Asia’s Low-Cost Carriers Expanding On Mideast Route Network


Buoyed by rising demand on routes to and from the Middle East, Southeast Asian low-cost carriers are beefing up their route maps in a bid to compete with established full-service carriers and cash in on growing travel activity of tourists, workers and pilgrims.

IMG_20150425_142808
The Southeast Asian budget carrier with the most destinations in the Middle East is currently the Philippines’ Cebu Pacific which in June this year added a twice-weekly Manila-Doha flight as its fourth Middle East route in addition to Kuwait City, Riyadh and Dubai, saying that the lowest year-round ticket prices available on the Doha route start at around $200 (one way), approximately 60% lower than other airlines.

Cebu Pacific is also the only airline that offers a direct connection between Kuwait City and Manila, as Kuwait Airlines on that route has a one-hour stopover in Bangkok. The airline recently said it wants to step up the number of flights to Qatar — which has the third largest Filipino community in the Gulf — to three or four weekly flights and eventually to daily flights. Cebu Pacific is also the first and only Philippine carrier to serve Qatar as Philippine Airlines does not include Doha in its route map. The only drawback for Cebu Pacific in its Middle East expansion was when it suspended its Manila-Dammam twice-weekly flights in March this year due to unsatisfactory passenger load.

Asia’s low-cost carriers expanding on Mideast route network

A low-cost carrier planning to include the Middle East in its flight schedule is Singapore-based Scoot, a subsidiary of Singapore Airlines. According to Scoot’s CEO Campbell Wilson, the carrier will launch six to eight new destinations in the coming months, has plans to double seat capacity over the next 12 months and is on schedule to complete its 11-strong Boeing 787 fleet by next year’s first quarter and increase staff by 30% to 1,000, including new pilots and cabin crew.
Wilson did not specifically name new destinations in the Middle East, but they could probably be Dubai, Abu Dhabi or Doha, observers assume.

Indonesia’s Lion Air expanded its services to Saudi Arabia earlier this year and increased its Jakarta-Jeddah direct flights from twice weekly to five a week on its Boeing 747-400 aircraft which can carry more than 500 passengers.
“The flight frequency increase is a consequence of a high average load factor, around 80%, since we launched the service last year, and there is still a big potential market to develop on this route,” said Lion Air Managing Director Edward Sirait. Reportedly, Lion Air is also working on getting landing permits from Saudi authorities for Madinah to serve more Indonesian pilgrims.

Competition for Lion Air arouse when Indonesia Air Asia X launched its Jakarta-Jeddah flight on July 1 this year, adding another haj flight to the existing Kuala Lumpur-Jeddah route of Air Asia X, the long-haul subsidiary of Southeast Asia’s largest discount airline Air Asia.

Meanwhile, troubled Malaysia Airlines said it will reduce capacity between Kuala Lumpur and Middle East destinations by 25%. The carrier, which is currently in a massive restructuring phase, has already limited presence in the Middle East with services cut down to only Dubai and Jeddah. Dubai was suspended in early 2012 as part of the last restructuring but reinstated in 2013 and has so far survived the current restructuring initiative. Other destinations such as Dammam, Kuwait City, Beirut, Cairo and Manama have been terminated and replaced with code-share flights with Middle East partner airlines.

Source: Arno Maierbrugger/Gulf Times

CAPA Analysis: Southeast Asia LCC Fleet To Grow By Only 13% in 2015


Southeast Asia recorded a significant slowdown in LCC growth in 2014 as several airlines adjusted to challenging market conditions. The region’s LCC fleet expanded by 13% aircraft compared to about 20% growth in 2013.

A similar fleet growth rate of approximately 13% is likely in 2015, following further revisions to fleet plans in response to overcapacity, which has impacted most Southeast Asian short-haul markets since 2H2013. AirAsia in particular has slowed expansion and will take only five A320s in 2015 – although rival Lion Group is again not showing any signs of slowing and plans to take about 50 aircraft for the second consecutive year with over half ending up in the dynamic Southeast Asian LCC sector.

Growth rates could pick up again in 2016 or 2017 if market conditions improve. Higher growth rates ultimately will be required for Southeast Asia’s huge LCC order book, which consists of nearly 1,200 aircraft, to remain intact. The potentially huge impact of lower fuel prices could also reshape strategies in 2015, as some LCCs record a 20% reduction in total costs.

Southest Asia’s 21 LCCs ended 2014 with 536 aircraft (includes turboprops, narrowbodies and widebodies), according to the CAPA Fleet Database. This represents growth of about 60 aircraft or 13% compared to the beginning of 2014.

While still double digits there was a significant slowdown compared to 2013, when the fleet grew by about 20%.

Southeast Asia low-cost carriers ranked by fleet size: Jan-2015 vs Jan-2014 and Jan-2013

Rank Carrier Country  LCC Group  Fleet at

1-Jan-2015

Fleet at

1-Jan-2014  

Fleet at

1-Jan-2013

1 JT Lion Air Indonesia Lion 103 94 91
2 AK AirAsia Malaysia AirAsia 80 72 64
3 5J Cebu Pacific Air Philippines Cebu Pacific 48 48 41
4 FD Thai AirAsia Thailand AirAsia 40 35 27
5 QG Citilink Indonesia (Garuda) 32 24 21
6 IW Wings Air Indonesia Lion 30 27 27
7 QZ Indonesia AirAsia Indonesia AirAsia 29 30 22
8 TR Tigerair Singapore Tigerair 24 25 21
9 DD Nok Air Thailand Nok 24 17 15
10 D7 AirAsia X Malaysia AirAsia X 23 18 11
11 OD Malindo Air Malaysia Lion 19 11 0
12 3K Jetstar Asia* Vietnam Jetstar 18 19 18
13 VJ VietJet Air Vietnam VietJet 18 10 5
14 Z2 Zest AirAsia Philippines AirAsia# 14 15 15
15 SL Thai Lion Air Thailand Lion 9 2 0
16 TZ Scoot Singapore (Singapore Airlines) 6 6 4
17 BL Jetstar Pacific Vietnam Jetstar 8 5 5
18 DG Tigerair Philippines Philippines Cebu Pacific^ 4 5 5
19 Y5 Golden Myanmar Airlines Myanmar Golden Myanmar 3 2 0
20 PQ Philippines AirAsia Philippines AirAsia 2 2 2
21  XJ  Thai AirAsia X Thailand AirAsia X 2 0 0
N/A RI Tigerair Mandala Indonesia Tigerair 0 9 5
 TOTAL     536 476 399

Slower 2014 fleet growth driven by adjustments at AirAsia and Tigerair

At the beginning of 2014 the Southeast Asian LCC fleet was poised to grow in 2014 by slightly over 100 aircraft or about 22% to 580 aircraft. But the AirAsia and Tigerair groups made major adjustments in 1H2014, deferring A320 deliveries and subleasing or selling aircraft.

