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INDONESIAN COMMERCIAL NEWSLETTER
August 2012

LOW COST CARRIERS NEW GROWTH DRIVER  IN INDONESIA'S AIR TRANSPORT SERVICE



Introduction

Air transport service has been one of the sectors that continued to grow in the past several years in Indonesia amid the threat of the global financial crisis since 2008 besetting major economies mainly the United States and Europe. A number of  players in this business area, which have  become the main drivers of growth continued expansion, but meanwhile, there are some that have been pushed aside   out of competition.

The number of  air transport passengers in Indonesia has continued to increase in the past several years . The number of domestic passengers  grew 18.2% to 51.77 million in 2010 , up to 55.33 million in 2011.

Although many airlines have found it difficult to survive, the business area still attract new investors. New investors enter the market using more efficient aircraft  including new one that entirely new in this country such as Sukhoi Super Jet 1000 from Russia.

The airlines have also strengthened their fleet  and replaced old aircraft with new ones. Some have  used new brands like ATR, Bombardier,  and  Embraer.

Low Cost Carrier (LCC) concept has become a new driver of growth in this area. Among the new players in this area is Indonesia AirAsia , which has expanded rapidly over the past few years.

The country's aviation industry has grown fast after the introduction of the new concept of budget airline. Cheaper ticket price has pushed up demand for the air transport service.

The Indonesian aviation industry will also face a sharper competition after the implementation of the ASEAN open skies  in 2015.

The expansion of the industry has been followed with the launch of tighter regulations on technical matters, flight safety  and business to strengthen the sector.


Types of Air Transport Service

Air transport services consist of passenger  and cargo transport. Passenger  or cargo transport services each includes scheduled and non scheduled services.

Scheduled commercial air transport is served regularly  on certain schedule  and transport tariffs in certain routes  and the service is made public.  Non scheduled commercial flights are served  by airlines having no certain routes and schedule  with tariff depending on the agreement  between the provider and the users.

In 2011, the country had 12 players in scheduled passenger transport business  and  39 non scheduled passenger transport airlines. The number of scheduled passenger transport airlines declined from the previous year.

Air cargo transport  was served by 2 scheduled airlines  and  3 non scheduled airlines.


Development of Airlines

There are a number of airlines stopping operation or having their licenses cancelled, but there arte more new airlines to come on line. The airlines include serve short distance flights in Kalimantan; Sulawesi; Nusa Tenggara;  and  Papua  where air transport is not as busy as in Java or Sumatra. Generally the airlines serving short distance flights use small aircraft.

Based on data at the Transport Ministry, by 2011 , there were 12 airlines serving scheduled passenger transport service. Among the airlines having their license cancelled is Riau Air.

Some new airlines have been forced to stop operation on financial difficulty. Based on the regulation, the license of an airline to serve a route would be cancelled if  it failed to serve flights in the  route  in 30 consecutive days. Mandala Air was once of the airlines forced to stop operation on financial problem.  Its license was cancelled  in January 2011 over debt problem, but it resumed operation in 2012 after being taken over by new investors.

Big airlines like  Garuda; Merpati; Lion Air;  and  Indonesia AirAsia are relatively strong financially in facing the sharp competition.

The number of non scheduled passenger airlines is 39 much larger than that of scheduled airline. One of the reasons is the license is easier to get for non scheduled airlines.
Some owners of aircraft no having company rent out their aircraft to airline serving  non scheduled flights.

The number of cargo airlines is not as many as passenger airlines. The country has only two scheduled  and three non scheduled cargo airlines.


Fleets

The number of aircraft serving scheduled flights has continued to increase in the past several years. The number of passenger aircraft serving regular flights with a carrying capacity of  more than 30 passengers reached 582 units in 2011.

Garuda Indonesia had the biggest fleet of 87 units of aircraft  in 2011. Lion Air had 70 units in the same year, but its fleet has continued to expand.

Batavia Airlines, which recently declared bankrupt over debt, had a fleet of 54 units of aircraft in 2011,  down from 50 units in 2010.


Flight Routes 

Flight routes are classified into three categories by functions: Main routes, feeder routes  and pioneer routes .

1.    Main routes functioning to link hub airports including primary,  secondary and tertiary hub ports.
2.    Feeder routes funcitoning to support main routes providing links between the hub port  and small airports.
3.    Pioneer routes functioning to  provide links to isolated  and interior areas  to which  there is no access for other means of transport. 


Domestic Flights Growing

Domestic airlines have expanded  and opened new routes over the past several years.

