Indonesian Carrier Turns International

Mandala Airlines begins its first international services next month to Singapore, Macau and Hong Kong from two Indonesian cities. It received (IATA) Operational Safety Audit (IOSA) registration in February and is seeking to develop its brand in foreign markets. Routes News reports.

Mandala Airlines will launch its international operations with three services from its Jakarta base, serving Singapore on a daily basis, Hong Kong four times a week and Macau three times a week. In addition to these, it will also begin a service from Balikpapan to Singapore. All the services will commence on June 25 and be operated with A319s.

Mandala begsn operations in 1969 under the ownership of the Army (Kostrad) and when the market was de-regulated in 2002, the carrier realised that as a legacy carrier, it could not compete with the new start-ups entering the market at that time. Investors Cardig International and Indigo Partners then acquired the airline, signaling a period of change, which included a rebranding and fleet replacement to all A319s/20s. The carrier is today considered to have a hybrid structure, somewhere between being a low-cost carrier and a boutique airline.

Mandala has a further 30 A320s on order for delivery next year and is now the fifth largest carrier in terms of all seat capacity in Indonesia. Low-cost operator Lion Airlines and flag carrier Garuda Indonesia Airways dominate the market.

The following table highlights Mandala's domestic position:

Source: Flightbase, 14-20 June, 2010.

Last year, Mandala was removed from the EU's blanket ban of Indonesian carriers.

Why Turn International?

The decision to launch international operations is in response to demand from business and leisure travellers, according to the carrier's president director, Diono Nurjadin.

Mandala will launch international services from its main base in Jakarta from which it operates over 20% of its route network. The carrier has selected routes that are trunk routes from Jakarta in terms of passenger numbers.

The Jakarta to Singapore sector has seen over 2 million O&D passengers travel between February 2009 and 2010 on a routing served by 11 carriers. However only Garuda and Indonesia AirAsia are Indonesian-based operators on this route. According to IATA BSP data (Airport IS), 32% of these passengers travelled with Singapore Airlines, which operates six daily wide-bodies on the route.

Over half a million passengers flew the Jakarta to Hong Kong sector, operated by Cathay Pacific, Garuda and China Airlines during that time period. Cathay Pacific's plans to increase services from 14 to 18 a week from September 2 indicate that the sector is experiencing high levels of demand.

There is no scheduled carrier operating the Macau sector from Jakarta, however Airport IS data shows that over 79,000 people flew the route between February 2009 and 2010. Viva Macau used to operate this route until its AOC was suspended by the Macau Civil Aviation Authority. Mandala will now capitalise on the existing demand and lack of non-stop service.

The carrier will also see an opportunity to stimulate traffic as an Indonesian-based low-cost operator, with competition from Indonesia AirAsia and Lion Airlines (the low-cost Indonesian-based operators flying international routes).

Indonesia's population of over 227 million people and its low propensity to fly gives Mandala an opportunity to establish itself as a reliable low-cost operator in Indonesia and develop a strong international brand.

Mandala will also consider competition from flag carrier Garuda Indonesia Airways to be weak, as the carrier has struggled to contain its cost structure and has a weak brand internationally. The largest low-cost operator, Lion Airlines, has not developed a large international presence with services to only Jeddah, Kuala Lumpur, Singapore and Penang.

With Indonesia AirAsia and the large Asian low-cost operators such as Jetstar and Tiger yet to significantly develop international services into Indonesia, coupled with strong outbound demand and the chance for currency diversification for Mandala, the timing is right for Mandala to go International.

Challenges Ahead for Mandala

However, it will remain to be seen if Mandala can become a strong international carrier and develop into a true low-cost operator. It could have difficulty competing with true low-cost brands in Asia, such as Tiger, Jetstar and AirAsia which have successfully developed franchises across Asia.

It should be noted, however that Jetstar and Tiger face air service agreement constraints operating into Indonesia, so Singapore to various markets in Indonesia are wide open for Mandala.

Which International Markets could be next?

The leading international markets that could be served by Mandala, following its strategy of serving trunk routes include:

With its all A319/20 fleet, Mandala won't have the correct aircraft to operate into Jeddah or Tokyo. Meanwhile Garuda has plans to expand its operations in Japan, including its DPS (Bali) hub.

The A319/A320 from Jakarta also has its limitations to South East Asia but, destinations such as Darwin, Cairns or Perth remain open for a direct service from Southern Indonesia, for example Bali.