of 7-Oct-2013 seats Week of 7-Oct-2013 percentage share Week of 6-Oct-2014 seats Week of 6-Oct-2014 percentage share
Malaysia Airlines 7,695 seats 15% 9,348 seats (21%) 20%
SilkAir 6,474 seats 13% 6,372 seats (-2%) 14%
Singapore Airlines 4,845 seats 9% 4,845 seats (0%) 11%
Tigerair 5,040 seats 10% 4,140 seats (-18%) 9%
Firefly 3,312 seats 6% 3,312 seats (0%) 7%
Jetstar Asia 9,000 seats 17% 5,400 seats (-40%) 12%
AirAsia 15,120 seats 29% 12,060 seats (-20%) 26%
Uzbekistan Airways n/a n/a 207 seats 0.5%
Total 51,486 seats 100% 45,684 seats (-11%) 100%

Lion Group also takes advantage of competitor reductions in Singapore-Jakarta market

Singapore-Jakarta is not the only major Southeast Asian route that has seen a major adjustment by LCCs. Singapore-Jakarta capacity is also down by about 7% over the past year, driven by about a 15% decrease in LCC capacity.

See related report: Tigerair and AirAsia lead adjustments to overcapacity in the Jakarta-Singapore market

The reduction in LCC capacity on both routes is sensible but created openings for the Lion Group, which is always quick to pounce on opportunities. While AirAsia and Tigerair have significantly cut capacity between Singapore and Jakarta in recent months, Lion Air has increased capacity, adding a seventh daily flight between the two cities.

Singapore to Jakarta year over year capacity change (seats and seat share) by carrier

Airline Week of 7-Oct-2013 seats Week of 7-Oct-2013 percentage share Week of 6-Oct-2014 seats Week of 6-Oct-2014 percentage share
Garuda Indonesia 10,956 seats 18% 11,117 seats (1%) 20%
Valuair 3,780 seats 6% 4,320 seats (14%) 8%
Tigerair 3,780 seats 6% 3,780 seats (0%) 7%
Singapore Airlines 19,292 seats 32% 19,776 seats (3%) 35%
Sriwijaya Air 1,176 seats 2% n/a n/a
Tigerair Mandala 5,040 seats 8% n/a n/a
Indonesia AirAsia 7,560 seats 12% 5,040 seats (-33%) 9%
Lion Air 9,030 seats 15% 10,535 seats (17%) 18%
Jetstar Airways 534 seats 1% n/a n/a
Air France n/a n/a 2,429 seats 4%
Total 61,148 seats   56,997 seats (-7%)  

Lion however has suspended services on two other Singapore routes, Ho Chi Minh and Surabaya (Ho Chi Minh was served as a tag from Jakarta with pick-up rights). Lion Air had a small presence on both these routes with just one daily flight. As they were not strategic Lion is better off reallocating capacity and its Singapore slots to focus on more strategic routes such as Singapore-Jakarta and Singapore-Kuala Lumpur.

Lion Group grows its presence in Singapore

Even with the suspension of Singapore-Surabaya and Singapore-Ho Chi Minh, Lion Group’s overall presence in Singapore has increased as it is adding a total of four daily flights (three to Kuala Lumpur and one additional frequency to Jakarta) while cutting two.

Lion Group will have about a 7% share of LCC seat capacity in Singapore in Nov-2014 and about a 2% share of total capacity. The Tigerair Group has about an 8% share of total capacity in the Singapore market while the AirAsia and Jetstar Groups each have about a 7% share. Scoot has about a 2% share and is only slightly bigger in its home market than the Lion Group. 

Singapore LCC capacity by carrier: 3-Nov-2014 to 9-Nov-2014

Rank Airline Total Seats
1 TR Tigerair 122,400
2 3K Jetstar Asia 69,120
3 AK AirAsia* 45,360
4 QZ Indonesia AirAsia* 34,380
5 TZ Scoot 34,232
6 JT Lion Air* 21,070
7 FD Thai AirAsia* 20,160
8 VF Valuair 17,640
9 5J Cebu Pacific Air* 16,854
10 OD Malindo Air* 6,804
11 JQ Jetstar Airways* 4,283
12 IX Air India Express* 2,646
13 VJ VietJet Air* 2,520
14 BL Jetstar Pacific* 2,520
15 Y5 Golden Myanmar Airlines* 2,520
16 6E IndiGo* 2,520
17 9C Spring Airlines* 1,080

Further growth in Singapore is likely in 2015 using the group’s other two new carriers, Indonesian full-service subsidiary Batik Air and LCC affiliate Thai Lion Air. But the group may have to settle on flights during off peak hours as peak hour slots have become scarce at Changi. (Only one of Malindo’s three daily flights is during peak periods, which could have been freed up by a re-juggling of slots as Lion Air dropped Singapore-Ho Chi Minh and Singapore-Surabaya and changed its Singapore-Jakarta schedule).