Batavia Air  and Sriwijaya Air had been among the most aggressive in opening new routes. Before its was declared bankrupt and stopped operation earlier this year, Batavia Air served flights between 43 cities, up from 24 cities earlier. Sriwijaya is serving flights to 40 cities up from 25 cities earlier.

Among the new routes are to cities  in Aceh, North Sumatra, Nusa Tenggara, Lombok, South Sulawesi  and Papua.

In 2012, the government offered 130 new routes  to airlines  especially routes to isolated areas  in a number of regions.


International Routes

There were nine Indonesian airlines serving international flights in 2011. The airlines included Indonesia AirAsia, Garuda Indonesia, Lion Air, Batavia Air, Sriwijaya Air, Wings Air, Mandala Airlines, Merpati, and Kalstar Aviation.

Indonesia AirAsia has the largest number of international routes , followed by Garuda Indonesia. Most of the destinations are in Asia mostly ASEAN, Australia  and a number of cities in Middle East.


Number of Crew Members Growing

Among the crew members are Pilots, Flight Operation Officers (FOO), Flight Attendants (FA), and Aircraft Maintenance Engineer License (AMEL) holders.

By August 2012, the number of pilots was recorded at 7,824 , up  from 7,428  in 2011.


Development of Regular Air Transport  Activities

Development of regular air transport  is indicated by the distance served (Aircraft KM), flight frequency (Aircraft Departures) and number of passengers (Passengers carried).

In 2010, the number of passengers carried  by Indoensia airlines reached 51,775,656, up 18.2 percent  from the previous year. In 2011, the number  rose to 55,336,102 passengers  or an increase of 6.87 percent.

In 2010, the total distance covered by airlines declined 17.4 percent from 431,103,000  kilometers  to 356,089,000 Km, but up 9.8% to 390,926,000 Km  in 2011. 

Meanwhile, departures rose 7% from 390,554 to 417,717 times down from 484,128 times in 2007. 

The load factor (LF)  is the ratio of occupied seats  to total seats available. The LF has increased over the past five years. In 2007, the load factor averaged 73.57 %, up to 85.49 % in  2011.

In 2008, the number of passengers per km  declined  as a result of the global financial crisis, but the LF continued to increase with the decline in seats available.

After a setback as a result of the 2008 global crisis,  the airline sector began to revive in 2009. In 2009, the load factor  was 82% , up from 80.71%  in 2008. In 2010, the LF fell slightly  to 81.73% , but rose again to 85.49 percent in 2011.

The increase in LF was attributable to a decline in number of seats (Available Seat KM)  in 2010 and 2011. A number of airlines stopped operation  in those two years  including Riau Air  and  Mandala Air , which stopped operations in 2011.

Domestic cargo transport declined in 2008, but in 2009, transport of domestic cargo surged 316% to 16,454,663,000 km.  In the following two years, cargo transport fell again 29.5 percent in 2010 and 44 percent in 2011 to 11,591,519,000  km  and  6,490,691,000 km respectively.

However, the ratio of Weight L/F in  2010 rose slightly driven by weak provision of  cargo transport which fell  from 37.5 billion tons km  to 25.3 billion  tons km. In 2011 the decline in the provision of cargo transport  was still low from the  decline in the production  that the Weight L/F fell again  to 32.16 percent.

The condition showed that the global crisis began to bite , however, the industry is still strong enough to ward off the impact of the crisis. Growing demand for the service especially for passenger transport service has kept the air transport industry afloat.


Players Expanding Operation Abroad

The performance in international flights has been relatively good  as almost all components  continue to show improvements until 2011  such as in Passenger Carried, Aircraft KM, Aircraft Departure, Passenger KM, Available Seat KM, etc.

The number of international passengers carried has continued to grow. In 2011, the number of passengers carried reached 8,152,133. In 2012, the number of international passengers  reached 8.46 million  or an increase of 3.8 percent.

The distance of international flights  covered (Aircraft KM) has also continued to increase. Even in 2008, when the global crisis struck an increase was also recorded. That year the distance covered reached 67,046,000  km, up from 50,356,000 km in the previous year.

In 2010, the distance covered rose further to reach 101,682,000 km up from 80,638,000 km in 2009. In 2011, the distance was 126,876,000 km.

The number of aircraft departing  from the country has also continued to increase during that period. There were 33,763 departures  of aircraft in 2008  or an increase of 15% from 2007. The number rose further to 42,870 departures in 2009 and to 50,793  departures in 2010.

The increase in the number of departures was followed with an increase in Available Seat KM from 14,546,351,000 km in 2008, to 17,831,399,000 km in 2009 and to 31,186,691,000  km  in 2011.

The increase in the production came at a time when the LF fell slightly, indicating that that the aviation sector was set to survive amid the global crisis in  2008.

