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Thai Lion Air to pursue more rapid international expansion as A330-300s and 737 MAX 8s are delivered

Thai Lion Air is starting a new phase in its rapid expansion in Nov-2017 as it takes delivery of its first widebody aircraft. An initial fleet of three A330-300s will be used to operate new medium haul routes to North Asia, enabling Thai Lion to reduce its reliance on Thailand’s intensely competitive domestic market further.

The international market now accounts for a third of Thai Lion’s capacity, compared to less than 6% in early 2016. Thai Lion has cut domestic capacity this year, freeing up aircraft to expand in the international market.

Fleet growth has been relatively modest, with only two aircraft joining the Thai Lion fleet over the past 12 months. However, fleet growth is about to accelerate as three A330s are delivered over the next two months, followed by several 737 MAX 8s in 2018.

Thai Lion launches 25 international routes in 18 months

Thai Lion currently operates 13 domestic and 27 international routes (based on OAG schedules data for the week commencing 9-Oct-2017). The airline has launched a staggering 25 international routes over the past 18 months.

In early 2016, Thai Lion had approximately 50 international departures per week (the equivalent of three to four return flights per day), contrasted with approximately 800 domestic departures. Thai Lion now operates nearly 250 international departures per week, while its domestic operation has been cut to 700 weekly departures.

Thai Lion Air weekly international departures: 2017 (green) vs 2016 (red)

Thai Lion has cut domestic capacity by approximately 15% over the past few months in order to free up capacity for international expansion, and is cutting domestic capacity by another 8% over the next month, based on forward OAG schedule data.

Thai Lion Air weekly domestic departures: 2017 (green) vs 2016 (red)

Thai Lion focuses less on domestic market 

Thailand’s domestic market is intensely competitive and generally oversupplied, making international expansion a more attractive proposition. Thai Lion focused almost all of its expansion in the domestic market in the first two and a half years after its late 2013 launch.

Approximately two thirds of Thai Lion’s capacity is still in the domestic market as its domestic routes are served with a much higher level of frequency. Thai Lion currently operates seven flights per day on its original two routes, Bangkok to Chiang Mai and Hat Yai, and at least four daily flights on another five domestic trunk routes.

However, the airline has cut capacity on several trunk routes. For example, Bangkok-Chiang Mai has been cut from a high of 80 frequencies in early 2017 to 50 frequencies currently.

Thai Lion has so far not added back any domestic capacity for the northern winter peak season, which starts in December. The airline seems to have taken a decision to focus entirely on international expansion, which is a sensible strategy given current market conditions.

Thailand’s domestic market grew rapidly from 2013 to 2016, driven by aggressive LCC expansion, but the rate of growth has started to slow. The domestic market is now relatively mature, since Thailand’s middle class has already shifted from using buses and trains to budget flights for domestic travel.

Thai Lion is not about to pursue significant growth of its domestic network as it now serves all the main routes – having launched the last three obvious white spots in its domestic network in 1Q2017. Adding more frequencies to existing routes is generally an unprofitable proposition, given the overcapacity, while international expansion generally has better prospects.  

Thai Lion began its international push in 2016

Thai Lion began focusing more on international expansion in mid 2016, when it resumed services to Jakarta and launched Chongqing, Nanjing and Yangon. Prior to May-2016, Thai Lion only had three international routes: Bangkok Don Mueang to Singapore, Jinan and Taiyuan.

See related report: Thai Lion Air accelerates international expansion with Beijing, Hanoi, Ho Chi Minh, Jakarta & Yangon

Thai Lion is still serving Singapore and Jinan. Bangkok-Taiyuan was a seasonal route that has not been operated again in 2017, but Thai Lion has pursued rapid expansion in other Chinese markets.

Thai Lion now operates 20 routes to China, which accounts for approximately two third of its international capacity (based on CAPA and OAG data for the week commencing 9-Oct-2017). Thai Lion currently serves China from six airports in Thailand – its main hub at Bangkok Don Mueang, Chiang Mai, Chiang Rai, Krabi, Phuket and Surat Thani.

