Lion Air faces tough challenges

BANGKOK The first signs that low-cost airlines are overstretching resources in Thailand’s already crowded skies have been identified in the latest Centre for Asia Pacific Aviation’s analysis.

It forecasts Thai Lion Air will put the brakes on expansion in Thailand claiming the market is overcrowded and passenger demand is below earlier optimistic forecasts.

The entire Thai tourism market, including international inbound and domestic traffic, is grossly overstated in official data on trips and travel spend.

CAPA said Thai Lion Air was an outlet for aircraft initially intended for Indonesia, but now Lion Group instead has decided to slow its expansion in Thailand, based on a slow response and pick-up in business.

Thai Lion added six aircraft in 2016 – three 737-800s and three 737-900ERs. In 2015, it added 10 aircraft, and the original fleet plan for 2016 was to add 10 aircraft again.

Thai Lion initially adjusted its 2016 fleet plan in early 2016 from 10 to seven aircraft. Ultimately it fell one aircraft short of the revised target, the centre said.

The slowdown in expansion at Thai Lion, which launched services at the end of 2013, is likely an indicator of challenging market conditions.

Thailand’s domestic market – which Thai Lion focused on in its first two years of operations – has reached saturation, CAPA added.

“Thai Lion started to focus more on international expansion in 2016, but Thailand’s international market is extremely competitive and most regional routes are already oversupplied.”

The centre said: “The outlook in Thailand for 2017 is relatively bleak, and therefore Lion Group may refrain from reaccelerating expansion at Thai Lion.”

The suggestion is that over optimistic plans are based on questionable premises that Thailand will continue to deliver strong growth. Tourism officials are forecasting a strong 2017, but their optimism is founded on a recovery of the European long-haul travel market and a boom in travel from neighbouring countries.

The outbound travel market is even more difficult to monitor although the debt burden on credit card spend is very high and the local economy is not growing at levels forecast. Generally the view is 2017 will be be a difficult year for tourism both inbound and outbound.

Lion Group significantly slowed its rate of expansion in 2016 and cancelled 21 Boeing 737 orders.

The Indonesia-based airline group took 36 aircraft in 2016 compared to 57 aircraft in 2015, as the rate of 737 deliveries was slashed in half from an average of two per month to one per month.

Almost all the growth in 2016 was at Lion Group’s two full service airlines, Indonesia’s Batik Air and Malaysia’s Malindo Air, the centre said.

Malindo expanded its fleet by a staggering 15 aircraft, for a total of 42, making it one of the fastest-growing airlines in the world. Batik expanded its fleet by eight aircraft in 2016, for a total of 41.

The rate of expansion slowed at all three of Lion Group’s low cost airlines – Lion Air, Thai Lion Air and the turboprop operator Wings Air.

The fleet at the main Lion Air brand only expanded by three aircraft, while Wings added four turboprops.

The group’s JV in Thailand added six aircraft, which was fewer aircraft than initially planned.

sourced:ttrweekly.com