The Tigerair Group fleet in Southeast Asia dropped by 15 aircraft in 2014 as it closed its Indonesian affiliate and sold its Philippine affiliate to Cebu Pacific. As Tigerair suspended expansion in its original home market due to overcapacity in Singapore the aircraft that were overseas became excess and were grounded before eventually being subleased. (Note: Tigerair Australia and Tigerair Taiwan are excluded as this report focuses on the Southeast Asian market.)

The fleet at Cebu Pacific Air, which is the third largest LCC in Southeast Asia, ended flat at 48 aircraft. Cebu Pacific was initially planning to expand its fleet by four aircraft in 2015 but it ended up moving four of its aircraft to its new subsidiary, Tigerair Philippines. The five aircraft that were originally at Tigerair Philippines (which is expected to be rebranded in 2015) were returned to the Tigerair Group.

The AirAsia/AirAsia X fleet in Southeast Asia grew by about 15 aircraft as it deferred seven of the A320 deliveries which were originally slated for 2014. AirAsia was also hoping to sell 12 A320s during 2014 but ultimately was only able to sell one aircraft. (Note: AirAsia India, which began 2014 with three A320s, is also excluded as this report focuses on the Southeast Asian market.)

The Lion Group accounted for 27 or nearly half of the 60 aircraft added to the Southeast Asian LCC fleet in 2014. These figures exclude its full-service subsidiary Batik, which added more aircraft in 2014 than any of Lion Group’s LCC subsidiaries or affiliates, and aircraft placed outside the group by Transportation Partners.

Lion Air of Indonesia

Southeast Asian LCC fleet to grow by 13% in 2015, led by Lion Air

Lion Group carriers will again account for nearly half of the aircraft added to the Southeast Asian LCC fleet in 2015. The Lion Group plans to add about 50 aircraft in 2015 with an estimated 30 aircraft allocated to its four LCCs. The other 20 aircraft are projected to be used to further grow Batik or be leased out by Transportation Partners.

Overall CAPA projects Southeast Asia’s LCC fleet to grow by 13% for the second consecutive year in 2015 to slightly over 600 aircraft. Most of the figures below reflect current fleet plans while the figures for the Lion Group affiliates are estimates based on various sources. These are all net figures, taking into account retirements such as the six 777-200s at Scoot and the two A340-300s and one A330-200 at AirAsia X.

Projected fleet growth for Southeast Asian LCCs in 2015

Rank Carrier Country  LCC Group   Projected fleet

 for 31-Dec-2015

Fleet as of

1-Jan-2015

1 JT Lion Air Indonesia Lion  110 103
2 AK AirAsia Malaysia AirAsia  80 80
3 5J Cebu Pacific Air Philippines Cebu Pacific  52 48
4 FD Thai AirAsia Thailand AirAsia  45 40
5 QG Citilink Indonesia (Garuda)  37 32
6 IW Wings Air Indonesia Lion  33 30
7 QZ Indonesia AirAsia Indonesia AirAsia  29 29
8 OD Malindo Air Malaysia Lion  29 19
9 VJ VietJet Air Vietnam VietJet  28 18
10 DD Nok Air Thailand Nok  28 24
11 TR Tigerair Singapore Tigerair  24 24
12 D7 AirAsia X Malaysia AirAsia X  21 23
15 SL Thai Lion Air Thailand Lion  19 9
13 3K Jetstar Asia Vietnam Jetstar  18 18
14 PQ/

Z2

Philippines AirAsia/

Zest AirAsia*

Philippines AirAsia  14 16
16 BL Jetstar Pacific Vietnam Jetstar  10 8
17 TZ Scoot Singapore (Singapore Airlines)  9 6
18 DG Tigerair Philippines Philippines Cebu Pacific  5 4
19 XJ  Thai AirAsia X Thailand AirAsia X  5 2
20 Y5 Golden Myanmar Airlines Myanmar Golden Myanmar  3 3
21  Indonesia AirAsia X Indonesia AirAsia X  3 0
22  Thai VietJet Air Thailand VietJet  3 0
23  NokScoot Thailand Nok  3 0
 TOTAL      608 536

The upcoming launch of Indonesia AirAsia X, NokScoot and Thai VietJet will grow the total number of LCCs in Southeast Asia to 24. But the potential merger of Zest AirAsia with Philippines AirAsia (PAA) could reduce the total to 23.

The AirAsia Group launched PAA in 2012 and acquired Zest in early 2013. Zest adopted the AirAsia brand in late 2013 but the two carriers have since been operating separately. The AirAsia Group plans to seek approval in 2015 to remove the Zest brand and combine its two Philippine affiliates.

In 2014 the number of Southeast Asian LCCs stayed flat at 21 as Thai AirAsia X launched but Tigerair Mandala suspended operations. (Note: Indonesia AirAsia X, NokScoot and Thai VietJet all received their first aircraft in late 2014 but these aircraft are not included in the year-end 2014 tally as these carriers have not yet launched scheduled services and have so far only operated charter flights. These initial aircraft will be placed into scheduled services over the next few months and the fleets will subsequently grow as more aircraft are delivered.

The relatively modest fleet growth for 2015 comes after several airlines have again deferred deliveries or suspended expansion. AirAsia is planning to take only five A320s in 2015 after deferring or selling 24 of its original 29 deliveries.

AirAsia X also has deferred two A330-300s, giving it six deliveries. AirAsia X is also returning its two A340-300s and one A330-200 in 2015, resulting in a net gain at the long-haul low-cost group of only three aircraft.

Both of Singapore’s short-haul LCCs, Tigerair and Jetstar Asia, have suspended fleet expansion until at least 2016. Cebu Pacific, Citilink and Nok expansion will be relatively modest – four to five additional aircraft for each carrier.

Lion and VietJet continue to pursue rapid expansion

Only the Lion and VietJet groups for now do not show any signs of slowing down. VietJet plans to add another 10 aircraft in Vietnam and also launch its first joint venture, Thai VietJet, which plans to begin operating scheduled services in Mar-2015.

As CAPA highlighted on 20-Jan-2015, VietJet has already surpassed Tigerair and Jetstar Asia to become the eighth largest LCC in Southeast Asia based on current capacity. VietJet will surpass likely Indonesia AirAsia and potentially Nok in 2015.

Southeast Asia’s top 10 LCCs ranked by seat capacity: 19-Jan-2015 to 25-Jan-2015

Rank Airline Total Seats
1 JT Lion Air* 1,083,194
2 AK AirAsia 550,260
3 5J Cebu Pacific Air 366,997
4 FD Thai AirAsia 338,040
5 QG Citilink 230,760
6 DD Nok Air 218,204
7 QZ Indonesia AirAsia 198,360
8 VJ VietJet Air 156,060
9 D7 AirAsia X 122,148
10 TR Tigerair 120,240

AirAsia and Lion will remain by a large margin the largest players in the Southeast Asian LCC market, accounting for over half of the total fleet and over half of the total seat capacity. Both AirAsia and Lion are also now among the largest four LCCs in the world – a remarkable accomplishment given that Southeast Asia only accounts for less than 6% of the global fleet.

