2008-2009 DATA CONSULT. All rights reserved.

April 2008

Current Issues

Tariff war
Competition in aviation industry serving scheduled flights in  Indonesia is sharper  with  airlines under cutting each other in tariff. Airlines offer lower ticket prices including for busy routes such as Jakarta-Medan and Jakarta-Surabaya.

The competition is sharper with the growing number of airlines serving regular flights, now totaling 21 companies. The government has set only the ceiling price for  tickets, therefore, airlines are free to cut their ticket prices.

Although the policy is intended to be in favor consumers, it has contributed  to sharpening competition causing potential damage.

The airline may sacrifice quality for having to cut the price. Efficiency in operating cost will likely lead to cutting maintenance cost.
Aircraft growing, aviation training facility limited in number
Brisker flights and growing number of aircraft are not coupled with a proportional increase in the number of skilled fliers and technicians becasue of the limited availability of aviation training centers.
The operation of hundreds of new aircraft being ordered by a number of major airlines  will  needs more skilled pilots, copilots and technicians.

The only aviation college in the country is Sekolah Tinggi Penerbang Indonesia (STPI)  in Curug. The college could turn out only 180-200 pilots a year as against requirement of 400 fliers. The number of technicians graduating from the school is also very lmited.

The government and airlines should address the fact that the country needs more skilled or trained pilots and flight engineers to match the fast growing number of airlines and aircraft  operating in the country.

Players in  aviation industry serving regular flights in Indonesia

Airlines serving regular flights in the country include domestic, pioneer and foreign airlines. Those serving domestic flights dominate the industry.

The past seven years saw a fast growth of aviation  industry  in the country - from only 10 airlines toward the end of 1990 to nearly 30 in 2005. However, in  2008, the number declined sharply after the government revoked the license of some of the airlines  for a number of reasons  mostly as they were not ready with aircraft and skilled personnel and other facilities. Based on data at the transport ministry, the number of airlines serving scheduled flights totaled only 16 in April 2008. They include Garuda Indonesia, Merpati Nusantara Airlines, Indonesia Air Asia, Lion Air, Mandala Air, Wings Air, Batavia Air,  etc.

A number of airlines have failed to continue operation as a result  of tight competition. Some did not even started operation although they have held the license.

From 2006 to the end of 2007, the government has revoked the license of a number of airlines for failing to resume operation or start operation after a given time. Among them are Bouraq Airlines the license of which was revoked in February 2007, Bali International Air Service revoked in December 2007, Star Air in may  2007, Bayu Indonesia Air, etc.

Case of Adam Air

Adam Air, the country's third largest airline in term of air fleet, recorded a fast growth before it was facing internal problem that led to revocation of its operating license. In a relatively short time the airline, adopting the low cost carrier concept,  succeeded in expanding flights serving 21 domestic routes and 2 international routes.

The budget airline had high flight frequency -- 490 domestic flights and 42 international flights per week - placing it the third largest in number of air passengers  after Lion Air and Garuda Indonesia.

The airline, however, had apparently expanded rapidly at the expense of management of security aspect. The airline had neglected security aspect as it was found out later it faield to observe the need of regular maintenance up to standards. Its pilots  lacked the discipline in following  the standard procedure of operation of its aircraft which were dominated by Boeing 737-400s. Negligence had been blamed for the frequent accidents befalling its aircraft. The worst accident was when one of its Boeing 737-400 aircraft lost when enroute to North Sulawesi from Surabaya on Janury 1, 2007 with all 104 people on board. The aircraft was found later to have plunged into the sea  off  Majene, West Sulawesi  without survivor.

On January 7, 2007, 16 Adam Air pilots tendered resignation  saying  the aircarft  of the airline had poor security and navigation systems. Evidence of what they said  was given in the form of a number of accidents later.

In April 2007, Global Air Transport, a subsidiary of PT. Bhakti Investama acquired 50% of the shares of Adam Air from the Sandra Ang and Adam Suherman families. However, in less than a year later on March 14, 2008, Bhakti Investama said it decided to quit  as a shareholder saying the management of the airline dominated by the Suherman family failed to take step to improve flight security system and lacked transparency  in the management. The dispute led to grounding of all Adam Air aircraft  on March 17.

On  March 18, 2008,  the operation license or  Operation Specification  of Adam Air was revoked by the Transport Ministry under a letter no. AU/1724/DSKU/0862/2008.

Its AOC (Aircraft Operator Certificate) or route license was also finally revoked later  and the ministry offered other airlines to serve the routes.

Number of aircraft in operation

There are 297 units of aircraft owned by airlines registered at the Air Transport Directorate  by December, 2007, but only 221 units were in operation as some of the aircraft were undergoing maintenance and could not operate for certain reasons.

The nation's flag carrier Garuda Indonesia is still the largest airline in the country  in term of number of aircraft in operation. It has modern maintenance and training  facilities.
Garuda has started phasing out old aircraft and tends to use fewer brands mainly Boeing and Airbus. It has 50 aircraft in operation and 47 units of them are Boeing 737-400, which will be replaced with Boeing 787 Dreamliners to serve long range flights.

Merpati Nusantara Airlines, which once dominated domestic flights was almost bankrupt early 2000s as it was not ready to face tight competition especially  from low cost carriers (LCC), a condition it had never faced before.
Currently Merpati still uses various types of aircraft to suit its routes including pioneer routes. Among the types of aircraft it uses are B 737-200, Casa 212  and  DHC6. It has placed order  for Boeing B737-300 and B 737-400 to resume flights in routes once it abadoned.

Lion Air is the largest private airline and the first to adopt  the  LCC concept in the country. The airline grew fast and it is the second largest airline after Garuda in the country.

Lion Air operates 30 units of aircraft including a number of brand new aircraft of B 737-900ER. It has placed order  for 178 units of Boeing 737-900ER part of which have been delivered and in operation in the country. See the following table...........

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