Ahead and during the Idul Fitri holiday at the start of July, some 17.6 million people are estimated to have undertaken the mudik, or the traditional journey of city dwellers back to their hometowns to spend some days with the family. Earlier, the National Police Force estimated that 4.6 million of the nation's total of 17.6 million mudik travelers opted for air travel, up 7.6 percent (y/y) from air passengers during last year's mudik, supported by higher purchasing power and new fleets as well as routes offered by local airlines.

Both INACA and Indonesia's Transportation Ministry, however, see a higher growth - around 15 percent (y/y) - in air passengers during the holiday. INACA added that air passenger growth during this year's Idul Fitri reached its maximum as airlines are subject to a limited slot time (for safety and efficiency reasons). If the overall economy of Indonesia does not experience a setback then the number of total air passengers in Indonesia should reach more than 90 million in full-year 2016.

As air passenger growth in Indonesia continues steadily, INACA emphasizes that infrastructure in - and around - airports should be improved (including airports' passenger capacity). For example, Indonesia's busiest airport - Soekarno-Hatta International Airport that is located just outside of Jakarta - is now undergoing a serious upgrade (including plans for a new terminal, renovations being conducted to its existing terminals as well as the construction of a third runway). Soekarno-Hatta International Airport was originally designed to handle some 26 million passengers per year only. However, in recent years, more than 60 million air passengers passed through the airport, each year.

Read more: Third Runway Soekarno-Hatta International Airport to be Completed in 2017?

The aviation industry in the Asia-Pacific region remains one of the world's fastest growing regions in terms of air passengers. INACA says, whereas worldwide the number of air passengers is growing at a pace of nearly 7 percent (y/y), Indonesia's air passenger growth is estimated at around 15 percent.

As such, INACA has high hopes that local airlines will make profits this year. The government's decision to scrap import duties for airport components and spare parts managed to support the financial performance of local airlines. However, aviation fuel in Indonesia has remained relatively expensive compared to prices in its neighboring countries. Another matter that puts pressure on local airlines' corporate earnings is the ongoing discount war between the low-budget carriers. Therefore, airlines hope that the government will raise the minimum and maximum allowed ticket prices for air travel.

To end on a positive note, the appreciating rupiah is warmly welcomed by Indonesian airline as about 70 percent of airlines’ operational costs are US dollar-denominated and therefore serious rupiah depreciation (which we saw in 2013-2015) seriously undermines the financial performance of local airlines.

Number of Air Passengers in Indonesia 2011 - 2015:

2011 2012 2013 2014 2015
Air Passengers
(in million)
62.4 66.4 68.6 72.6 82.4

Number of Air Passengers in Indonesia January - May 2016:

Domestic Passengers
(in million)
    31.5 +18.0%
International Passengers
(in million)
     5.9  +6.2%
(in million)
    37.4 +16.0%

Source: BPS