New Routes?
Malaysia’s Malindo Air is moving forward on its delayed expansion plans for India with four new routes which will quickly give the Lion Air Group affiliate a 15% share of the Malaysia-India market. Malindo is seeking to become a major player in the Malaysia-India market as well as offer connections in the fast growing Indonesia-India market.
Malindo is targeting the Kuala Lumpur-Delhi and Kuala Lumpur-Mumbai routes, which currently are only served by Malaysia Airlines (MAS). It will compete against AirAsia to Tiruchirappalli and will become the only carrier linking Kuala Lumpur with Ahmedabad.
The hybrid carrier is also adding a second destination in Bangladesh, Chittagong, as part of its push into South Asia. By its first anniversary in late Mar-2014, Malindo will account for 12% of total capacity between Malaysia and South Asia.
Malindo finally launches India, ending six-month delay
Malindo launched domestic services in late Mar-2013 and was initially planning to make India its first international destination with flights starting in Jun-2013. But Malindo had to postpone several times the launch of India services as it waited to secure the required approvals from Indian authorities.
See related report: Lion's Malindo breaks AirAsia-MAS duopoly in Malaysian domestic market. Next stop: Delhi
The carrier shifted gears in mid-2013 and decided to make Bangladesh its first international destination, with one daily flight on the Kuala Lumpur-Dhaka route launching at the end of Aug-2013. Two other international routes, daily services from Kuala Lumpur to Jakarta and Bali in Indonesia, were launched in late Sep-2013.
The approval process for new services to India is poorly defined as a result of which airlines face considerable uncertainty with respect to scheduling a start date. Malindo's application to launch four planned India routes frustratingly dragged on for several months until finally it cleared in early Dec-2013. A daily service to the Indian capital Delhi was launched on 30-Dec-2013 followed by a daily service to Tiruchirappalli in southern India on 2-Jan-2014.
Malindo has set a 15-Feb-2014 launch date for its third India route, Kuala Lumpur-Mumbai, which will initially operate five times per week. The carrier’s fourth Indian route, Kuala Lumpur-Ahmedabad, is now slated to be served four times per week from 19-Mar-2014. All of the carrier’s India routes will be operated with 180-seat 737-900ERs in two-class configuration. Malindo currently operates six 737-900ERs along with four ATR 72-600 turboprops.
Malindo to capture 15% of Malaysia-India market at the expense of MAS and AirAsia
The 23 weekly flights to India that Malindo plans to operate by the end of Mar-2014 will give the carrier 4,140 one-way seats in the Malaysia-India market. This equates to about a 15% share of total capacity in the Malaysia-India market.
Once all the Malindo flights are added, MAS will see its share of capacity in the Malaysia-India market drop by about 7ppts, from 53% in late Dec-2013 to 46% in late Mar-2014. AirAsia’s share will drop by about 8ppts from 43% to 35%.
MAS currently operates 66 weekly flights to six Indian destinations while AirAsia has 56 weekly flights to five Indian destinations, according to OAG data. All of AirAsia’s India flights are operated with A320s in 180-seat single-class configuration as A330 operator AirAsia X no longer serves India while 14 of MAS’ 66 flights are operated with widebodies and 42 with 737-800s in two-class configuration with 160 or 166 seats.
Over the past two years MAS has increased capacity to Malaysia by about 45%, according to CAPA and OAG data. MAS is keen to add more flights to India as part of its new business plan, which focuses on thickening its schedule within Asia-Pacific to maximise connections. But MAS has said it is currently unable to pursue further expansion in India due to bilateral restrictions.
The Malaysia-India air services agreement caps capacity to the six main Indian cities of Delhi, Mumbai, Bangalore, Chennai, Hyderabad and Kolkata. MAS serves all six of these cities except Kolkata. It added its first secondary Indian city, Kochi, in Sep-2013 and could potentially launch more secondary destinations but has more interest in increasing capacity to its existing destinations.
AirAsia also has increased capacity to India by about 50% since the beginning of 2012. But the approximately 3,200 weekly one-way seats it has added only partially offsets the approximately 4,100 weekly one-way seats sister carrier AirAsia X offered before pulling out of the Malaysia-India market in early 2012.
Approximately one million origin-destination (O-D) passengers travel between India and Malaysia per annum on non-stop services. Despite accounting for more than half the seat capacity on the route, MAS' share of O-D traffic is estimated to be around 25-30% as more than 50% of the passengers it carries on its Indian services connect at Kuala Lumpur to/from other points in Asia, Australasia and North America. AirAsia, with its focus on point-to-point passengers (traffic connecting beyond Kuala Lumpur to other ASEAN points only accounts for an estimated 6-8% of Indian carriage) has a share of close to 55% of O-D traffic.
irAsia is potentially interested in adding flights from Kuala Lumpur to India to better leverage network synergies with planned start-up AirAsia India. But as in the case with MAS, bilateral restrictions limit expansion opportunities to secondary cities. For example, more flights from Kuala Lumpur to Bangalore, Chennai or Kolkata – all of which are reported to be potential bases for AirAsia India – cannot be mounted without a new agreement. Alternatively, as and when the 5 year/20 aircraft qualification threshold is lifted for Indian start-up carriers seeking to operate international services, AirAsia India could launch services to Southeast Asia utilising Indian entitlements.
