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23-Feb-2018

CAPA Weekly | Batik Air: A Lion in sheep’s clothing in the Australia market?

Over the past couple of decades, aircraft and engine technology have quietly had a massive impact on the way the airline system works. One example – the Gulf carriers have been able to transform long haul aviation as extra long haul widebody aircraft became available.

More recently long haul low cost airlines became a force as long haul smaller twin jets enabled their operations, first in Asia and now in Europe. The next phase in this evolution is the introduction of the new long range narrowbody A320neos and 737s. These aircraft make it possible to link much smaller city pairs where previously passengers would have needed to fly one stop via a hub. The local economic impact of this sort of access at smaller regional points can be enormously valuable.

Indonesia-based Lion Air group’s Batik Air CEO Achmad Luthfie told us this month that the airline plans to pursue significant expansion in the Australia-Bali market in 2019. The airline will take delivery of new generation narrow body long haul A320neo family aircraft. The Batik CEO said his airline is looking at serving several Australian airports, including smaller regional destinations.

Transcript

Peter HarbisonHello and welcome to CAPA Weekly. I want to talk about Batik Air, a lion in sheep's clothing in the Australian market. Over the past couple of decades, aircraft and engine technology have quietly had a massive impact on the way the airline system works. One example, the gulf carriers have been able to transform long haul aviation as ultra long haul wide body aircraft became available. Then came short haul low cost airlines, they became a force as new smaller twin jets enabled them to move into long haul operations. First of all in Asia and now in Europe.

The next phase in this evolution is the introduction of the new long range and narrow body A320 family Neos and 737s. These aircraft make it possible to link much smaller city pairs where previously passengers would have needed to fly one stop via a hub, and a local economic impact of this sort of access, its smaller regional points can be enormously valuable. When Indonesia based Lion Air groups Batik Air plans to pursue significant expansion in the Australia/Bali market in 2019, we have to stop and listen.

The airline is going to take delivery of new generation narrow bodied long haul 320 family, 320 Neo family, aircraft and it's looking at serving several Australian airports, including smaller regional destinations. As if to reinforce that trend, Qantas Group this week announced that it would be taking 18 A321 Neo LRs starting in 2020 and applying some of them on Australia/Bali routes to free up some of the larger 787s it currently operates there.

Strangely enough, Lion's Batik Air is actually against the trend, a full service subsidiary of Indonesia's massive LCC Lion, but Batik operates with the same low cost mentality and trip cost. It has seat back IFE monitors on all its aircraft in both cabins, it also addresses the corporate market stating it is the official carrier for employees working for the government and state of Indonesia, so it's obviously making a play of the corporate market.

Batik has been one of the world's fastest growing airlines since it launched in 2013. It added ten aircraft last year and ended that year with 51. Currently, ten airports in Australia are served from the super resort of Bali. Meanwhile, only two airports in Australia, Melbourne and Sydney, are linked with Indonesia's capital Jakarta. Batik will start taking the A320 Neo family aircraft next year with eight deliveries, a mix of A320 Neos and A321 Neo long range LRs.

The airline plans to shift focus to international expansion next year and its new Neo fleets are intended for international routes. The 321 Neo LRs will be used mainly for Australia and for north Asia, while the 320 Neos will be used for shorter international routes. So far, Batik's focused almost entirely on its domestic market with only six international destinations so far, [inaudible 00:03:41], [inaudible 00:03:41] in China, Kuala Lumpur, and [inaudible 00:03:45] in Malaysia, Perth and Singapore, and less than 8% of its capacity today is international, but these new aircraft are ushering in a whole new era.

Batik's A320 Neos will have 144 economy seats and 12 business class. The larger 321 Neo LRs will have 200 economy seats and 12 business class seats. These are both still small enough to go where larger long haul aircraft can't make it work. With the 321 Neo LR, Batik's already low unit cost will even drop further given the relatively high density 212 seat configuration.

Batik at one point had ambitions to start a domestic airline in Australia. It's planning significantly to shake up the Australia/Bali market, but it's potential stretch is far beyond that. As it expands its international network beyond [inaudible 00:04:47] Bali, it's potential for onward connection markets will grow. Few Australians outside Perth have heard of Batik Air. That's likely to change and soon.

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