Global Business Guide Indonesia

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Services | Indonesia’s Commercial Airline Industry

Long known for poor standards of safety and frequent accidents; Indonesia’s Commercial Airline Industry has turned over a new leaf. Airlines such as national carrier Garuda have been removed from the European aviation blacklist resuming international flights. Stricter measures from the Ministry of Transport have also consolidated the market renewing confidence in the industry among consumers. This comes at the ideal time as incomes increase and the numbers of domestic passengers are growing, giving rise to an expansion of the sector.

Indonesia is now the world’s 12th largest aviation market with plenty of scope for future growth. Domestic passenger numbers increased by 22.77% from 2009 to 2010 with figures for Q1 2011 showing a 17.96% increase for the same time last year (Statistics Indonesia). Domestic routes are dominated by PT Lion Mentari Air with just under 40% of market share followed by Garuda Indonesia and Sriwijaya Air. International flights are mainly undertaken by the Indonesian arm of Malaysia based airline Air Asia that holds over 40% of the market. The main international routes are to Singapore and Malaysia while destinations in China are becoming more popular with more routes to the country being planned by all major airlines.

In spite of the growing passenger numbers, the airline industry is facing difficulties in boosting profits due to high fuel costs. The first half of 2011 saw oil price spikes with the volatility in the Middle East with a knock on effect for jet fuel. In the past, in order to combat price rises airlines had applied a fuel surcharge however a continuation of levies even after the price had dropped led to an investigation and the payout of millions of dollars in compensation. The resulting legislation, Transport Ministry Regulation No. 26/2010 stipulates that fuel surcharges may only be imposed in the event of operational costs increase by 20% for three successive months. Airlines are thus facing a difficult climate in which to undertake their expansion. Charging higher prices for tickets are therefore an inevitable consequence, yet it seems unlikely to dent passenger numbers due to lack of alternative transport methods for long distance journeys.

Domestic and International Airline Passengers

Domestic and International Airline Passengers

Source: Statistics Indonesia

In preparation for increased air passenger numbers, the country’s airports are undergoing a much needed renovation while further airports are being added to the network. The Ministry of Transport aims to build 14 new airports by 2030. A fund from the 2011 budget has been set up for the construction and renovation of 118 airports throughout the country. Projects are currently underway; Soekarno Hatta Airport in Jakarta has recently expanded capacity with a new third terminal and two further terminals planned by 2020. The construction of an additional airport in the capital city is also being considered in order to accommodate future volume of travellers. In addition, the main airport in Bali, Ngurah Rai, is being renovated in a $182 million USD revamp while a further airport is planned in the North of the island. New airports are also expected in Lombok, Medan and Yogyakarta while 14 new airstrips for smaller aircraft are planned for islands including Papua and Kalimantan. Private and international investors are being actively invited by the Ministry of Transport to participate in both new airport and the management of those that will be newly renovated. Since 2010, 7 airports have been offered under the PPP scheme with more expected in the near future (see Public Private Partnerships).

The ASEAN Open Skies Policy is due to come into effect by 2015 following the agreement of member states in December 2008. The ambitious plan would see the removal of regional flying restrictions for member countries and liberalisation of the aviation sector for both cargo and passenger transport. It would allow unlimited flights between ASEAN countries, making the sector more competitive and bringing down ticket prices for passengers. While Indonesia had signed on to the policy, it is facing challenges in being able to fully comply by 2015. Rather, only 5 main airports will be subject to the policy in key cities such as Jakarta and Bali with a gradual phasing in of the policy over time. The scheme has mixed perceptions among the industry with many local players in Indonesia and other countries such as the Philippines being afraid that they will be crowded out by more established counterparts such as Singapore Airlines just as the domestic industry is beginning to take off. Yet, in the long term the policy will bring about benefits for both consumers and airlines themselves as they get to tap into further markets.

Indonesia’s airline industry is ideally positioned to play a central role in passenger transportation throughout the country and the region as economic activity in regions outside Java intensifies. Based on current growth, domestic and international passenger numbers are poised to reach 75 million by 2020 (Centre for Aviation and Statistics Indonesia). This prospect makes increasing the capacity of current infrastructure all the more urgent and will likely see the government making more concessions to involve the private sector and foreign investors. Such moves must however be taken without delay to avoid under capacity impacting negatively on industries such as tourism at a key time in the lead up the ASEAN one market in 2015.

Global Business Guide Indonesia - 2012

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Indonesia Services Snapshot - Transportation

Contribution to GDP: 4.19% (Q3 2015)
Existing Road Network: Paved 287,926 km, Total 508,000 km (2013)
Existing Toll Road Network: 840 km March 2016)
Active Railway Network: 4,814km (2016)
Number of Airports: 237; 35 with runway length >2,000 metres (2015)
Active Commercial Sea Ports: 121 (2016)
Main Government Bodies: Ministry of Transportation, BAPPENAS, Ministry of Public Works and Housing, Indonesia Toll Road Authority (BPJT).