Sriwijaya Air goes the distance

More small operators are eyeing the market where the big boys fly, going the longer distance and upgrading their service. I have in an earlier post said 2011 will not be the year of the budget carrier but that of the regional premium airline (see “Regionalization is the new strategy in 2012”, Dec 27, 2011). It looks like the trend is gathering momentum.

Following Lion Air’s announcement of plans to expand its services in that direction, another Indonesian carrier – Sriwijaya Air – will be expanding its network, launching services to Guangzhou and Xiamen in China and Perth and Darwin in Australia. Sriwijaya Air expects to receive five new Boeing 737-800 aircraft this year out of an order of 10, and has also ordered 20 Embraer E-190s scheduled for delivery after 2013.

Sriwijaya Air aims to become a full-service airline within the next three years, with plans to introduce business class seats and airport lounges.

However, the airline’s corporate planning and business development director Jefferson Jauwena recognized that the competition would be “tough”. In an interview with FlightGlobal Pro, he said: “We will spend 90% of the time serving domestic routes first where we know there is demand. We believe taking on the big boys on international routes will be tough, so the aim is to strengthen our position as a domestic player and then use this to support our international expansion.”

There are several reasons to expect the upward shift of the market.
The low-end market is becoming increasingly crowded with new players that include legacy airlines that feel threatened by narrowing gap between budget and premium. In a way, it is a counter-competition, further breaking down the market barriers.

Budget and low-cost carriers cannot resist the temptation to grow beyond the constraints of their current business model. Many of them are attracted by the higher yield of the business class. This can cut two ways, depending on whether they are adequately equipped and resourced to take on the new competition. Expanding beyond one’s means is a dangerous game to play.

The huge potential of the Asian market continues to be underrated, with many domestic destinations being underserved. And as the global economy recovers, so will opportunities abound for increased and upgraded travel. For Southeast Asian carriers, it is time to prepare for the Asean Open Skies targeted for implementation in 2015.
Can an airline like Sriwijaya Air take on the incumbents in the wider market?

Mr Jauwena said the airline would price its tickets lower than the country’s flag carrier Garuda but higher than those of low-cost carriers – a strategy that would add new headaches to legacy airlines if the global economy does not recover soon enough, such that it can only help the wannabes to pace themselves to meet the ultimate challenge.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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