AirAsia is still larger than Lion based on capacity and fleet size, but only when considering AirAsia and AirAsia X as one entity (technically they are separate groups although they share a brand, website and distribution network). Also Lion is larger when also counting Batik but for this report Batik is excluded because it is positioned as a full-service carrier and has a separate brand.

Global top 10 LCC groups ranked by seat capacity: 19-Jan-2015 to 25-Jan-2015

Rank Airline Group Total Seats
1 Southwest Airlines Co. 3,287,734
2 Ryanair 1,610,280
3 AirAsia/AirAsia X Groups 1,330,774
4 Lion Group 1,243,712
5 Gol 1,160,288
6 EasyJet plc 999,888
7 Jetstar Airways Group 762,646
8 JetBlue Airways 760,878
9 IndiGo 711,720
10 Azul 578,669

Southeast Asian LCC groups fleet size and orders: as of 1-Jan-2015

Rank Airline Group number of

carriers

 number of

aircraft

aircraft

on order*

1 AirAsia/AirAsia X Groups 7 190 415
2 Lion Group 4 163 549
3 Cebu Pacific Group 2 52 40
4 Citilink (Garuda) 1 32 47
5 Jetstar Group 2 26 0
6 Tigerair Group 1 24 37
7 Nok 1 24 17
8 VietJet 1 18 61
9 Scoot 1 6 20
10 Golden Myanmar 1 3 0
TOTAL 21 538 1,186

Analysis: ASEAN Open Skies On Track


https://i0.wp.com/upload.wikimedia.org/wikipedia/en/thumb/4/49/Seal_of_ASEAN.svg/1024px-Seal_of_ASEAN.svg.png

PETALING JAYA: Three aviation tragedies involving carriers from Asean within a space of nine months will not stop the implementation of the Asean open skies policy that will kick off from Jan 1.

The policy, however, is expected to pay more attention to having higher standards of safety and other regulatory approvals to operate flights, among others, when it is fully implemented by the end of 2015.

Although the road to full open skies is not completely clear of obstacles, some Asean airlines particularly low-cost carriers (LCCs) are already positioning themselves for the Asean open skies.

Analysts said the higher safety standards were not entirely due to the two catastrophes involving aircraft from Malaysia and Indonesia. Asean members, they said, had always worked towards their respective safety security compliance for the industry.

“It is not something they hastily prepared in the wake of the airline tragedies. Safety has always been paramount in the aviation industry. No airlines will compromise on safety issue. It (safety) will always be their top priority,” an aviation analyst said.

Industry players said the Asean open skies not only provide member countries with air service liberalisation, but also include aviation safety, aviation security, air traffic management, civil aviation technology, aviation environment protection and air transport regulatory framework.

This year has been the worst for the aviation sector in the region, where for the past few years airlines were hit by high operating costs largely due to fuel prices. But since June this year, the fuel cost has come down but a spate of airline tragedies has cast a shadow over the airline companies.

On March 8, Malaysia Airlines (MAS) MH370 went missing after leaving Kuala Lumpur en route to Beijing, while in July, another MAS jet was shot down when flying over a rebel-controlled area in Ukraine.

The latest air tragedy happened on Sunday when AirAsia Indonesia flight QZ8501 went missing after leaving Surabaya for Singapore.

Analysts and industry officials said airlines had always not compromised on safety issues and that the MH370 tragedy was a rarity.

International Air Transport Association (IATA) CEO Tony Tyler had said right from the beginning there was an understanding among governments and industry players that “safety was not a competitive issue”. He said there has always been great cooperation among all the industry’s stakeholders in efforts to make flying ever safer.

Tyler said IATA was working with its partners towards some recommendations on how to better track aircraft. There is some promising technology that will become available in the near future.

Meanwhile, industry players and analysts are excited with the impending policy which is expected to take place in 2015 as it will be a boon to the Asean carriers.

Analysts said the open skies policy would likely see greater growth and development as airlines in the region were spurred to greater competition.

“With the Asean open skies policy being implemented next year, there would be higher air travel demand in the region, as well as an increase in passenger traffic and movement of goods. This will add a new dimension of growth for the country,” a bank-backed analyst said, adding that Malaysia was one of the major beneficiaries of the policy.

The Asean open skies policy, to be introduced next year as part of the Asean Economic Community, is expected to transform the aviation industry by allowing for more liberalisation between the regional aviation markets, thus encouraging greater connectivity, higher traffic growth and service quality, while lowering ticket prices.

In essence, all of the 10 Asean member countries will open up their international airports to each other, with no regulatory limit in terms of frequency or capacity.

AirAsia group CEO Tan Sri Tony Fernandes told StarBiz in an interview last week (before the QZ8501 incident) that the group was very excited on Asean as a whole and it had been very progressive in opening up its skies. He believed the policy would further boost Asean tourism market.

“We believe in economic union of Asean. AirAsia has been moving Asean people around successfully. The open skies policy will enable secondary cities to reopen, improved connectivity for SME and tourism,” he told StarBiz.

He said the policy would be the first step in terms of Asean common ownership. He also hoped that it would be truly open skies.

“We need open skies — true open skies — and common ownership. As an Asean company, why can’t I own 100% of another airline in Asean? And why can’t another airline own 100% of a Malaysian carrier?” Tony said.

AirAsia has managed to build an Asean tourism market way before the implementation of the policy. The carrier has moved ahead to secure the Indonesian market, accounting for a significant portion of the region’s total population.

Maybank Investment Bank analyst Mohshin Aziz said there was much to cheer upon the launch of the Asean open skies in 2015.

He said upon closer scrutiny, many of the advertised benefits were just a mirage. For example, open skies exist for capital cities, but there is a cap on slots so it amounts to no net benefit.

“Furthermore, the granting of fifth-freedom rights remains arbitrary and dependent on the host country. We wish the tentacles of bureaucracy could be crimped and that things move in a more cohesive manner, much like in the European Union (EU).

A fifth freedom enables an airline to fly to two countries with a flight that originates or ends in its home country. For instance an aircraft can take off from Kuala Lumpur, pick passengers in Bangkok before stopping in Hanoi.

“However, to be fair, the EU open skies took 52 years to complete, whereas Asean open skies was mooted 18 years ago. Hopefully, there will be more deregulations and the region will be more single market-centric in the near future,” he said.

Some players argued that true liberalisation would ensure seventh freedom rights whereby airliners get the right to transport passengers between two foreign countries without offering flights to one’s home country. For instance an airline from Kuala Lumpur can operate between Jakarta and Singapore without having to return to the home base.

It has been reported that the Asean open skies has been ratified by all Asean countries except for the Philippines. Indonesia had ratified the 2009 Multilateral Agreement on Air Services (MAAS) that would give Asean airlines unlimited third, fourth and fifth freedom rights to operate between capital cities.

So, who will benefits and who will rule Asean skies?

In a report, UOB Kay Hian said AirAsia and airport operators such as Malaysia Airports Holdings Bhd (MAHB) would benefit from Indonesia’s ratification of the 2009 Asean open skies.

