As annual air passenger growth is generally about 1.5 or twice the amount of a nation's annual economic growth, Indonesia's aviation industry should be in a comfortable position. The country posted economic growth of 6.2 percent in 2012. A similar result is expected to be posted in 2013, and thus air passengers in Indonesia are expected to reach 88 million by the end of the year.

    2010   2011   2012
Airline Passengers Indonesia
  58.3   66.0   72.5
 - Domestic (in million)
  51.7   58.8   63.6
 - Foreign (in million)
   6.6    7.2    8.9

Source: Ministry of Transportation

However, Indonesian aviation businesses encounter many obstacles on their corporate way. Tough competition has seriously reduced profit margins for airlines, while capital investments remain high. Tough competition, in combination with poor management, has already taken a few victims in recent years: Mandala Airlines in 2011 (a takeover by private equity firm Saratoga Capital and Tiger Airways eventually saved the company), Pacific Royale in 2012, and Batavia Air in January 2013. Decisions to invest in unprofitable routes was one of the main problems for these airlines.

Another obstacle to expand an aviation business is Indonesia's lack of quality and quantity of infrastructure. Most airports are too small to handle demand and operate at about 250 percent beyond capacity (which also results in frequent flight delays). Air traffic at runways also shows overcapacity and accomodate more flights per hour than they are designed for. This condition also implies risks for passengers' safety.

In order to improve airport infrastructure, state airport operators Angkasa Pura I and II are engaged in 25 development projects throughout the country since 2011. These projects cover both the large international airports (such as in Jakarta and Bali) and smaller ones. Many of these projects are expected to be completed at the end of this year, thus making the lives of Indonesian aviation players a bit easier.

Market Leaders in Indonesia's Aviation Industry

• Lion Air
Garuda Indonesia
• Sriwijaya Air
• Batavia Air¹      6.0  
• Merpati Nusantara Airlines      2.1

in millions of passengers
¹ ceased all activities due to bankruptcy
Source: Ministry of Transportation