ANALYSIS: Indonesia-Malaysia routes yet to bust hubs

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While traffic between Indonesia and Malaysia has been growing at a strong clip for years, the market remains concentrated on the key Jakarta and Kuala Lumpur hubs.

CapStats shows that the number of seats available between the two countries has grown consistently since 2005, except for a minor fall in 2010.

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That growth has been driven largely by low-cost carriers. FlightMaps Analytics shows that AirAsia and Indonesia AirAsia combined provide close to 60% of the seats between the two countries. Lion Air, although in fourth place behind Malaysia Airlines, has a larger share of seats than flag-carrier Garuda Indonesia. AirAsia and Indonesia AirAsia are the dominate players between the two countries with nearly 60% of capacity between them.

All Routes: Indonesia-Malaysia

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FlightMaps Analytics

While low-cost carriers have opened up some new city-pairs, such as Johor Bahru-Batam and Kota Kinabalu-Denpasar, the overall market continues to focus on linking the major hubs at Jakarta and Kuala Lumpur. FlightMaps shows that nearly one-third of the seat capacity is devoted to the Jakarta-Kuala Lumpur route, followed by Denpasar-Kuala Lumpur, Medan-Penang and Medan-Kuala Lumpur.

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FlightMaps Analytics

As they have invested heavily in Airbus A320s and Boeing 737s, few of the major carriers appear to have an appetite for opening up thinner routes with smaller aircraft. MASWings and Firefly operate a handful of cross-border flights with ATR 72s, while Garuda operates a Medan-Penang service with Bombardier CRJ1000s.

Unlike other airports in Indonesia, Medan’s recently opened Kuala Namu airport has few capacity constraints, and plans to grow to an eventual capacity of 50 million passengers annually. Garuda and other carriers have identified it as an important hub for passengers heading across Indonesia. In the future they see it becoming a hub for passengers headed north to other Asian countries.

By comparison, Jakarta’s Soekarno-Hatta airport is facing major capacity and congestion issues that will likely restrain its growth in the short term. Local airlines, such as Tigerair Mandala, complain that constraints there inhibit the optimization of their operations, forcing them it to look at other markets away from the capital.

Further growth could come from increasing flights from Malaysia to the cities of Balikpapan and Makassar. FlightMaps shows that AirAsia is the only carrier to operate cross-border services, despite both cities acting as major hubs for domestic traffic.

Batam's Hang Nadim airport is also set to play a larger role in the future, with the Lion Group planning for it to become its second largest hub.. Its Malaysian unit Malindo Air is planning to start four-times weekly Subang-Batam flights later this year with ATR 72s, competing against Firefly.

With over 500 aircraft on order for Malindo, Lion Air and Batik Air, it appears inevitable that at least part of that capacity will be put towards the Indonesia-Malaysia market.

Those plans aside, the arrival of Association of Southeast Asian Nations (ASEAN) open skies in 2015 could end up being the greatest catalyst for the development of new routes between the two countries. Although Indonesia has been dubious about open skies in the past, there are indications that it wants to lead the process and could open up a number of its airports to receive new flights from the region. Assuming that goes ahead, even if it is later than scheduled, it will likely lead to further evolution of the market.