The research house noted that intra-Asean LCC penetration which was already at 59% would rise further if MAAS was fully ratified.

“The two dominant LCCs in Asean – Lion Air and AirAsia – will be the main beneficiaries. AirAsia will benefit via higher intra-Asean travel, utilisation of its extensive order book, and higher lease income.

“Thai AirAsia, which is Thailand’s largest LCC, will also benefit from greater intra-Asean travel and can serve as an LCC hub to China,” the research house said.

It said airport operators MAHB and Airports of Thailand would also be beneficiaries in the long term.

“Bangkok’s Suvarnabhumi airport is operating at 90% capacity and a new terminal will only be completed in 2017. However, LCC airport Don Maung will see greater pax throughput.

“The primary beneficiary, however, will be KLIA2 as nine LCCs are serving KLIA2, five of which are from the AirAsia group. MAHB will be able to benefit from higher aeronautical and non-aeronautical revenue,” it said.

Source: Leong Hung Yee, The Star Online

Southeast Asian Budget Airlines Slowing Pace of Expansion


Some Discount Carriers Are Deferring or Canceling Aircraft Orders
Some Discount Carriers Are Deferring or Canceling Aircraft Orders

Budget airlines in Southeast Asia are scaling back their breakneck pace of expansion, as passenger demand hasn’t caught up with the capacity boost that has contributed to significant fare pressures.

Some of the region’s biggest discount carriers, such as Malaysia’s AirAsia5099.KU 0.00% Bhd. and Singapore-based Tiger Airways Holdings Ltd. J7X.SG -2.33% , are deferring or canceling aircraft orders while considering reducing investments elsewhere because mounting competition is hurting profitability.

The Southeast Asian region has been the continent’s main hotbed of low-cost carrier growth, with burgeoning markets helping send many middle-class travelers to the skies for the first time.

Budget airlines now carry more than half of Southeast Asia’s airline passengers. These carriers have staged an aggressive cross-border expansion ahead of more-flexible air services arrangements among the region’s 10 nations to be set as early as 2015.

The region’s two dominant discount carriers—AirAsia and Indonesia’s Lion Air—have ordered a combined total of more than 1,000 planes for delivery over the next decade, prompting concerns of overcapacity at a time of slowing economic growth.

Airlines across the Asian-Pacific region have recently recorded some of the weakest traffic growth because of continued weakness in the Chinese economy and the recent contraction in regional trade volumes.

In March, total international passenger traffic in Asia rose just 1.1% from a year earlier, far below the 5.3% rise in new aircraft capacity, according to data released this week by the International Air Transport Association, an industry lobby group.

“It’s a very, very competitive market on the fare side. We’ve seen already a number of carriers take steps to address some of that overordering,” said Robert Martin, chief executive at Singapore-based aircraft leasing firm BOC Aviation Ltd.

“The key thing is the volume of planes coming each year into the region. If they can limit that … it would work,” he said.

AirAsia said earlier it would defer 19 Airbus A320 aircraft that would have arrived this year and the next, noting it would consider replacing the orders with the more fuel efficient A320neo, or new engine option, planes. The airline didn’t respond to requests seeking comment.

Meanwhile, Tigerair recently canceled nine current generation A320 planes that were to arrive in 2014 and 2015, as part of a deal with the aircraft manufacturer to buy 37 A320neos for delivery between 2018 and 2025.

Tigerair, which last week reported a widening group net loss of 95.5 million Singapore dollars ($76.6 million) in the financial year ended March 31, sold its unprofitable Philippines business and said this month it was reviewing its investment in its Indonesian joint venture, Tigerair Mandala.

Tigerair will ground five of Mandala’s nine A320s and three of the five aircraft that are being returned from Tigerair Philippines. Tigerair didn’t respond to calls seeking comment.

AirAsia is also months late in starting commercial flights at its Indian operation, and last year had to pull the plug of its joint venture in Japan due to disagreements with partner All Nippon Airways9202.TO +0.44%

Southeast Asian airlines “are making some adjustments. In some markets there is too much capacity,” notes Brendan Sobie, a regional analyst at CAPA—Centre for Aviation, an industry consultancy.

Aircraft maker Boeing Co. BA +0.17% also said it was on the lookout for possible capacity issues in various global regions.

“One of the areas where we are watching for overcapacity is Southwest and Southeast Asia,” said Randy Tinseth, vice president of marketing at Boeing, which sells its single-aisle 737 jets to Lion Air and other Southeast Asian carriers.

Mr. Tinseth notes that there substantial orders on the books from the region, especially from new business models such as low cost carriers.

While many analysts expect consolidation in the region’s airline industry, they said demand would continue to expand as more people travel.

Lion Air spokesman Leithen Francis said the company would take delivery of up to 38 new jets this year and has no plans to slow down.

“There’s still growth in the Indonesia domestic market, where we are aiming to increase our market share,” Mr. Francis said.

The recent exit of smaller carriers from the Indonesian market is helping Lion Air add capacity as it seeks to increase its market share to 60% from about 50% now, he added.

Meanwhile, Tigerair continues to struggle. On Wednesday, the company said Chief Executive Koay Peng Yen was resigning after less than two years at the helm. He will be succeeded by Lee Lik Hsin, an executive at Singapore Airlines Ltd. C6L.SG +0.29% , which owns a 40% stake in Tigerair.

Source: Gaurav Raghuvanshi, online.wsj.com

 

Analysis: Is Small The Next Big Thing?


Cebu Pacific Air
Cebu Pacific Air

 

Asia’s airline industry is booming as local competition heats up with fleet expansions, new routes and an array of financing options. “In terms of aircraft numbers, Asia-Pacific has become a bigger market than Europe, second only to North America, and the projections are that it will grow at a really fast rate,” says Saugata Mukherjee, an aviation finance specialist and asset and structured finance partner at Stephenson Harwood in Singapore. Southeast Asian low-cost carriers like AirAsia, Lion Air, and Cebu Pacific have driven much of the growth, placing orders for hundreds of Airbus A320s and Boeing 737s. VietJet Aviation Joint Stock Co, Vietnam’s first private airline, agreed last September to a provisional order for up to 92 Airbus jets worth $9 billion, while Singapore’s Tiger Aiways placed an order in March for 37 Airbus A320neo aircraft valued at $3.8 billion at list prices. “The established legacy carriers are under increasing pressure from low-cost carriers,” says Leo Fattorini, a partner in Bird & Bird’s international aviation group in Singapore.

Vietnam in particular is tipped to spark competition among airlines and manufacturers. Even as the nation’s local economy grows at about 5 percent – its slowest pace in 13 years – demand for domestic air travel is experiencing double-digit growth. The International Air Transport Association expects Vietnam to become the world’s third-fastest growing market for international passengers and freight next year, and second-fastest for domestic passengers.  While this is likely to translate into a robust new source of business for aircraft makers like Boeing and Airbus, regional manufacturers like Canada’s Bombardier, Brazil’s Embraer, European joint venture ATR, Russia’s Sukhoi and Japan’s Mitsubishi Aircraft also stand to benefit.

