Melbourne-Bali capacity increases 70% as Malindo and Qantas enter

Melbourne-Bali capacity will be up more than 70% year over year in Jul-2018, following the launch of services from Lion Group’s Malindo Air and Qantas Airways.


Summary

  • Malindo is joining Qantas in launching services on the Melbourne-Bali route in Jun-2018;
  • The new services will generate approximately a 70% increase in nonstop seat capacity in the Melbourne-Bali market;
  • The new services fill the void left by Indonesia AirAsia X and Tigerair Australia, which stopped serving the Melbourne-Bali route in 2016 and early 2017;
  • Melbourne-Bali will be the third Australia route for Malindo and the fourth Australia route for Lion Group.

Malaysia-based Malindo recently confirmed plans to launch a daily flight from Kuala Lumpur to Melbourne via Bali on 7-Jun-2018, using two class 737-900ERs. Qantas announced in Feb-2018 plans to launch a daily Melbourne-Bali service from 23-Jun-2018, using two class 737-800s.

Melbourne will be Malindo’s third destination in Australia. Malindo’s initial foray in the Australian market came in late 2015, when it launched nonstop services from Kuala Lumpur to Perth. Malindo launched services to Brisbane in Mar-2017, with a daily flight originating at its Kuala Lumpur hub and stopping in Bali – similar to the fifth freedom route Malindo is now launching to Melbourne.

Malindo does not operate Perth-Bali but its Indonesian sister airline, Batik Air, launched services to Perth from Bali in Jun-2017. Malindo’s Melbourne-Bali service will therefore give Lion Group four routes from Australia. Indonesia-based Lion does not have any LCC services to Australia and, at least for now, is only interesting in expanding in the Australia market using its two full service airlines, Batik and Malindo.

Melbourne-Bali is a large market with approximately 600,000 nonstop passengers per year. However, Garuda Indonesia and Qantas LCC subsidiary Jetstar are currently the only nonstop competitors.

Jetstar added four weekly flights on the Melbourne-Bali route in Feb-2018 for a total of 14 frequencies. Garuda added an eighth weekly frequency in late 2017. Garuda uses two class A330-300s on the route, while Jetstar uses two class 787-8s.

After the new Malindo and Qantas flights are launched, total Melbourne-Bali capacity will be up over 70% year over year. There will be approximately 19,000 weekly return seats on the Melbourne-Bali route in Jul-2018, compared to only 11,000 weekly seats in Jul-2017, according to CAPA and OAG data.

While this seems like too much capacity, the market had been underserved due to earlier capacity cuts. In 2016, there were up to 18,000 weekly return seats in the Melbourne-Bali market.

Indonesia AirAsia X suspended Melbourne-Bali services in Sep-2016 and Tigerair Australia suspended the route in early 2017. Indonesia AirAsia X operated five A330-300 frequencies to Melbourne, with occasional reductions and increases during certain periods. Tigerair operated a daily service using 737-800s.

After both airlines exited, the Melbourne-Bali market was left with 17 weekly frequencies, including 10 from Jetstar and seven from Garuda. Melbourne Airport has since been advocating for more capacity to Bali. Jetstar and Garuda initially responded by adding more capacity and Melbourne Airport was also ultimately successful at attracting two new competitors to fill the void left by Indonesia AirAsia X and Tigerair Australia.

The Melbourne-Bali route suffered from under-capacity for most of 2017, forcing some traffic to travel via intermediate points such Singapore and Sydney. Load factors were high (above 80%), along with yields.

While some passengers on the new Malindo service will continue beyond Bali to Kuala Lumpur, Malindo expects to mainly attract local passengers on the Melbourne-Bali sector. Malaysia Airlines and AirAsia X both operate double daily nonstop widebody services from Melbourne to Kuala Lumpur, making the new one-stop narrowbody product from Malindo relatively unattractive. Melbourne-Kuala Lumpur fares are also relatively low and Malindo is therefore from a revenue perspective better off carrying a separate set of passengers on each sector.

Malindo was initially aiming to launch nonstop Kuala Lumpur-Melbourne flights in 2017 but had to shelve these plans after the A330s it was planning to receive were instead allocated by the Lion Group to Thai Lion Air. Malindo no longer has any plans for widebody aircraft but is keen to expand in Australia using available fifth freedom rights in the Indonesia-Australia market.

Bali-Australia is a particularly attractive market for both Malindo and Batik. The two are virtually indistinguishable as they offer the same in-flight product. Malindo is also helping Batik develop its international network with Australia sales. Malindo will again rely heavily on Australia point of sale as it enters the Melbourne market.

See related report: Malindo Air shelves plans for launching Melbourne and Sydney