The Thinker: The Sky’s the Limit

By webadmin on 10:19 am Aug 01, 2012
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Yanto Soegiarto

If Tony Fernandes had to stake AirAsia’s business prospects on Malaysia or Indonesia, he would probably opt for Indonesia, due to a lucrative and growing market here that saw more than 68 million people fly during 2011. The number of air passengers is expected to grow by 18 percent this year. The figure is more than twice Malaysia’s entire population and the growth rate projection is higher than the average for airlines globally.

Even if he seals the AirAsia-Batavia Air acquisition deal, that market can still accommodate more as demand for air travel continues to increase. Flights are often fully booked, practically anywhere in Indonesia. Many Indonesians are flying to a variety of the nation’s far-flung destinations, whether it’s Palangka Raya, Kendari, Palembang or even Merauke in the archipelago’s easternmost province.

There is no reason to believe Fernandes’s acquisition of Batavia will not go through; regulations allow acquisition by foreign companies as long as a majority stake is Indonesian-owned. As long as it conforms to Indonesian laws and regulations, including the requirement to notify the Business Competition Supervisory Commission (KPPU) to prevent monopolistic practices, it’s essentially a done deal.

The Tiger Airways and Mandala deal took off and landed safely a while ago. Now Indonesians can fly to Bangkok directly with Mandala, and the airline is expanding its flight network to further interconnect places and people.

The Transportation Ministry’s air transportation director general, Herry Bhakti Gumay, said AirAsia and its Indonesian partner in the acquisition, Fersindo Nusaperkasa, had yet to report the plan to the ministry. But Fernandes and Batavia Air’s Yudiawan Tansari have said they will comply with Indonesian regulations and that the company will maintain its name and its low-cost service after the acquisition.

Tansari also said that after 10 years owning and operating Batavia Air, he chose to partner with AirAsia rather than borrow from banks.

The Indonesian archipelago, with hundreds of airports and airfields, offers opportunities to both domestic and foreign investors. With the Asean Open Sky Policy scheduled for implementation in 2015, foreign airline companies will surely come in while people traffic and the flow of goods and services across the region is enhanced, to the benefit of tourism and business.

Indonesia is ready to face the new challenges, airlines executives say. Lion Air’s Rusdi Kirana is already talking about having 1,000 aircraft to tap the huge market potential. Although it currently operates 69 aircraft, Lion Air is winning the lion’s share, netting 41.6 percent of the domestic market. This year, it will get 39 new aircraft.

Flag carrier Garuda Indonesia, meanwhile, holds second position with 22.8 percent of the domestic market. The airline aims to own 154 aircraft by 2015 and fly 35 million passengers when the Asean Open Sky Policy becomes effective.

The main question is: Will the airports be ready? If AirAsia-Batavia Air, Lion Air, Garuda, Sriwijaya, Mandala and others are expanding, will the infrastructure be ready to accommodate? The nation’s five main airports are already burdened with twice their capacity.

The problem is not just with the capacity of airports. What about hangars, maintenance facilities and human resources? Indonesia needs more pilots, air traffic controllers, ground handling staff and new airport navigation electronics. Although Boeing, the largest supplier of aircraft for Indonesian airlines, has committed to help with the airport electronics, the time for those things to happen is very limited.

Talk of AirAsia’s planned Batavia acquisition shows the growing presence of foreign airlines in the national aviation industry. But that should not incite fear for our nation’s airline sovereignty, as long as our homegrown companies are professionally managed and hold international quality and safety standards.

Yanto Soegiarto is the managing editor of Globe Asia, a sister publication of the Jakarta Globe.