ANALYSIS: Lions, Tigers and a bear market in Asia?

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Tigerair’s cancellation of an order for nine baseline Airbus A320s may be a sign that it too has doubts about Southeast Asia's ability to handle all the capacity heading into the market.

Those nine aircraft were due for delivery this year and in 2015, and their cancellation would likely have triggered significant penalties without the associated order for 50 A320neos that will be delivered from 2018 to 2025. It also underlines the juggling the carrier has to do in its elusive search for profitable skies.

With the sale of its 40% stake in Tigerair Philippines closing recently, the Singaporean carrier will take back two A319s it subleased to the unit. It is expected that those aircraft may be used to start Tigerair Taiwan later this year.

Longer term, Tigerair will also take back the three other A320s from Tigerair Philippines as they are progressively replaced by CFM International CFM56-powered A320s from new owner Cebu Pacific Air.

At the same time, a recent tender evaluation report suggests that a Qatari based lessor could be about to place three aircraft from Tigerair’s fleet with Pakistan International Airlines by the end of June. Incidentally, the same lessor has also offered to lease PIA five other A320s that are currently being flown by Tigerair Mandala, casting some doubt on the long-term plans for the Indonesian affiliate.

In any case, it appears that Tigerair will end the year with fewer aircraft than the 25 already in its fleet.

Tigerair is not alone in curbing its fleet growth plans. AirAsia has deferred 19 aircraft that were due for delivery over the next two years and will sell some other A320s this year. Jetstar Asia, with a fleet of 17 A320s, has also put its growth plans on ice, amid what major shareholder Qantas says is intense competition in Southeast Asia.

The notable exception appears to be the Lion Group. Flightglobal’s Ascend Online database shows that the Indonesian carrier and its pan-Asian affiliates are still expected to take delivery of 47 aircraft over the remainder of the year.

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The only Lion unit not scheduled for new aircraft in 2014 is Malaysian joint venture Malindo Air. After just one year in service, the Kuala Lumpur based carrier has six Boeing 737-900ERs and five ATR 72-600s. The lack of planned deliveries for the unit suggests Lion intends to bed down the capacity for Malindo, which competes aggressively with AirAsia and Malaysia Airlines, before growing further.

By contrast, the 29 Boeing 737NG deliveries that are destined for Lion Air appear to show that the Indonesian carrier has no plans to slow the trajectory of its growth. In addition, regional subsidiary Wings Air’s 10 additional ATR 72-600s will give it more ability to access the growing provincial markets.

Given the opaqueness of Lion’s financing and accounts, and the lack of any signals that it plans to cut back its fleet, it is possible that the airline could end up playing the feared role of ‘irrational competitor’, adding capacity and gaining market share by driving down fares. This could be manageable in Indonesia’s domestic market, but could greatly disrupt profitability at other regional carriers should excess Lion capacity find its way into international markets.

For the likes of Tigerair, which has struggled to make consistent operating profits, a fare war with the strong Lion Group throughout Southeast Asia, amid an already competitive market, would be fraught with danger.