Passenger L/F in 2008 dropped to 73.66 percent from 75.41 percent in 2007. The declining trend continued to 71.44 percent  in 2009.

Despite the decline in LF, the business players  continued to increase supply in 2010 and 2011 as shown by the increase in Available Seat KM. Demand for passenger transport rose resulting an increase in LF to 72.16 percent in 2010  and to 73.42 percent  in 2011.

A decline was also recorded in Weight L/F in international flight  in 2008-2010.   Weight L/F was recorded at 58.74 percent in 2008 and 39.37 percent in 2010. The decline followed  a surge in Weight L/F  in 2007 to 62.24 percent .

In 2010 Weight L/F was less than half of the ratio recorded in 2007 Provision of cargo transport grew significantly as shown in Available Ton KM being not followed by  a proportional  increase in cargo transport  resulting in a decline in the ratio.

Until  2010, cargo transport (Freight Carried) continued to rise. In  2011 freight carried dropped 9.4 percent  from 79,549 tons to 72,060 tons.

In general good prospects have been shown in international flights encouraging airlines to expand their capacity. Expansion has been prompted on growing demand for passenger transport.

Indonesia AirAsia recorded the largest number of international passengers in 2012, putting behind Garuda Indonesia. AirAsia carried 3.19 million international passengers slightly higher than Garuda's 3.18 million passengers.

In 2012, international al flight service was given an incentive by the government with  the scrapping  of  purchasing tax on aviation fuel "avtur". The policy would boost business in airline serving international flight services.

Air Transport Passengers Up

Indonesia's aviation industry has recorded a much faster growth than land and sea transport industries  in the country  over the past several years.

In the first 10 months of 2012,  the number of air transport passengers totaled 40,485,295 including 35,522,576 domestic passengers and 5,322,719  international flight passenger. In 2011, the number of passengers totaled 68,349,439 including 60,197,306 domestic passengers and 8,152,133 international flight passengers. The passengers included passengers of subsidized pioneer flights to and from isolated areas.  In  2012, the   government  provided Rp 279.2  billion in subsidy  for 130 routes in  19 provinces.

The high demand for air transport service in a number of small cities has encouraged airlines to provide extra flights. For example, Merpati Nusantara Airlines provided extra flights  with 5,200 seats for the route of Manado-Jayapura. Demand for flights service in the route is  high during holidays every year.

The market of domestic air transport service is dominated by Lion Air as the pioneer in budget airline putting  behind Garuda, which has much longer flight hours in the country.

Based on  data  at the transport ministry,  in the first half of 2012, Lion Air had a 41.95% share of the market with passengers totaling 13.97 million . Garuda Indonesia had only 7.80 million  passengers or 23.42% share of the market  and Sriwijaya Air 3.90 million   (11.71%).  

Meanwhile, Indonesia AirAsia  leads in  international flights from and to Indonesia. This airline is a joint venture between Indonesian investors and Malaysian partner. Indonesia AirAsia leads in international flights carrying 3.39 million  or 41.58 percent of  assengers going abroad  in 2011. Garuda Indonesia  followed with passengers 3.10 million  or 38.03%,  and Lion Air 962,000 passengers  (11,90%).

Transport  Ministry Offers  130 New Domestic Routes

In addition to number of passengers , the destination of airlines also increase  by 27 routes. In 2012, the number of domestic commercial routes grew to 249 routes from 222  in 2011.

According to the transport ministry four new airlines serving scheduled flights will come on line in 2013 -- Batik Air, Nam Air, Kartika Airlines,  and  Jatayu.

The new airlines are in the process of seeking the Air Operator Certificate (AOC),  and the aviation business license. Nam Air is a subsidiary of Sriwijaya Air.  Kartika Airlines, and Jatayu are old airlines which are seeking to renew license to resume operation after their old license are no longer valid.

Batik Air of  the  Lion Air Group  and  Nam Air of  Sriwijaya Air Group will serve premium class flights.

Lion Air plans to serve premium class flights changing from low cost carrier (LCC) service.  Batik  Air is to start operation in March 2013.

Sriwijaya Air Group, through Nam Air, plans to expand its operation to the market of premium class flight , but Sriwijaya Air will maintain its middle class service.
The transport ministry plans to open 130 new flight routes starting in 2012 offering them to local private airlines.  Most of the routes are in eastern part of the country such ones based in Manado,  Ambon  and  Papua.

The opening of new routes is to provide links to isolated areas  and to facilitate tourist flights  to tourist objects in those areas.  The routes are selected  by the government, but some are on request  from the airlines .........


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