Malindo is offering promotional one-way fares from Kuala Lumpur to Singapore starting at MYR79 (USD24) including taxes. Regular one-way economy fares start at MRY179 (USD55) including taxes while regular one-way business class fares start at MYR559 (USD171) including taxes.

All Malindo fares include one complimentary checked bag, which differentiates it from the other LCCs in the market. Malindo also offers refreshments and seatback in-flight entertainment in both cabins as part of its hybrid product offering, giving it a product that is more similar to full-service carriers such as MAS and SIA. (Sister carriers Lion Air and Thai Lion Air also offer complimentary checked bags but sell drinks and snacks and do not offer in-flight entertainment.)

Frills, a bigger economy seat pitch and even the option of a business class cabin hardly makes a difference on very short flights such as Singapore-Kuala Lumpur, which is less than an hour even during peak hours. But Malindo’s fares are generally low enough to compete with LCCs while also attracting passengers that prefer amenities and frills.

Malindo will need to rely heavily on connections to be successful in the Singapore-Kuala Lumpur market

Even with its attractive low fares with frills offering, it will be difficult achieving sustainable load factors only with local passengers. Kuala Lumpur-Singapore is a big local market but competition is intense. Malindo’s brand is not as strong as its competitors, particularly in Singapore where the airline is unknown.

Transit passengers are important for all carriers on the Kuala Lumpur-Singapore route and will particularly be critical for Malindo to be successful. MAS, SIA, Jetstar, AirAsia and Tigerair all see a relatively high volume of transit passengers on their Singapore-Kuala Lumpur flights (relatively to their average network-wide portion of transit passengers, which is roughly 50% for MAS and SIA and much smaller although growing for the three LCCs).

As CAPA previously analysed, transit traffic in the Kuala Lumpur-Singapore market will become even more important after a high speed rail link opens between the two cities, which is expected in about 2020.

See related report: HSR could decimate traffic on world’s third largest international route: Singapore-Kuala Lumpur

Malindo is currently selling Singapore passengers connections across almost its entire KLIA domestic and international networks. But its South Asian destinations will likely see the highest volumes as there are plenty of non-stop options, including from LCCs, between Singapore and Malindo’s other KLIA destinations.

Malindo could emerge as a strong competitor in Singapore-South Asia market

In South Asia Malindo is already selling connecting flights to Singapore from Chittagong and Dhaka in Bangladesh and from Delhi, Kochi and Tiruchirappalli in India. Malindo also serves Mumbai but no connections with Singapore are available at least for now.

Malindo will be competing against non-stop options in all these South Asia-Singapore markets except Chittagong, which it serves with only two weekly flights. But it could potentially attract significant traffic on Singapore-Delhi as there is no LCC currently operating non-stop flights on this route.

Tigerair currently links Singapore with Dhaka, Kochi and Tiruchirappalli while Air India Express also serves Tiruchirappalli. There are also full-service carriers operating non-stops from Singapore to Dhaka and Kochi. But these are all relatively large and price sensitive markets, providing a potential opening for Malindo to offer a one-stop product if priced competitively. (Malindo has origin and destination rather than sum of sectors pricing, giving it the flexibility to be very competitive in connecting markets.)

As Malindo continues to grow its network more one-stop options from Singapore will become available. Malindo plans to launch services in 2015 to southern China, a market with high demand from Singapore although also competitive. Malindo is also keen to further expand in India, a popular destination from Singapore but with limited non-stop growth due to bilateral constraints.

Malindo opts for smaller 737-800s

Malindo’s use of smaller 737s on the new Singapore route also limits its exposure and improves the route’s prospects. Malindo’s 737-800s will have 162 seats – 150 in economy and 12 in business while its 737-900ERs are configured with 180 seats – 168 in economy and 12 in business. (Malindo has the same 737-800 and 737-900ER configuration as Batik Air while Lion Air and Thai Lion Air have an all-economy configuration consisting of 215 seats in the 737-900ER or 189 seats in the 737-800.)

