As airlines skip hubs, Malaysian carriers build new spokes in India

The last few weeks have been busy ones for Malaysian carriers and their India announcements. AirAsia X, the long haul arm of AirAsia group, launched flights to Amritsar from Kuala Lumpur. This was within days of Malaysia Airlines announcing flights to Amritsar and also expanding operations with flights to Trivandrum and Ahmedabad later this year.

For Malaysia Airlines, a return to Ahmedabad sees it go head-on with rival Singapore Airlines, one more time. The two were neck to neck in the market when Malaysia Airlines withdrew and Singapore Airlines went on to add capacity and frequency. Along with Batik Air Malaysia (erstwhile Malindo Air), the three Malaysian carriers are rapidly increasing their Indian network this winter and beyond. There largely was a duopoly between AirAsia group and Malaysian Airlines until Malindo joined them. The timing of Malindo and choice of aircraft helped dethrone AirAsia from certain markets like Mumbai – which was too expensive to sustain on the A340s for AirAsia and had no opportunity to enter due to lack of seats under Bilateral rights later.

There came a point when the AirAsia group and Lion Air group started using freedom rights under Indonesian Bilateral Air Services Agreement to add capacity between India and Malaysia with Lion Air group launching double daily services to Chennai from points in Indonesia via Kuala Lumpur, which helped it match frequency with AirAsia Bhd on the Kuala Lumpur – Chennai market. AirAsia Indonesia followed with a Denpasar – Kuala Lumpur – Mumbai flight, helping the group re enter the Kuala Lumpur – Mumbai. This led to Malaysia Airlines losing out, since it does not have an affiliate airline in Indonesia!

The demand pattern

For a long period of time, the sole Indian carrier to operate to Malaysia was Air India Express which operated from Chennai to Kuala Lumpur. Prior to this Jet Airways operated the same route before pulling out in 2012. This, too, was withdrawn and until IndiGo entered – Indian side has 0% utilization of rights, while Malaysian carriers utilized 100% of their rights besides adding flights to destinations which had open skies. 

Over 3.75 lakh passengers flew into India from Malaysia in the last quarter of 2019. This number is yet to be breached post COVID, due to lack of return of capacity between the two countries. IndiGo, has not been able to make a mark in true sense as it has not returned to its full pre-COVID strength to Kuala Lumpur – with a partial reasoning being lack of planes. 

Whom do these carriers cater to? The Malaysian carriers offer cheap fares as compared to their neighbours – Thai carriers up north and Singapore Airlines down south to fly to the region – Thailand, Malaysia, Singapore, Cambodia, Vietnam, Indonesia, Philippines and Australia. 

The network relies on large diaspora, primarily from Tamil Nadu – who travel frequently (VFR traffic – Visiting Friends and Relatives); holiday traffic who club Thailand and Malaysia or Singapore and Malaysia – largely seasonal; tourist traffic which sees visits to Vietnam, Cambodia (without Malaysia) – again largely seasonal, traffic to Indonesia (both business and leisure) and students and business traffic to Australia. 

What happened?

From two quarters before COVID to now, there started direct flight connectivity between India and Vietnam; there is an increase in capacity between non-stop flights to Australia from both North and South India; Vietnamese carriers have started offering connections to Australia, Philippines and Indonesia – which is cost competitive.

With Chinese tourists still not back in droves, India became a big source market for Vietnamese carriers. The pandemic also changed the travel mindset with preference for more non-stop flights over multiple hops.

What are the Malaysian carriers doing then?

With addition of new flights which establish new hubs (Hanoi / Ho Chi Minh) and take away passengers destined for those places, the Malaysian carriers were in for a double whammy. Add to that the lack of Chinese tourists. 

The focus thus again shifted to India and with the obvious markets already milked and seeing competition, the network thought seems to have shifted to scraping the other cities for traffic viz. Building new spokes from the hub at Kuala Lumpur. This is where the flights to Amritsar, Ahmedabad and Trivandrum come in. For a passenger in Amritsar – the flight to Australia would involve flying one-stop via Delhi or one-stop via Kuala Lumpur. Likewise, passengers from Ahmedabad would have options to fly one-stop via Delhi or Bengaluru or one-stop via Singapore and the economics favours the Malaysian carriers for a cost conscious traveller. 

With three carriers looking at the same traffic, they are also competing tooth and nail with each other. The destinations which are being added are part of the open-skies pact between India and countries from ASEAN, since the rights to capacity capped metro’s are long over and any addition to those seats looks difficult since Indian carriers have not exhausted the rights yet.

Network Thoughts

All the routes which are being launched may not be sustainable in the longer term. Over a period of time, the Chinese market will come back and airlines will be forced to choose between multiple markets. It is when the best markets continue and the weakest are left out. However, many times airlines hit gold and the route becomes a permanent feature in the airline network. 

In this case, the airlines from Malaysia are first going to undercut each other on some routes and then look at expanding. A lot depends on how demand plays out along with fuel costs. An airline can sustain new routes for a longer time in a lower cost environment as compared to the current one. 

For passengers, it is time to enjoy the new found options and choose between better price, network and service. 

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