Indonesia's Ministry of Transportation has issued a temporary moratorium on the issuance of permits for the establishment of new airlines in Indonesia. A spokesman of the Ministry said that airports will become too crowded if more applications are approved. Overcrowded airports will result in more flight delays and entails risks for safety. An increase in flight frequency of already established airlines is still permitted. The Ministry is also concerned that if more permits are issued, current rife competition between airlines will intensify.
A major complaint of air passengers in Indonesia is the continuous series of flight delays. These delays are due to overcrowded airports (as the country's infrastructure is not up-to-date) but also due to shortages of human resources. Airport operators try to convince airlines to move flights to between 22.00 and 04.00 to somewhat relieve crowded schedules during the day. However, flights at night are not a popular choice.
Three more airlines are expected to start operations this year. These are Nam Air, Malindo and Jatayu.
Future Outlook of the Indonesian Aviation Business
The aviation industry in the Asia-Pacific region has shown robust growth in recent years. This region is one of the world's fastest growing regions regarding air travel. In the next 20 years, an average annual seven percent growth of air traffic is expected. Indonesia, the current engine of economic growth in Southeast Asia and one of the largest economies in the Asia-Pacific, contains a burgeoning middle class that is increasingly using airplanes for domestic and international transport. Being the world's largest archipelago (containing thousands of islands), air travel is a logical option for fast travel across the country. Moreover, Indonesia's investment grade status makes it cheaper for domestic companies to finance expansion.
|Airline Passengers Indonesia
| - Domestic Flights (in million)
| - Foreign Flights (in million)
Source: Ministry of Transportation
Moreover, a political development will provide new opportunities in Southeast Asia's aviation sector from 2015 onwards. The establishment of the ASEAN Economic Community, which aims for the member countries to become a more cohesive political and economic unity, stipulates the liberalization of air travel between its member countries starting from 2015. As other ASEAN countries contain competitive airline companies, such as Malaysia's AirAsia and Singapore Airlines, it will be vital for Indonesian airlines to be fully prepared to meet this competition.
Matters that are frustrating efficiency of Indonesia's aviation business are shortages of human resources (for example pilots), inadequate air traffic management as well as facilitating infrastructure for air travel. The latter includes the lack of appropriate sized airports (including runways) and tollways/railway tracks to and from the airports.
Another stumbling block is that fierce competition has seriously reduced profit margins for all airlines, while capital investments remain high. In combination with poor management, this has taken a few victims in recent years: Mandala Airlines (a takeover by private equity firm Saratoga Capital and Tiger Airways eventually saved the company), Pacific Royale, and Batavia Air.