 

cropped-tigerair.jpg
Tiger Airways

Carving Out a Niche

After flying under the radar for many years, manufacturers of smaller jet and propeller-driven passenger aircraft are gaining traction in Asia. Embraer forecast that the region will take delivery of 1,500 new jets of 70 to 130 seats over the next 20 years. That translates, it says, to a staggering $70 billion worth of business. The Singapore Airshow in February underscored this trend, with smaller aircraft makers picking up a slew of new orders. Thai low-cost carrier Nok Air said that it would order up to eight of Bombardier’s Q400 turboprop aircraft. ATR meanwhile, inked a deal to sell up to eight of its 72-600 aircraft to Thai carrier Bangkok Airways. It also agreed to sell 20 aircraft to leasing firm Dubai Aerospace Enterprise, with options for 20 more, in a deal valued at $1 billion. Substantial numbers of ATR aircraft are being acquired by airlines in Indonesia, Malaysia, the Philippines and Myanmar, where a lot of routes aren’t yet developed enough to warrant an Airbus A320 or a Boeing 737, says Fattorini. “These ATR aircraft are ideal for these countries. They are relatively fuel efficient, robust and versatile, and can fly into airports where perhaps some of the larger jets can’t,” adds Fattorini.

Growing demand for services to and between smaller second- and third-tier cities has created a unique market suited to smaller aircraft. In a country like India, where Airbus and Boeing aircraft have saturated the market with airlines like IndiGo, SpiceJet and GoAir, start-up carrier Air Costa, which began operations last October, is trying to carve out a niche for itself by connecting the smaller cities with Embraer jets. “You don’t need larger aircraft. Regional air services have enormous potential in India,” Ramesh Lingamaneni, chairman of Air Costa, told Reuters. In February, the airline ordered 50 jets valued at $2.94 billion from Embraer, in what was the aircraft maker’s first major Indian deal. “The Air Costa model of looking at secondary cities is a very interesting one. It is a trend that we have and will continue to see across the entire region,” says Mukherjee.

Importantly, for the likes of Embraer and ATR, the world’s two largest aircraft manufacturers do not make aircraft that compete in the below-130 seat segment. “Right now, there are two different markets for aircraft. If you look at Lion Air for example, they use their Boeing 737s for the bigger primary city connections, but they also have an ATR fleet which captures a different market segment,” says Mukherjee. There is, however, some overlap between markets. Bombardier’s C Series offers a competitive alternative to the Airbus A320 and Boeing 737, but it is still yet to make an impression in the Asian market, says Mukherjee.

 

AirAsiaA320
AirAsia

Financing Options

As more carriers enter Asia’s lucrative aviation market, a range of financing options are readily available to fund fleet expansions. The choice of funding depends quite heavily on the carrier, says Fattorini. “Some of the top-tier established carriers still have very strong cash positions, despite increased pressure on their balance sheets. They often buy aircraft outright, or have the credit rating to be able to access loan finance at attractive rates,” says Fattorini.

For less-established carriers that do not boast the strongest balance sheets or the highest credit ratings, export credit agency (ECA) financing is often a preferred alternative. “Carriers typically start off with ECA financing because they either don’t have access to commercial funding, or they find commercial funding too expensive. But as they mature, commercial financiers come in and start helping them out, and their terms are usually more flexible than those offered by the ECA lenders,” says Mukherjee. For his part, Fattorini says that ECA finance has become more expensive and fallen slightly out of favour among airlines and lessors with stronger balance sheets as a result. But he adds that  a lot of historic orders still exist that are being backed by ECAs, as well as hybrid ECA deals which, depending on the ECA involved, could either be pre-funded or refinanced in the capital markets.

As the market matures, lawyers say the range of financing will extend increasingly into the capital markets space. “Right now, money is cheap. But, if the pricing environment changes – and it will – you will see enhanced equipment trust certificate (EETC) issuance increasingly by non-U.S. issuers. Non-ECA-backed airline bond financing will possibly start to play a role in Asia as well in the medium term,” says Mukherjee.

Another alternative for airlines is leasing, which is gaining popularity in Asia as carriers look to avoid owning a large fleet in favour of leaner balance sheets. In 2011, leased planes accounted for 36.5 percent of the worldwide fleet, according to Boeing data, up from less than 15 percent 20 years earlier. “The generally accepted view is that leasing will increase to about 40 or 50 percent of the market in the not too distant future,” says Fattorini.

A number of new leasing companies too have entered the Asian market, keen to increase and develop their portfolios. “There is definitely more competition between lessors now, and this is good news for airlines. As can be expected, there has also been some amount of consolidation between lessors through M&A activity and it is possible that there will be some further activity as the market evens out,” says Mukherjee.

 

Sharklet-fitted Airbus A320
VietJet

Shakeup For State Carrier

VietJet Aviation Joint Stock Co, Vietnam’s first private airline, agreed last month to a provisional order for up to 92 Airbus jets worth $9 billion at list prices. The low-cost carrier is aiming for a stock market listing in either Hong Kong or Singapore in 2015 to fund the expansion, Managing Director Luu Duc Khanh said. VietJet plans to double its fleet by 2015 to 20 jets, and is speeding up work to get three joint ventures in the air, including one with an undisclosed carrier in Myanmar and another agreed with Thailand’s KanAir, to operate in early 2014.

VietJet’s bold expansion after less than two years in business could raise the stakes not only at home, but also in Southeast Asia’s fast-growing low-cost market, dominated by Malaysia’s AirAsia Bhd and Indonesia’s Lion Air.

Those ambitious plans may have shaken state-run flag carrier Vietnam Airlines (VNA) into expediting its long-awaited initial public offering and fleet expansion. VNA dominates the local market and will increase its fleet by 28 percent to 101 aircraft by 2015. It has been preparing for an IPO in the second quarter of 2014.

Its fleet includes both Airbus and Boeing jets, and it has ordered the Boeing 787 Dreamliner and the Airbus A350. According to Boeing, VNA has existing orders for eight 787s and 11 more through leasing companies. The airline also has its hand in the low-cost market through a stake in JetStar Pacific, a joint venture with Australia’s Qantas Airways. JetStar plans to more than triple its fleet of five Airbus A320s to 16 in the next few years, a spokesman says.

VietJet’s joint venture plans were therefore a smart move, says Timothy Ross, an air transport analyst at Credit Suisse in Singapore. “I can’t imagine they have much on their balance sheet … so in terms of building a new business, it’s far better to give away some of the potential upside and invest less,” he says. JetStar has not been profitable and is likely to struggle as competition increases, Ross says, while VNA has not done itself any favours delaying privatisation. “We should have seen the Vietnam Airlines IPO three to five years ago, but it sat on its hands,” he says. “Competition in the airline industry is inevitable.”