CAPA reported in Aug-2014 that Malindo was planning to resume expansion of its jet fleet in 4Q2014 with two additional 737-900ERs. But the carrier has since decided to instead take two 737-800s, a sensible move as it allows it to launch thinner routes and offer more frequencies and therefore a more competitive schedule on routes such as Bangkok and Singapore. (The Lion Group has steadily been converting 737-900ER orders to 737-800s as the 737-800 is also easier to pursue sale and leasebacks because it is a much more common variant, and easier to remarket when leases expire.)

In Aug-2014 CAPA highlighted that Malindo was planning to increase Kuala Lumpur-Bangkok Don Mueang from one to daily flights in Dec-2014 as it expanded its 737 fleet. CAPA also highlighted Malindo’s plans to increase Kuala Lumpur-Kochi from one to two daily flights in Nov-2014. Both these flights have since been added to the Malindo schedule and booking engine for Dec-2014 and Nov-2014 respectively.

See related report: Malindo Air to resume international expansion in 4Q2014 with more capacity to India and Thailand

For Kochi, Malindo is planning to continue using the 737-900ER. As the existing Bangkok flight is operated with 737-900ERs, this aircraft could be used to operate the second Kochi flight while the two new 737-800s are used for the existing Bangkok flight, the new Bangkok flight as well as the new flights to Singapore and Bandung. Malindo is also looking at launching other new regional routes using the 737-800s.

Malindo now plans to take its first 737-800 by the end of Oct-2014, in time for the launch of Singapore on 3-Nov-2014. Malindo tells CAPA that it plans to take its second 737-800 in Dec-2014 – in time for the launch of Bandung and the launch of a second daily flight to Bangkok.

The new Bandung route as well as further expansion of Malindo's Indonesian and domestic networks using its turboprop fleet will be looked at in a separate analysis report to be published by CAPA within the next week.

Malindo blocked from expanding its ATR operation to Singapore

Malindo would also be interested in using its turboprop fleet, which currently consists of 10 ATR 72-600s, to launch service from Kuala Lumpur Subang to Singapore. But Malindo has so far been unable to secure approval from Singaporean authorities to operate turboprops to Changi, which has an unwritten ban on additional turboprop operations.

Firefly and small Malaysian regional carrier Berjaya Air are the only turboprop operators currently serving Changi. Firefly has been unable to expand at Changi over the past couple of years due to Singapore’s restriction on turboprops but is able to maintain its current operation. Firefly currently serves Singapore from Subang, Ipoh and Kuantan while Berjaya Air serves Singapore from Redang. (Berjaya has suspended services from Singapore to Tioman and its Singapore-Redang service has been operating in recent months on a limited basis.)

Firefly enjoys a huge competitive advantage on the lucrative Subang-Kuala Lumpur route, which is popular with business travellers, as other carriers have been unable to launch the route. Subang, which is closer to downtown Kuala Lumpur than KLIA, is only open to commercial flights that are operated with turboprops (it is also used by general aviation and freighters).

Singapore should reconsider its turboprop ban as Malindo turboprop flights to Changi would increase competition in important markets and stimulate demand at a time Singapore’s traffic has flattened.

Upcoming Singapore launch is strategic for both Malindo and Lion Group

At least for the time being Malindo will have to rely entirely on its 737 fleet for serving the Singapore market. While turboprop flights to Subang and potentially Ipoh would be a nice supplement, Malindo should still be able to carve out a successful niche in the Singapore-KLIA market using its new fleet of 737-800s.

The -800s are smaller than its -900ERs, giving it the flexibility to provide the frequencies needed to compete in a market with a large portion of same day travellers. By linking Singapore from KLIA, Malindo is also able to offer connections beyond Kuala Lumpur and compete in several one-stop markets from Singapore.

Singapore is an important spoke for Malindo as the carrier continues to expand and grow its share of the Malaysian market beyond its current approximately 5% share of total seat capacity. Singapore is also an important market for the Lion Group, which is already the largest LCC on Singapore-Jakarta, the largest route from Singapore. Malindo will now give the Lion Group a presence in Singapore’s second largest route, Kuala Lumpur.

As the Lion Group looks to leverage its portfolio of affiliates and connect the dots across Southeast Asia it will inevitably enter several more large LCC routes. For example, Singapore-Bangkok could be launched by Thai Lion Air and become the third route to feature the intriguing dynamic of competition between AirAsia, Lion, Jetstar and Tigerair.

Competition between LCCs in Southeast Asia is already intense and will get tougher as the Lion Group has only just begun penetrating markets outside Indonesia.

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