Competitive Australia-Bali market impacts performance for Lion Group who should reconsider expansion plans

Indonesia’s Lion Group should reconsider plans for expanding in the Australia-Bali market after a less than stellar initial performance on its first two Australia-Bali routes.


Summary:

  • In its first three months of operating to Australia (June to August) Batik had an average load factor of 60%;
  • In the first five months of operating the route (end March through August), Malindo’s average load factor on the Brisbane-Bali sector was only 54%.
  • Lion Group plans to launch Melbourne-Bali and Sydney-Bali, potentially in 2018 as new generation A320neos/A321neos are delivered to Batik however, holding off would be sensible until performance improves.

Lion Group’s full-service subsidiary Batik Air launched services to Australia on 21-Jun-2017 with two daily flights from Perth to Bali. Batik has since consistently maintained two daily flights on the route but at the end of Jul-2017 upgraded both flights from 156-seat A320s to 180- seat 737-900ERs. Both aircraft types are in two-class configuration with 12 business class seats but the 737-900ER has a larger economy cabin with 168 seats compared to 144 on the A320.

See related report: Batik Air finally ready to begin Australia services with Jun-2017 Bali-Perth launch, are more Australian cities next?

The decision to use an aircraft with a larger economy cabin seems sensible given that Perth-Bali is generally a price sensitive leisure market. However, the decision to up-gauge the route after slightly more than a month is somewhat surprising as Batik’s initial load factor in the Perth-Bali route has been relatively low.

In its first three months of operating to Australia (June to August) Batik had an average load factor of 60%, according to BITRE data. Batik’s load factor was 66% in June, when it operated for only the last 10 days of the month, followed by 68% in July and only 52% in August. The low load factor in August was partially driven by the use of larger aircraft although Batik’s passenger traffic in August also dropped by 14% compared to July.

Perth-Bali is the second of several Australia-Bali routes planned by the Lion Group. The first route, Brisbane-Bali, was launched by Malindo Air on 31-Mar-2017. Malindo has since consistently operated one daily flight on the Brisbane-Bali route using 162-seat 737-800s, which also features 12 business class seats.

Malindo is based in Malaysia and is operating Brisbane-Bali using fifth freedom rights as the flight continues from Bali to its Kuala Lumpur base. From a product perspective Batik and Malindo are identical. Both airlines offer a full-service product with meals, drinks and seatback in-flight entertainment monitors in both cabins. Malindo has been preparing to adapt the Batik brand, which will further reinforce the two airline’s common positioning to Australian consumers.

Malindo’s Brisbane-Bali service also has struggled initially from a load factor perspective. In the first five months of operating the route (end March through August), Malindo’s average load factor on the Brisbane-Bali sector was only 54%.

Lion Group has big aspirations for the Australia-Bali market. It has plans to launch Melbourne-Bali and Sydney-Bali, potentially in 2018 as new generation A320neos/A321neos are delivered to Batik. However, holding off on expanding in the Australia-Bali market would be sensible until its performance on the initial two routes improves and Batik is able to further build brand awareness in Australia.

Australia-Bali is a highly competitive market and Batik is hardly a recognisable brand in Australia. Perth-Bali is also served by AirAsia, Garuda and Jetstar while Brisbane-Bali is served by Jetstar and Virgin Australia.

AirAsia and Jetstar both have three daily flights on Perth-Bali, using A320s, while Garuda has one daily flight using A330s. Virgin Australia has 14 weekly flights on Brisbane-Bali using 737-800s while Jetstar has four weekly flights using 787-8s.

Lion Group’s three Australia-Bali flights give it only approximately a 10% share of Australia-Bali seat capacity. Lion Group is hoping to increase its Australia-Bali market share by launching new routes and adding frequencies on existing routes but a slow measured rate of expansion would be sensible given the intense competition in this market.