(Insights) Will there be overcapacity on Bali-Melbourne route?

From not enough supply to 3 airlines now warming up for an aggressive competition, we expect a large increase in passenger capacity on the Melbourne-Bali route this year. 

  Malindo Air plans to launch a daily Melbourne-Bali service with 162-seat two class 737-800s or 180-seat two class 737-900ERs. The flight will continue to Malindo’s base at Kuala Lumpur after the Bali pit stop. 

  With Lion Group affiliate Malindo intending to become a third competitor, the other airlines have responded by adding capacity in the current southern summer season. 

  Garuda Indonesia recently expanded this route by introducing an eighth weekly frequency served by Airbus A330-200. 

  Jetstar will also add Melbourne-Bali capacity with four additional frequencies from Feb-2018, for a total of 14 weekly flights. It will maintain the new twice-daily schedule most weeks, with a reduction to 12 weekly flights during certain off-peak weeks. 

  These new services will compensate for the decrease in passenger capacity after AirAsia X and Tigerair Australia withdraw from the service last year.With new services launched by three airlines, capacity will increase by nearly 50%, offsetting a 40% decline since capacity peaked at approximately 9,000 weekly one-way seats in mid-2016. 

  From the graph above, there are two airlines serving this route currently with Boeing 787-8 and Airbus A330-300. It includes 7 weekly frequencies, including 10 from Jetstar Airways and seven from Garuda. 

  Low-cost carrier Jetstar dominates the economy capacity while national carrier Garuda Indonesia is winning in terms of business seating supply. 

  While several major Australia international routes have been suffering from overcapacity, Melbourne-Bali had the opposite issue in 2017. Indonesia AirAsia X ended the 377 seater A330-300 service from Sydney and Melbourne to Bali due to low passenger yields. 

Low-cost airline Tigerair has also dumped its Boeing 737-800 Bali flights, saying the Indonesian Government refused to provide regulatory approval for the flights. 

  With seat capacity on this route dropped by almost 40% after two airlines withdrawal, Garuda and Jetstar have benefitted from load factor and yield increases, but the market clearly can support more capacity. Hence it is economically viable for a third competitor to enter this market. 

  Malindo is encouraged to enter the Melbourne-Bali market following the success of Perth-Bali and Brisbane-Bali routes. It is very likely for the airline to launch the Sydney-Bali later on, although Melbourne-Bali was the first priority as the group considered the route to be particularly underserved, and could benefit from a new competitor. (Sydney to Bali route is served by Garuda Indonesia, Qantas, Virgin Australia and Jetstar currently).       Although the airline is yet to set a launch date for Melbourne-Bali route, they have already secured the traffic rights for Kuala Lumpur-Bali-Melbourne from Malaysian authorities. One feature Malindo wins over the other two carriers are that passengers can connect with domestic flights from Bali operated by its Indonesian sister airlines Lion Air and Wings Air. Combined, Lion and Wings operate approximately 20 domestic routes from Bali, most of which will connect to the new Malindo flight from Melbourne. 

Although passengers can hop on Jetstar (or possibly Qantas) connecting flights to other parts of Australia, there is less incentive as most Australian main cities already have direct flights to Bali. 

  Garuda is now trying to boost connecting traffic on its Australia-Indonesia flights by retiming some flights and marketing connections better. By attracting more connecting traffic, Garuda should be able to continue adding capacity on routes such as Melbourne-Bali while making sure there is sufficient local demand to support more Melbourne-Bali capacity, dominated by outbound local traffic, driving overall Melbourne-Bali growth. 

  To conclude, there may be overcapacity problems in the Melbourne - Bali route after the third competitor joins. It is possible for Guarda Indonesia and Jetstar to switch for smaller planes (Boeing 737-800 or Airbus A320 if range and ETOPS allow). Airlines will also try to increase competitiveness by entering a price war and allowing more feasible connecting flights. 

Source: CAPA

Photo credits: https://www.instagram.com/dunialensa/, 

@aviationperth