Lion Air looks to accelerate international expansion, starting with Thailand

Lion Air has embarked on the first phase of an aggressive international strategy which is starting to see the fast-growing airline group diversify away from its roots in the Indonesian domestic market. The Mar-2013 launch of an affiliate in Malaysia, Malindo Air, is expected to be followed by joint ventures in other Asian markets, starting with Thailand. A low cost, but hybrid operator, Lion over time will also look to grow its now tiny international network from its home market of Indonesia.

Internationalization with a focus on Southeast Asia is the right strategy for Lion as it cannot continue to rely almost entirely on the Indonesian domestic market. Indonesia has emerged as one of the world’s largest and fastest growing emerging markets. But with nearly 600 aircraft on order Lion needs to hedge its bets and not limit its growth to Indonesia, particularly given the threat that growing infrastructure constraints could lead to slower growth over the medium to long-term.

Lion, however, faces huge challenges as it starts to dip its paw in other markets. Establishing a strong brand and distribution network outside Indonesia will be Lion’s biggest challenge. Competition in any new market Lion enters will be fierce as it will not have the first low cost mover advantage it had in Indonesia. Pan-Asian low cost airline groups like AirAsia, Jetstar and, to a lesser extent, Tiger, already occupy the high ground.

Thailand already has two strong well-established LCCs in Thai AirAsia and Thai Airways affiliate Nok Air. Both are expanding rapidly, using proceeds from initial public offerings. Both also have strong local brands and distribution networks – something Lion has in Indonesia but could struggle to replicate in Thailand.

There is also a third, much smaller LCC in Thailand in the one-off Orient Thai. The unusual carrier, operating a mixture of 747s, 767s, 737s and MD-80s, made a push in the LCC sector several years ago with One-Two-Go, which ultimately failed, suggesting the difficulty in trying to establish a third major LCC player in the Thai market.

Orient Thai closed the One-Two-Go operation in 2008 and has since continued to have an LCC operation domestically under the Orient Thai brand while operating under more of a leisure/charter carrier model on international routes. But over the last couple of years Orient Thai has steadily cut back its domestic operation, using 737s in single class configuration; the reason: intense competition.

The Orient Thai domestic network currently consists of only two routes and four daily flights. The carrier has cut domestic capacity by a further 56% over the last year and now has just a 2% share of the domestic market, according to CAPA and Innovata data.

Nok domestic capacity is up about 45% compared to Jun-2012 levels, accounting for a 26% share of Thailand’s domestic market. Thai AirAsia, which has grown capacity by 26% year over year, currently has a 27% share of seat capacity.

Read full story and analysis at: CAPA – Centre of Aviation

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