Traditionally, lessors call the shots on leasing agreements, especially when dealing with newer carriers, says Fattorini. “But with a number of new lessors in the market, especially those from China who are eager to quickly build up their portfolios, airlines have more options than in recent years. As a result they should be in a relatively stronger negotiating position,” he says. Airlines should consider their pressure points and not be afraid to push hard for positions which make their lives operationally easier. An experienced lessor will never compromise on its ability to quickly recover its asset in a default scenario but on issues such as maintenance and use covenants, there’s likely to be much more flexibility, adds Fattorini.

For his part, Mukherjee thinks that a lessee negotiating contract terms also sends positive signals to the lessor. Lessors and lessees should pay attention to the operational or technical covenants of a lease. “When you maintain your fleet you have one standard and one technical team. If there is a higher standard on your operating lease you suddenly have a mismatch, which raises the standards that your technical team needs to have across the fleet,” says Mukherjee. “The technical team is not going to differentiate between the owned and leased aircraft because they use the same standard across the board. So from a lawyer’s perspective, you need to make sure that those covenants are as evenly set across the financing and leasing documents.”

In addition, Mukherjee highlights the aircraft return conditions of a lease as an important area for lessees to consider. “Lessors and lessees alike must ensure that the lessee’s technical team are well versed in the maintenance and return conditions set out in the lease. Return conditions, in particular, should be negotiated and agreed in relative detail by the lessors’ and lessees’ technical teams. What you don’t want is for a mismatch in contractual expectations and what the lessee’s technical team are capable of delivering. This is neither in the lessee’s interest nor is it good news for the lessor. For example the lessor may have arranged a re-lease of the aircraft with a third party airline. A failure to redeliver on time will lead to losses, and while the lessor can try and claim back its losses from the defaulting airline, it does not present a pretty picture,” he says.

lion-air
Lion Air

Boom Times Ahead

As the rivalry among airlines and aircraft manufacturers intensifies in Asia, it is bringing with it an increasing volume of business to the handful of law firms in the region that have aviation finance and aircraft leasing expertise. Some carriers, lessors and financiers in Asia still use lawyers who are based in London or New York, says Fattorini. “This is surprising as there are a number of firms with the right expertise in this region, and it makes the logistics of doing a deal much easier.” But this could change rather quickly as more business flows into Asia. And in an industry as niche as aviation finance and aircraft leasing, on-the-ground experience in the region is vital. For the year ahead at least, especially in Southeast Asia, leasing companies, financial institutions and law firms with dedicated aviation finance specialists are poised to profit from a booming airline industry as low-cost carrier activity surges and regional aircraft makers come to the fore.

Source:  Kanishk Verghese, Reuters

World’s Safest Airlines In 2013 Found In Asia-Pacific, Middle East


Image

Anyone with a fear of flying should consider this before boarding their next flight: 2013 was, by far, the safest year for air travel since the dawn of the jet age, according to new data from the Aviation Safety Network, or ASN, an independent organization based in the Netherlands.

Some 29 fatal airliner accidents resulted in a total of just 265 fatalities last year, making 2013 the safest year for number of fatalities and second-safest year for number of accidents. By comparison, the 10-year average for accidents and fatalities is 32 and 720, respectively.

“Since 1997, the average number of airliner accidents has shown a steady and persistent decline, probably for a great deal thanks to the continuing safety-driven efforts by international aviation organizations such as ICAO, IATA, Flight Safety Foundation and the aviation industry,” ASN president Harro Ranter noted.

The worst accident of 2013 occurred on Nov. 17 when a Tatarstan Airlines Boeing 737 crashed on approach to Kazan, Russia, killing 50. Beyond Russia, the entire continent of Africa remained the least safe for air travel in 2013, containing one-fifth of all fatal airliner accidents and just 3 percent of all world aircraft departures.

Europe and North America remained exceedingly safe last year, despite the fact that only one of the two continents’ carriers, Virgin Atlantic, earned seven stars for safety and in-flight product in a new ranking of the world’s safest airlines by safety and product ranking website AirlineRatings.com.

With a fatality-free record in the jet era (since 1951), Australian flag-carrier Qantas once again beat out 447 global airlines to top the AirlineRatings.com list. Website editor Geoffrey Thomas noted that Qantas had amassed an “extraordinary record of firsts in safety and operations” and had been a leader in introducing a host of technologies in the cockpit. “There is no question that Qantas stands alone in its safety achievements and is an industry benchmark for best practices,” he said.

Qantas was the first international airline to operate around the world service in 1958 with its Lockheed Super Constellations and the first to take delivery of the Boeing 707 outside the U.S. in 1959. Thomas said the Australian carrier was also among the first to pioneer long-range operations for twin-engine planes, use a flight data recorder to monitor performance and implement real-time monitoring of its engines using satellite communications.

1836222
Image Source: T. Laurent

Air New Zealand joined Qantas on top of the list, as did fellow Asian airlines All Nippon, Cathay Pacific, Eva Air and Singapore Airlines. Middle Eastern carriers Emirates, Etihad Airways and Royal Jordanian also received seven stars for safety and in-flight product, rounding out the top 10.

ANA

In creating its list, AirlineRatings.com took into account a number of different factors, including audits from aviation governing bodies and lead associations, as well as government audits and the airline’s fatality record. Some 137 of the 448 airlines surveyed received the top seven-star safety ranking — a testament to the industry’s stellar safety record. Yet, there remains a stark divide between the top-tier carriers and their underperforming counterparts.

EY

Nearly 50 airlines received safety rankings of just three stars or less. Afghan Airways (Afghanistan), Daallo Airlines (UAE), Eritrean Airlines (Eritrea), Lion Air (Indonesia), Merpati Airlines (Indonesia), Susi Air (Indonesia) and Air Bagan (Myanmar) all received just two stars, while Kam Air (Afghanistan), Scat Airlines (Kazakhstan) and Blue Wing Airlines (Suriname) earned the dubious title of world’s least-safe airlines with just one star apiece.

EK

All three one-star carriers are banned from flying within the EU. While the U.S. doesn’t blacklist individual airlines, it does issue a public list of nations that it judges to fall short of international aviation safety standards. That list includes Indonesia, Serbia and the Philippines, among others.

Source: , http://www.ibtimes.com/worlds-safest-airlines-2013-found-asia-pacific-middle-east-1534348

Budget Airlines Crowd Asia


Image

 

Asia’s skies are about to become more crowded. At least 10 new budget carriers are expected in the region by the end of next year, expanding fare choices for consumers but squeezing airline profit margins even more.

The growth in new routes is shifting east to highly congested and expensive centers such as Taiwan and Hong Kong, though Southeast Asia remains a lucrative market as more people turn to budget travel.

On Monday, Taiwan’s China Airlines Ltd. said it would team up with Singapore’s Tiger Airways Holdings Ltd. to launch Taiwan’s first budget carrier, hoping to link neighboring tourist and business hot spots when it starts service in the fourth quarter of 2014.

TransAsia Airways Corp. in Taiwan is also planning its own low-cost airline, while two other budget operations are being launched in neighboring Hong Kong, a first for the Chinese city.