Thai Lion has also launched six other international routes over the past 18 months, including two in Indonesia, two in Vietnam, one in India and one in Myanmar. All seven of its non China international routes, and 13 of its China routes, are served from Bangkok Don Mueang. All but one domestic route also originate at the Don Mueang hub, where Thai Lion offers domestic to international connections. 

Bali, Mumbai and Chengdu are the most recent new international destinations for Thai Lion, and were all launched in Sep-2017. Thai Lion has also set a 20-Oct-2017 launch date for services from Bangkok to Taipei, which will become its eighth international destination outside mainland China.

Thai Lion international routes ranked by one-way weekly departures: week commencing 9-Oct-2017

Rank Destination Origin

One-way

frequencies

1 Guangzhou Baiyun International Airport Bangkok Don Mueang International Airport 14
2 Yangon Mingaladon Airport Bangkok Don Mueang International Airport 14
3 Singapore Changi Airport Bangkok Don Mueang International Airport 14
4 Hanoi Noi Bai Airport Bangkok Don Mueang International Airport 8
5 Wuhan Tianhe International Airport Bangkok Don Mueang International Airport 7
6 Bali Denpasar Ngurah Rai Airport Bangkok Don Mueang International Airport 7
7 Chengdu Shuangliu International Airport Bangkok Don Mueang International Airport 7
8 Chongqing Jiangbei International Airport Bangkok Don Mueang International Airport 7
9 Xian Xianyang International Airport Phuket International Airport 7
10 Nanjing Lukou International Airport Phuket International Airport 7
11 Hangzhou Xiaoshan International Airport Bangkok Don Mueang International Airport 7
12 Nanjing Lukou International Airport Bangkok Don Mueang International Airport 7
13 Ho Chi Minh City Tan Son Nhat Airport Bangkok Don Mueang International Airport 7
14 Changsha Huanghua International Airport Bangkok Don Mueang International Airport 7
15 Jakarta Soekarno-Hatta International Airport Bangkok Don Mueang International Airport 7
16 Jinan Yaoqiang International Airport Bangkok Don Mueang International Airport 4
17 Zhengzhou Xinzheng International Airport Bangkok Don Mueang International Airport 4
18 Nanchang Changbei International Airport Bangkok Don Mueang International Airport 4
19 Shanghai Pudong International Airport Bangkok Don Mueang International Airport 4
20 Guangzhou Baiyun International Airport Chiang Mai International Airport 4
21 Changsha Huanghua International Airport Chiang Rai Airport 4
22 Xian Xianyang International Airport Bangkok Don Mueang International Airport 4
23 Changzhou Benniu Airport Bangkok Don Mueang International Airport 4
24 Changsha Huanghua International Airport Krabi Airport 3
25 Chengdu Shuangliu International Airport Chiang Mai International Airport 3
26 Mumbai Chhatrapati Shivaji Maharaj International Airport Bangkok Don Mueang International Airport 2
27 Changsha Huanghua International Airport Surat Thani Airport 1

Thai Lion aims to launch several more international routes by end of 2017

Thai Lion is planning to launch several new international routes before the end of the year. Most of the new routes will be operated with the new fleet of three A330-300s, which are slated to be delivered in Nov-2017 and Dec-2017.

Thai Lion has not yet announced or begun ticket sales for any new destination other than Taipei. However, it plans to use the new A330 fleet to operate deeper into China and launch services to Japan and South Korea.

The airline is also preparing to launch daily flights from Bangkok to Kochi and Kunming with its 737 fleet, although it has not yet begun selling these routes. Thai Lion is also reportedly planning to open, by the end of 2017, a new 737 base at U-Tapao Airport, where it expects to operate several routes to China (primarily Chinese destinations already served from other bases). Thai Lion does not currently serve U-Tapao, which is located near the beach resort of Pattaya.

