Indonesia AirAsia switches its strategy from domestic to international

Indonesia is a country prone to rumors. And the latest one concerned recently Indonesia AirAsia. Some people spoke about a possible bankruptcy of the carrier as it would still announced to withdraw from two important domestic routes, Jakarta-Medan and jakarta-Surabaya. “We are not on the brink of bankruptcy. There has been some black campaigns over blackberry messengers few days ago and we already clarified the issue through various media channels,” explains Audrey Petriny, Indonesia Air Asia Head of communication.

Indonesia AirAsia- and probably many other Indonesian air carriers- face in the country a huge problem. Despite bomming traffic with over 90 million passengers in 2009, the domestic market produces very low return on investments: yields are heavily under pression from massive competition on most domestic routes. For example, up to eight airlines can compete on Indonesia’s largest domestic routes such as Jakarta-Medan, Jakarta-Bali, Jakarta-Surabaya or Jakarta-Makassar.

Indonesia AirAsia is doing in reality pretty well: it will receive this year 4 new Airbus A320 which will replace the last of its ageing Boeing 737-300. last year, AirAsia subsidiary in Indonesia transported 3.46 million passengers with an average load factor of 75%. In 2010, the airline will approcah the 4-million mark.

During the first quarter of 2010, IAA revenues are up by 37% on a year-to-year basis at US$ 574.5 million while its profit grew by 107% on a year-to-year basis. For the first time in its existence, the airline achieves an operational profit. Indonesia AirAsia recognises however that its good performance is to be put entirely on the account of its international routes, with specialy very strong performances on Singapore and Australia’s routes where average yields remain high.

Consequently, Indonesia AirAsia is cutting back its presence on domestic routes. It started already over a year ago when the airline terminated flights from Jakarta to Batam and Padang. Thsi is now the turn to Jakarta-Medan and Jakarta-Surabaya.

At the same time however, Indonesia AirAsia has been keen to shift some of its capacities on intra-provincial routes. Surprisingly, despite its huge potential for traffic, most of Indonesian large cities are intra-connected only via Jakarta. IAA pioneered last year a new route between Medan and Bandung and this year between Medan and Surabaya. Both cities probably offer the best potential for development.

In the coming months, thanks to freed capacities coming from the termination of its two domestic routes, Medan will gain new flights to Hong Kong and/or Macau, to Kuala Lumpur and to Singapore. From Surabaya, new flights will serve Bangkok, Kuala Lumpur and Singapore. Medan and Surabaya are huge metropolis of respectively 2.5 and 2.5 million inhabitants and powerful economic centers. In both cities, some 15% of the population is Chinese with high purchasing power. Indonesia AirAsia’s move looks then quite logical…