AirAsia, Lion Air square off for no-frill, short-haul markets

AirAsia, Lion Air square off for no-frill, short-haul markets

AirAsia Bhd’s plans to focus on expanding its new short-haul network in Asia clearly indicates the carrier’s capacity in serving the increasing demand from travellers in the region, according to the Centre for Asia Pacific Aviation (Capa).

Such an expansion would be crucial as the airline seeks to stave off competition in what has become a booming sector of the aviation business, said Capa, a leading provider of independent aviation market intelligence.

AirAsia seeks to improve profitability by serving more new routes such as Indochina, India and southern China with recent orders of 100 Airbus A320s that comprises 36 aircraft with current engine option (ceo) and 64 aircraft with new engine option (neo).

According to AirAsia, the orders to speed up its growth in core markets like Malaysia, Thailand and Indonesia came in the wake of new markets in Japan and the Philippines.

Capa said AirAsia’s real issue would be to stay ahead of the field in Asia’s booming short-haul, low-cost market.

AirAsia’s competitor in the Indonesian market is largely dominated by the Lion Air Group, which has quietly overtaken AirAsia as the largest low-cost carrier group within Southeast Asia.

The Malaysian carrier is taking the threat of increased competition seriously as Lion Air plans to launch a new affiliate in AirAsia’s home market in 2013.

In a report called “North Asia LCC and New Age Airlines Outlook”, Capa said it was no surprise AirAsia is using the latest orders in part to accelerate expansion in Malaysia, where it will aim to beat new Lion subsidiary Malindo “into oblivion”, as well as in Lion’s home market of Indonesia.

Capa said AirAsia is a relatively small player in Indonesia compared to Lion Air, which accounted for 45% of Indonesia’s huge domestic market in 2011 including its regional subsidiary Wings Air.

Lion Air currently operates about 90 aircraft, excluding Wings Air, and allocates over 95% of its seat capacity to the Indonesian domestic market.

In what is seen as a one-upmanship, Lion Air captured headlines in late 2011 when it exceeded AirAsia’s orders for 200 A320neo from mid-2011 by committing to 201 Boeing 737 Maxs, which are slated for delivery from 2017 to 2026.

AirAsia said it is keen to expand in Indonesia’s domestic market and accelerate expansion of Indonesia AirAsia and close the gap with market leader Lion, after calling off plans to acquire Batavia Air in October 2012. The deal would have expanded Air- Asia’s share of the Indonesian domestic market from about 2% to 13%, the report said.

Potential areas

The carrier plans to expand its fleet by 60% from 20 to 32 aircraft in a 15-month period from October 2012 to December 2013 and has stated that the nine aircraft added at Indonesia AirAsia in 2013 will support its new strategy to “refocus on the domestic market and grow organically”.

Capa said Indonesia AirAsia expects half of its 2013 capacity growth to be allocated to existing routes and the other half to be used to launch new routes, with a focus on new domestic routes. Indonesia AirAsia currently only serves 11 domestic destinations and allocates over 60% of its seat capacity to the international market.

“We see growth potential for AirAsia to further expand its presence in Indonesia, with the possibilities of expanding its current market share between 10% and 12% in Indonesia and there is more room to grow for the carrier,” Frost & Sullivan consultant, Asia Pacific, Aerospace & Defence Practice Sagar Shahane told The Malaysian Reserve.

He said Lion Air Group has 45% market share in Indonesia and has already set plans to expand beyond Indonesia via Malindo Air to Malaysia.

“With Malaysia’s population of 29 million and Indonesian population between 10 and 20 times bigger, there are lots of room to grow for AirAsia in Indonesia,” he said.

Capa further said AirAsia is looking at consolidating its position in Southeast Asia before expanding further into China and India, with the group stating it needs to “give time to concentrate on these airlines to get the basics right before we go to very big countries like China and India.”

Within Southeast Asia, it sees Vietnam and Myanmar as potential areas for expansion. AirAsia has confirmed that it has been approached by some Chinese companies which are seeking to form a Chinese AirAsia affiliate, but maintains it is “talking… not rushing”, the report said.

“We do not foresee Chinese AirAsia to materialise in the near future due to the regulations in China, especially in the areas of open sky policy and free trade agreements between the country and Malaysia, however, we do see potential for AirAsia to establish a base in India in the near future,” Sagar said.

Source : FMT

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