Expansion in China through a combination of new routes, destinations and upgauging existing flights from 737s to A330s is sensible, given the huge size of the Thailand-China market – Thailand had 8.8 million Chinese visitors in 2016.

Chinese visitor numbers to Thailand have been flat through the first eight months of 2017, following 10% growth in 2016 and staggering 71% growth in 2015. However, visitor numbers have again been on the rise since May-2017, after declines earlier in the year, and were up 10% in Aug-2017.

China, Korea and Japan are priorities

Thai Lion is eager to continue expanding in China as it now has a relatively small share (approximately 11%) of the Thailand-China market. Thailand-China expansion is also generally low risk as block bookings from Chinese agents account for most of Thai Lion’s traffic, particularly on its routes to secondary and tertiary cities.

Some of Thai Lion’s 20 routes to China are charters and are not available for public sale. Most are considered scheduled, and are available for sale on the Thai Lion website. However, block bookings by Chinese agents account for most of the traffic on these routes. In some cases, only a few seats are available for sale on the Thai Lion website and its other direct distribution channels, which cater mainly to outbound sales from Thailand.

The company is also eager to launch services to Korea and Japan, which are also large source markets for Thailand’s tourism industry and have been experiencing growth in outbound travel. All Thai airlines have been blocked from expanding in Korea and Japan since Thailand civil aviation authorities failed an ICAO audit in early 2015. However, in early Oct-2017 ICAO lifted the red flag on Thailand after the country’s civil aviation authorities passed a new audit.

The expected lifting of the current restrictions by Korean and Japanese authorities, which follow ICAO rulings, is ideal timing for Thai Lion as it coincides with the delivery of its first widebody aircraft. NokScoot and Thai AirAsia X are also expected to quickly add flights to Korea and Japan.

Widebodies enable Thai Lion to compete more effectively against AirAsia and Nok

Thai Lion becomes Thailand’s third long haul low cost operator after Thai AirAsia X and NokScoot, which launched their operations in 2014 and 2015 respectively. Thai AirAsia X is partially owned by Thailand’s leading short haul LCC, Thai AirAsia. NokScoot is partially owned by Nok, which is now Thailand’s third largest short haul LCC, since it has already been overtaken by Thai Lion.

Nok has more domestic seat capacity than Thai Lion but less total seat capacity due to its much smaller international operation. Thai AirAsia is twice as large as Thai Lion in the domestic market and more than twice as large in the international market. Thai AirAsia operates 54 A320s, whereas Thai Lion currently operates 26 737s.

Thai Lion has grown its fleet by only two aircraft in 2017. As Thai Lion did not take any aircraft in 4Q2016, these are the only two aircraft it has added over the past year. However, Thai Lion has improved average aircraft utilisation rates, as several of its new international routes are operated overnight. As explained earlier in this report, it has also freed up some capacity for international expansion over the past few months by cutting domestic capacity.

Thai Lion fleet growth has slowed since 2015

Thai Lion currently operates 17 737-900ERs and nine 737-800s. The 737-900ERs are in 215-seat all economy configuration and the 737-800s are in 189-seat all economy configuration.

The two aircraft that have been added this year include a new 737-900ER and a 737-800 that was transferred from the Indonesian sister airline Lion Air. The 737-800 is five years old, which makes it the oldest aircraft in Thai Lion’s fleet, since previously all its aircraft were delivered new.

Thai Lion launched with two 737-900ERs in late 2013 and took delivery of six more 737-900ERs in 2014. Expansion accelerated in 2015 as 10 aircraft (an even mix of 737-800s and 737-900ERs) were added.

However, the rate of fleet expansion has since slowed, with six aircraft added in 2016 and just two aircraft through the first three quarters of 2017.