“Taiwan is in an ideal location for low-cost carriers because the flight time to most destinations in Southeast and Northeast Asia is within four hours,” said Huang-Hsiang Sun, chairman at China Airlines. The carrier will own 90% of Tigerair Taiwan, with the rest to be held by Tiger.

Taiwan has been slow to embrace budget-airline travel because of a small domestic market, while earlier restrictions on air rights made it difficult for airlines to develop regional and international services.

The popularity of budget flights has forced many national carriers to slash fares to better compete against low-cost carriers.

By contrast, many Southeast Asian airports have the capacity to handle much more budget-related traffic. At Kuala Lumpur’s airport – home to AirAsia Bhd. – budget-airline flights often exceed those of full-service airlines.

Image

In Thailand, four new low-cost airlines are being launched, fueling more rivalry between the region’s two biggest no-frills operators, Lion Air and AirAsia.

The Thai unit of Indonesian discount carrier Lion Air started operations last week, taking on the local operations of AirAsia. Scoot, the low-cost long-haul unit of Singapore Airlines Ltd., said Monday it will start a Bangkok-based carrier with local budget airline Nok Air, to be called NokScoot.

In the Philippines, operating regional budget carriers include Cebu Pacific Air, PAL Express, AirAsia Zest, and Tigerair Philippines.

In Southeast Asia, where bustling economies and thrifty passengers have kept budget airlines profitable, low-cost carriers account for more than 52% of air capacity, according to consultancy CAPA-Center for Aviation.

That is more than double their share for all of the Asian-Pacific region. Fares between routes such as Singapore to Kuala Lumpur in Malaysia go for as low as US$20 on budget airlines, making the rates comparable with those of road-based transportation.

Faced with increased competition at home, established budget-airline brands in Southeast Asia have expanded into more costly locations in East Asia such as Japan, while South Korean airlines have started their own budget ventures.

But analysts and industry executives say that market still remains largely unproven, given the challenges of achieving scale alongside high airport fees and traffic bottlenecks. An executive at low-cost carrier Jetstar Japan Co. said earlier that ground-handling fees at the nation’s airports are “several times higher” than those in Singapore, adding to the airline’s cost burdens.

“Profit margins are very thin in East Asia because of high operating costs. Unless there’s strong government support, it will be very difficult for budget airlines here to achieve high utilization rates and turnaround times for their planes in order to turn profitable,” said Kelvin Lau, an airline analyst at Daiwa Securities. Adding to the constraints are the limited takeoff and landing slots at airports such as Hong Kong during daytime and evening peak hours.

But there is significant room for growth. In Hong Kong and Taiwan, budget airlines account for only 5% of available seat capacity, according to some market estimates, compared with about 30% to 35% in Singapore.

Budget carrier Hong Kong Express Airways Ltd. sold more than 200,000 seats in just two-and-a-half months since its launch, after the former full-service airline converted into the city’s first short-haul budget airline.

 

Source: The Wall Street Journal

Asia-Pacific LCCs Prep For Bigger MRO Needs


Source:  Elyse Moody, Aviation Week & Space Technology

Image

Skyrocketing numbers of narrowbody aircraft orders have turned attention to Southeast Asia—and its burgeoning low-cost carriers (LCC), in particular. Twenty-seven percent of the world’s narrowbody aircraft—half the global fleet—are operated in the Asia-Pacific region, estimated Lufthansa Technik Philippines in the first quarter of fiscal 2013. More than 37% of the total commercial fleet will soon be based there, many of them in service with low-cost carriers (LCC), it also projects.

Such statistics and the aircraft orders supporting them have brought these LCCs prominence on the global stage. The Wall Street Journal noted in late August that Indonesia’s Lion Air was “little known internationally until it surprised the industry last year with record-setting orders.” The airline signed commitments for 230 Boeing 737s in February 2012 and for 234 Airbus A320s in March 2013. But Lion Air is hardly the only carrier in the region making notable additions: AirAsia, the world’s largest operator of A320s, ordered 100 more in December 2012, on top of the 200 it secured in 2011. And Jetstar Airways, part of the Qantas Group, will have access to its parent company’s order for 110 A320s, including 78 A320neos, in addition to the 14 Boeing 787s it expects to receive soon.

Beyond these carriers, Cebu Pacific Air has more than 50 A320-family aircraft on order and TigerAir has signed for 20 A320s.

This run on the order books reflects projected growth in air travel. The Asia-Pacific region stands to see that demand grow 6.4% annually through 2031, according to Bloomberg News projections. Lion Air CEO Rusdi Kirana says in Indonesia specifically he expects a 20% growth in traffic this year.

Those increases in demand and aircraft numbers mean airlines and independent MRO providers alike must figure out how to absorb them. Where will all those aircraft go? As deliveries roll out, maintenance organizations must propose attractive solutions.

As a Singapore Airlines Engineering Co. (Siaec) spokesperson puts it, “The positive outlook for air-traffic demand, especially in the Asia-Pacific region, where the LCC market will continue to grow and fuel the traffic growth, and its buoyant fleet-renewal market, has the attention of most MROs in the region.” In other words, a big new fleet is ripe for the capturing.

Image

In the past, total outsourcing was the default mode of doing business for Asia-Pacific’s LCCs, especially smaller airlines, but some say that model is being replaced.

“The market has shifted,” says Brian Hogan, a principal with XSQ Consulting who worked at Philippines-based Cebu Pacific when it established its first joint venture, Aviation Partnership (Philippines) Corp. for line maintenance, with Siaec. “All these organizations should do their own line maintenance themselves and then make a decision on the C checks or the heavy checks, depending on their critical mass, or whether or not they can make an MRO profitable.”

Sticking to the essential core-business approach, some carriers continue to send all of their maintenance to third-party providers. TigerAir, for example, outsources both its line and base maintenance, says Chief Operating Officer Ho Yuen Sang—and he does not anticipate adding in-house capabilities. “Our MRO provider has the capability and capacity to undertake the additional maintenance work for the growing fleet.”

But Ho notes that the increased numbers of aircraft operated by TigerAir and its peers certainly will have an impact on the region’s MROs. “[The] higher volume of work could translate to higher productivity and lower unit cost of maintenance,” he says. This would benefit airlines like his that depend on the total-outsourcing strategy.

Cebu Pacific continues the joint-venture approach that Hogan helped establish. The airline added a second joint venture with Siaec, a base maintenance facility at Clark International Airport in the Philippines, although Cebu Pacific also has partnered with Vaeco in Vietnam for its ATR aircraft; with Haeco in Hong Kong for its A330s; and with General Electric, Rolls-Royce and SR Technics for engine maintenance.

The joint-venture arrangement continues to make sense for the airline, says Chief Executive Adviser Gary Kingshott, because “the scale of Cebu Pacific’s maintenance profile requires a large proportion of an MRO’s total capacity, and so a joint-venture arrangement with an accredited organization willing to invest remains a viable strategy for Cebu Pacific.”

