Indonesia’s Aviation Industry Expected to Take Off

By webadmin on 01:44 pm Feb 18, 2012
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Zubaidah Nazeer – Straights Times Indonesia

When Lion Air chief Rusdi Kirana inked a record Boeing deal at the Singapore Airshow this week, it not only propelled the airline to international fame, but also offered a glimpse into Indonesia’s rapidly expanding air industry.

The 12-year-old airline stole the limelight when it signed a $22.4 billion order for 230 Boeing 737s, the largest such deal for the United States company.

That a budget carrier – starting with just one borrowed plane in 2000 flying between Jakarta and Pontianak – could make such a purchase reflects the strong growth of Indonesia’s aviation industry, now the world’s third-largest.

Lion Air now boasts a fleet of 67 aircraft flying to 35 cities, including Singapore and Kuala Lumpur, but its latest order promises to expand the range of destinations for travellers in the region. Singapore now has air links to 15 Indonesian cities, and the addition of more planes will mean more regular flights – at possibly lower prices.

According to official data, the number of passengers going through Jakarta’s Soekarno-Hatta airport soared from 12 million in 2001 to nearly 50 million last year – the fastest growth recorded in any Asean airport.

Analysts attribute the growth to a confluence of factors, from the liberalization of the aviation industry in the late 1990s, to the burgeoning middle-class with their growing incomes and rising confidence in Indonesia’s economy, which grew 6.5 per cent last year, its highest in 15 years.

All these have helped to drive revenues of the 50 airlines operating here skywards. Passenger numbers are projected to grow at a healthy 13 per cent this year – double the global average last year.

Said aviation analyst Shukor Yusof of Standard and Poor’s: “Geographically, Indonesia is the perfect country for aviation to thrive, with its over 17,000 islands and diverse terrain.”

Observers say budget carriers, in particular, will benefit from the expanding aviation industry, as the domestic sector makes up three quarters of passenger numbers.

Lion Air, which controls 51 per cent of the domestic market, is hoping to tap this growth. Now flying some 27 million passengers a year, it has set its sights on an ambitious target: to take 60 per cent of the market share in five years’ time. It will consider launching an initial public offering then, Kirana told reporters.

Its subsidiary, Wings Air, also sealed a $610 million deal of 27 smaller planes to fly to more small towns and offer short-range connecting flights.

Garuda, Lion Air’s nearest competitor with 24 per cent of the domestic market, is planning to double its fleet of 89 planes to 154 by 2015, said chief executive officer Emirsyah Satar. It, too, got tongues wagging after signing an order for six Bombardier jets with an option for 18 more, in a deal potentially worth US$1.32 billion.

Not to be outdone, AirAsia Indonesia, which operates out of its own terminal in Soekarno-Hatta, is also eyeing to list.

Singapore-owned Tiger Airways has also indicated its confidence in the Indonesian market, buying a 33 per cent stake in Mandala Airlines – thus ensuring that the failed local airline can fly again.

Said its CEO Chin Yau Seng: “As one of the fastest-growing economies in the Asean region, we see great growth potential in Indonesia’s aviation market.”

One possible dampener to faster growth, however, is infrastructure and safety. More airports that are efficient and wide enough to accommodate today’s extra-large aircraft are needed, said Shukor. Jakarta also has to resolve the issue of poor safety, which has resulted in a ban on all Indonesian airlines – except Garuda – landing in Europe.

The government has put aside Rp 6 trillion ($666 million) to expand and build airports to cope with the burgeoning demand, with plans being made to build as many as 20 airports over the next 15 years.

“There is clearly room for growth,” said the secretary-general of the Indonesia National Air Carriers Association, Tengku Burhanuddin.