Thai Lion Air fleet summary: as of 01-Oct-2017 vs 01-Jan-2017, 01-Jan-2016, 01-Jan-2015 and 01-Jan-2014

Aircraft

01-Oct-2017

01-Jan-2017

01-Jan-2016

01-Jan-2015

01-Jan-2014

Boeing 737-800

9

8

5

0

0

Boeing 737-900ER

17

16

13

8

2

TOTAL

26

24

18

8

2

Thai Lion is planning to reaccelerate fleet expansion over the next year as it takes three A330-300s in 4Q2017 and begins taking 737 MAX 8s in early 2018.

Thai Lion to continue international expansion in 2018 with 737 MAX

The Lion Group has tentatively assigned Thai Lion five to seven of its 737 MAX 8s deliveries for 2018. The 737 MAX 8 offers improved range and efficiency, giving Thai Lion the opportunity to launch new routes in North Asia that are not within range of the 737-800 and are too thin for the A330-300.

Thai Lion is expected to operate the 737 MAX 8 in 180-seat all economy configuration as this is the configuration already used by its Indonesian sister airline. Thai Lion and Lion Air have identical 737-800s and 737-900ERs, in terms of product and configuration. Even the livery is only slightly different\, as both airlines use the same logo.

Lion Group’s two full service airlines, Indonesia’s Batik Air and Malaysia’s Malindo Air, operate 737s in a two-class configuration with inflight entertainment (IFE) seatback monitors in both cabins. Thai Lion does not have IFE on any of its 737s and offers a basic economy product, charging for drinks and meals but offering complimentary checked luggage and seat assignments.

Thai Lion to offer business class and seatback IFE on the A330

For the first time with the A330s Thai Lion will offer IFE and a business class product. However, this was not a decision that was made by Thai Lion’s management, as Thai Lion has inherited this product from its full service sister airline Malindo.

Lion Group has a very flexible approach to its fleet, and often changes the allocation of an aircraft at the last second. In this case, Lion Group’s three A330-300 delivery slots for 2017 were initially allocated to Malindo, which selected the configuration and product in late 2016. These aircraft were therefore outfitted with lie-flat business class seats and seatback IFE screens in both cabins.

Thai Lion leapfrogs over Malindo to become the second A330 operator in the Lion Group. Lion Air has operated three A330-300s since late 2015, in all economy configuration without IFE.  Lion Air’s A330s have 440 seats while Thai Lion’s A330s will have nearly 390 seats, including a small business class cabin with lie-flat seats.

See related report: High density A330-300s give Indonesia’s Lion Air an opportunity to test a long haul low cost model

Although business class was not part of Thai Lion’s initial business plan, there should be sufficient premium demand to sell the business class cabin if the aircraft are allocated to serve Korea and Japan. There should also be sufficient demand if the A330 is used to serve major Chinese cities. The A330 could be used to upgauge Bangkok-Shanghai, which is now operated with 737s, and launch services to Beijing, which Thai Lion has been aiming to serve for the past year (contingent on securing slots).

Indonesia-based Lion Air uses its A330s to Saudi Arabia and on domestic trunk routes where there is limited premium demand. In future years Thai Lion could still potentially take all economy A330s, which could be used on routes with limited premium demand. The Lion Group currently does not have any outstanding A330 orders beyond the three aircraft being delivered in 4Q2017, but has been considering the acquisition of additional A330s, which could be delivered as early as 2018.

Thai Lion is a natural home for Lion Group A330s and 737 MAX 8s

Lion Group’s decision to reallocate the three upcoming A330-300 deliveries from Malindo to Thai Lion is logical, given the opportunities in Thailand’s fast growing international market. The lifting of restrictions on Korea and Japan was expected, and likely a factor in this decision.

Thai Lion will be able to use the A330s – as well as 737 MAX 8s – to operate longer medium haul routes and access new growth markets.

The airline has pursued rapid international expansion over the past 18 months, with 25 new international routes, but is just starting to scratch the surface. Another 25 international routes could easily be launched over the next 18 months using a combination of 737NGs, 737 MAX 8s and A330-300s.

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