The region’s largest LCCs, AirAsia and Jetstar Asia, tackle line maintenance in-house or through shareholding partners. AirAsia has received 127 of the 211 A320s and 264 A320neos it has on order and it has grown accustomed to adding a minimum of 24 new aircraft annually. Performing its own line maintenance is a matter of reputation as well as economy of scale.

“Wherever we go, wherever our new [air operator’s certificates]—AirAsia India or AirAsia Malaysia, Thailand, Indonesia—we have our own team carry out all of the line maintenance requirements,” says group engineering head Anaz Ahmad Tajuddin. “We would rather have that in-house. Then we have full control, because the AirAsia brand is important to us. We need to have full control of the brand, especially in line maintenance, where daily activities more or less interface with the customers.”

AirAsia sends the bulk of its base maintenance work to a neighbor, Sepang Aircraft Engineering (SAE), a company part-owned by EADS, but it also patronizes Siaec, Garuda Indonesia and Thai Airways, Tajuddin says.

More than 85% of the carrier’s A320s go to SAE for base maintenance, and SAE plans to nearly double its workforce and add new hangars, including ones for A330 maintenance, this year in hopes of drawing more business from its biggest partner.

But Tajuddin emphasizes that flexibility remains vital; he looks for agreements of only 2-3 years. “When you have long-term [contracts], you do not have the ability to go out to the market, especially in the airframe business,” in which he says maintenance unit costs may be volatile when man-hours drop.

When asked if AirAsia might consider adding capabilities beyond line maintenance via a partnership or an independent investment, Tajuddin says, “We are actively looking, because our base load with the number of aircraft sometimes justifies our having our own maintenance infrastructure.”

Given that AirAsia took delivery of its first aircraft in 2005, landing gear overhauls will soon start to come due in volume. “We have asked ourselves, ‘Should we invest in a landing gear shop?’” he says. “We do not have any firm idea yet, but we are actively looking.” He notes that he would rather pair up with an independent provider than an airline-affiliated MRO to ensure his fleet has priority.

Jetstar Airways applies a common approved maintenance program across its two main branches, in Australia and New Zealand, as well as its low-cost offshoots in Singapore, Vietnam and Japan. A new affiliate is anticipated to kick off operations soon in Hong Kong, subject to regulatory approval.

In launching Jetstar Japan, which started receiving A320s in April 2012, the group has stuck to that common maintenance philosophy. “Where appropriate, we develop amendments to satisfy local national airworthiness authority regulatory requirements,” says Chris Snook, Jetstar executive manager for group engineering. “This allows for common fleet technical management and configuration control across the fleet. It also maximizes our opportunities to apply insights gained from across the organization to improve safety, reliability and direct maintenance costs.”

But, like AirAsia, Jetstar considers line-maintenance control particularly important. Jetstar Japan performs its own line maintenance in partnership with Japan Airlines Engineering Co.; along with Mitsubishi Corp. and Century Tokyo Leasing Corp. JAL Engineering conducts A checks for Jetstar Japan at Narita International Airport.

The Hong Kong business will be a joint venture between China Eastern Airlines, Shun Tak Holdings and the Qantas Group. Snook says line maintenance for it will be conducted by its MRO partner in Hong Kong. “Heavy maintenance requirements will be combined with other group activity to leverage economies of scale,” he says.

For their part, the region’s independent MROs are making plays to accommodate the new work volume, too. The joint venture with Cebu Pacific is only one of 25 that Siaec operates in nine countries, with the aim of offering better cost efficiencies to low-cost carriers, says a Siaec spokesperson. And Lufthansa Technik Philippines recently underwent an organizational restructuring with the aim of capturing more of the Airbus base maintenance work in which it specializes.

Space Jam

Tons of new aircraft and no place to put them? MROs and airlines have been adding maintenance capacity to house new deliveries as work comes due. Perhaps the biggest news is Lion Air’s late-August announcement of its intention to build a $250 million maintenance hub on the Indonesian island of Batam, angled to rival the established MRO hotbed of Singapore. Lion Air CEO Rusdi Kirana has designs for his own airline’s Lion Technics MRO arm to handle internal needs as well as those of other carriers only a 45-min. ferry ride from Singapore’s busy Changi International Airport (see page MRO14).

The campus reportedly will consist of four hangars, each able to accommodate three narrowbody aircraft at once. Two hangars are set for completion by year-end and the remaining two will follow by next summer. The site would complement a smaller one it is building in Manado, Indonesia, as well as its existing facilities at Surabaya.

Partners Cebu Pacific and Siaec are completing a long-planned second hangar at their maintenance campus at the former Clark AFB in the Philippines, which will be able to house aircraft as large as the Boeing 777. And while maintenance activity in Australia tends to be cost-prohibitive, Jetstar is leasing a widebody hangar at Melbourne Airport to undertake Boeing 787 and A320/A321 line maintenance, including A checks and triage, Snook says. About 35 technical and support staff initially will be employed there, he adds.

But new investments seem likely. “It’s not going to be easy for the market to absorb a thousand planes in the next 10 years,” says XSQ Consulting’s Hogan. He points to the possibility of new hangars being built by either independent investors or joint ventures in underdeveloped regions such as Malaysia, the Philippines and Indonesia—or even Myanmar, Bangladesh and Vietnam. He notes that this growth will be extended once China opens up further.

Snook concurs that these countries are “all establishing credible MRO options.”

As Hogan puts it, “it’s a huge problem, but it’s a huge opportunity.”

Airlines Change Terminals at Changi


Source: Travel Media Daily

Image

Four airlines will move their operations to new terminals at Singapore’s Changi airport over the next month.

Changi Airport Group (CAG) revealed on Friday that Asiana Airlines, Lion Air, Philippine Airlines (PAL) and PAL Express will all be shifted to different terminals, in an effort to “optimize capacity utilization across its three terminals”.

On 30 September 2013, South Korea’s Asiana will move from Terminal 2 to Terminal 3, then on 18 October Indonesia’s Lion Air will also shift to T3, from its current base at Terminal 1. And on 28 October, Philippines-based sister carriers PAL and PAL Express will both move their Singapore operations from T2 to T1.

The relocation exercise will include the reassignment of check-in rows within the terminals, while CAG said it will provide signage to allow passengers to navigate their way around the new terminals, with additional staff also being deployed to provide information and directions.
Following these four moves, CAG said it will also undertake “periodic reassignment of terminal facilities” in future, in an effort to optimize resources and facilities, especially during peak seasons.

“We review Changi airport’s terminal utilization regularly as it is important to ensure that our infrastructure is best used to support the development plans of airlines and to ensure smooth airport operations for our passengers,” said Yeo Kia Thye, CAG’s senior vice president for airport operations.

“We are deeply appreciative of the cooperation that our airline partners have accorded to us for this relocation exercise. CAG will work closely with each of them to ensure a seamless transition and minimal inconvenience to passengers,” he added.

Changi handles more than 52 million passenger movements a year, making it the sixth busiest airport in the world in terms of international passenger traffic. The new Terminal 4 project and the expansion of T1 will raise terminal capacity to 85m passengers per year by 2018.