Aviation Industry: Positive Outlook for 2018 Despite Challenges
In 2017 Indonesia's Transportation Ministry allowed the opening of 83 new flight routes (commercial civil flights), consisting of 58 domestic routes and 25 international routes. There are two reasons why the government encourages the opening of new routes: (1) to make the remote areas of Indonesia less isolated, and (2) to strengthen inter & intra regional transportation.
Bayu Sutanto, Head of the Scheduled Flights Division at the Indonesian National Air Carriers Association (INACA), said there remain several big challenges in Indonesia's aviation industry despite the increase in flights, routes, and air passengers.
Firstly, the Indonesian government sets an airfare price ceiling (to protect consumers' purchasing power). Often, however, the government is slow in raising the ceiling. When operational costs have risen, for example due to rising prices of jet fuel, then airlines are plagued by limited profit (or even losses) as they cannot set higher airfare prices.
Secondly, the increase in flights puts pressure on the capacity at airports. For example, air passenger capacity, the number (and length) of runways, navigation equipment, jet fuel depots, and the hours of airport operations. When airports cannot handle the amount of flights, then there will occur inefficiencies that can even be dangerous.
Sutanto advises the Indonesian government to set up a new aviation agency with the task of monitoring the conditions at the airports around the country, including tariffs, infrastructure, connectivity, safety issues, and more.
Ikhsan Rosan, Vice President Corporate Secretary of Garuda Indonesia, agrees with Sutanto. Rosan is particularly concerned about the on-time performance of the airline. If conditions are not conducive at airports, then it can easily lead to delays. Usually, the delay of one flight causes a domino effect on other flights. In 2017 Garuda Indonesia's on time performance was recorded at 90 percent, a good performance for Indonesian standards. However, the company is eager to improve this on time performance in 2018.
Garuda Indonesia still posted a loss up Q3-2017 (USD $222 million) and therefore - to improve its corporate earnings - it aims to increase the utilization of its fleet in 2018 by flying more hours and add up to 30 new routes - both domestic and international flights - in 2018.
Bintang Hidayat, Airport Director at Indonesia's Transportation Ministry, said he expects the number of air passengers in Indonesia to grow around 30 percent (y/y) to 140 million in 2018 (from an estimated 108 million in the preceding year). But he added that it will depend on macroeconomic growth (when economic growth accelerates, then there is rising demand for air travel).
Sutanto adds that Indonesia's aviation industry typically grows 2.5 times faster than macroeconomic growth. Hence, if Indonesia's economic growth in 2018 would be 5.4 percent (the target set by the government), then the aviation industry would grow by 13.5 percent. Moreover, in times of elections, there should be an increase in air passengers. In 2018 and 2019 Indonesia will see regional, legislative and presidential elections.
Fleet Size Indonesian Airlines:
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