AirAsia would be able to add more capacity to Tiruchirappalli or Kochi and add other secondary destinations in southern India (central, northern or western India are not within the four-hour envelope from Kuala Lumpur that AirAsia sticks to). But opportunities to work with AirAsia India at such destinations would be limited. AirAsia X is also unable to re-enter the Delhi and Mumbai markets unless the bilateral is expanded.
Malindo seeks to add more Indian destinations after the initial four
Malindo essentially received the last available Malaysian allotments at the six main cities, taking over the rights which were previously used by AirAsia X for Delhi and Mumbai. With limited interest on the part of Indian carriers to operate to Kuala Lumpur, and that too primarily from Chennai only, the prospects for further expansion of the bilateral agreement may be limited, and any small incremental growth in seat entitlements would need to be split between three Malaysian carriers.
Malindo has said it is looking at adding more destinations in India later in 2014 as it takes delivery of up to eight additional 737-900ERs. Amristar, Chennai, Kochi, Madurai and Pune have been cited as potential destinations. Of these cities only Chennai is capped by the bilateral.
Malindo initially applied to serve Kochi, which was originally slated to be launched at the end of Jun-2013 along with Delhi. But the carrier subsequently switched gears and instead decided on Ahmedabad, which was not on its initial list of India routes.
As Malindo waited on Indian approvals, the Kuala Lumpur-Kochi route became more competitive with MAS announcing plans in early Jul-2013 to serve Kochi. MAS began daily 737-800 service to Kochi at the beginning of Sep-2013, giving it six destinations in India along with Bangalore, Chennai, Delhi, Hyderabad and Mumbai.
All of Malindo’s India routes have at most one direct competitor...
Malindo is wisely staying away from Kochi during its initial India expansion phase as it is a relatively small market that is also served from Kuala Lumpur by AirAsia with 10 weekly flights. All of Malindo’s India routes have at most one direct competitor – MAS to Delhi and Mumbai and AirAsia to Tiruchirappalli. Ahmedabad is not currently served non-stop by any carrier from Kuala Lumpur.
Malindo breaks the MAS monopoly on the Delhi and Mumbai routes
MAS enjoyed a monopoly on the Kuala Lumpur-Delhi and Mumbai routes since AirAsia X dropped both in early 2012. MAS currently serves Delhi with two daily flights, one using 737-800s and one using 777s, and Mumbai with 12 weekly flights, seven using 777s and five using 737-800s. MAS has increased capacity to Mumbai by about 40% since the AirAsia X pull-out but capacity has remained flat to Delhi.
Mumbai and Delhi are not the largest Indian markets from Malaysia. Chennai is larger as it is in the region of India where a big portion of Malaysia’s Indian population have their roots. AirAsia and MAS both operate two daily flights to Chennai. The only service to Malaysia by an Indian carrier is also from Chennai – a four times per week service from Air India Express. (Jet Airways served the Chennai-Kuala Lumpur route for several years until 2012, when it pulled out citing low yields.)
While Chennai potentially has the demand to support more capacity from Kuala Lumpur, yields are generally low as it is primarily a leisure or visiting friends and relatives (VFR) market and has a fair amount of competition. The Delhi and Mumbai markets have more business traffic and significantly less competition. Malindo’s two-class full service product is well positioned to compete for business traffic. Malindo offers complimentary meals, drinks, in-flight entertainment with seatback monitors and check-in luggage in both cabins.
Malindo also works closely with travel agents, which should help the carrier with sales in India...
Malindo also works closely with travel agents, which should help the carrier with sales in India. Local distribution was the main challenge for AirAsia X on its Indian routes as most Indians use travel agents or online travel agents for international flight bookings.
Delhi and Mumbai to Kuala Lumpur do have potential as business and leisure routes however with services to date largely restricted to full service operations the market has not been stimulated except for the brief attempt by AirAsia X, which had a weak distribution strategy. Kuala Lumpur is not yet perceived in the Indian market as attractive a destination as Bangkok or Singapore, however with more aggressive marketing of Malaysia and competitive pricing growth is possible.
Malindo is offering all inclusive one-way fares to Delhi and Mumbai starting at less than MYR600 (USD183) for economy and less than MRY1,000 (USD305) for business. With the right local distribution strategy it should be able to stimulate leisure demand and also attract some business traffic, particularly smaller companies and entrepreneurs.
Malindo to take on AirAsia in Tiruchirappalli market, an interesting battle
Kuala Lumpur-Tiruchirappalli is more of a VFR and leisure market with most demand coming from the Malaysia end. AirAsia has been very successful on the route, its largest to India with three daily flights. The second frequency was added in Oct-2012 and the third frequency less than one year later, in Sep-2013. The decision to add the third flight was likely a competitive response to Malindo’s planned entry.
Malindo will look to stimulate demand with a competitive fare while offering a full-service product. Malindo is offering all-inclusive one-way fares to Tiruchirappalli starting at about MYR300 (USD92). AirAsia fares start at about MYR200 (USD61) but when including bags and meals are about the same as Malindo. As a price-sensitive leisure and VFR route it remains to be seen how the market responds to a full service alternative to AirAsia. To strengthen its visibility on the route Malindo may need to consider an increase in frequency at the risk of excess capacity.
Malindo is only the fourth foreign carrier serving Tiruchirappalli, joining AirAsia, Tigerair and SriLankan Airlines. Air India Express also operates international services from Tiruchirappalli to Dubai and Singapore.