ANALYSIS: Indonesian airlines fly high

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Published: February 20, 2012

Confirmation of Indonesia’s position as the fastest-growing air transport market in Southeast Asia came at February’s Singapore air show, where the nation’s airlines dominated the news. Garuda Indonesia, the flag carrier, confirmed the expected deal for up to 36 Bombardier CRJ1000 regional jets.

Its fierce rival Lion Air confirmed its order for the Boeing 737 Max 9 and additional ATR 72-600 turboprops. Finally, Pacific Royale, a full-service start-up, said it would begin operations in March with two Airbus A320s and two Fokker 50s.

It will join Lion Air’s subsidiary Space Jet, which will offer full-service operations from 2013, and Sriwijaya which is retrofitting its aircraft to include business class seats in the full-service market. In the low-fare segment, Mandala Air will soon resume operations after Tiger Airways’ plan to take a stake in the airline went through. Indonesia AirAsia continues to grow as it eyes an IPO this year, while Merpati is looking to rejuvenate its fleet. All of them are eyeing a share of the growing pie. IATA has forecast international passenger numbers to Indonesia could grow by 9.3% a year from 2010 to 2014, when it is expected to reach 22.7 million. Domestic numbers are expected to grow by 8.7% annually to 38.9 million passengers by 2014.

This is on the back of an expected annual GDP growth of 6.5% until 2015, in a country that is also a large archipelago with 33 provinces and almost 240 million people. The geography lends itself to a market that requires several international and domestic air hubs, and numerous services to the tier one and two cities where there are no direct connections.

There is an urgent need to improve the infrastructure, especially at the capital Jakarta, where the main Soekarno-Hatta airport handled43.7 million passengers in 2010 despite having capacity for only 38 million. That has not stopped the airlines.

Garuda has announced plans to more than double its fleet to as many as 194 aircraft by 2015. These include 18 CRJ1000s, of which six will be purchased directly from Bombardier and 12 procured from leasing company Nordic Aviation. It also has options for another 18 of the type. The aircraft, which will be in a two-class configuration, will be based in tier two Indonesian cities such as Makassar, Medan and Balikpapan and used on both international and domestic routes. The flag carrier is using subsidiary Citilink to take on Lion Air in the low-cost segment. It signed a contract with RBS Aviation Capital for the lease of four new A320s for Citilink, and has a backlog of 25 A320s due for delivery between 2014 and 2018.

“With this expanded fleet, Citilink will become a major airline in Indonesia. Garuda will then focus on full service customers, while Citilink will focus on budget travellers,” says Garuda chief executive Emirsyah Satar.

Lion Air, however, continues to grow. It signed a firm order for 201 737 Max aircraft at the show for delivery from 2017, becoming the launch customer for the -9 variant. It also ordered an additional 29 737-900ERs in a combined deal for 230 aircraft worth $ 22.4 billion.

Purchase rights have also been secured for an additional 150 aircraft. It also inked an order for 27 ATR 72-600s, in a deal worth $ 610 million, for regional subsidiary Wings Air.

This order will make it the largest ATR operator worldwide, with a fleet of 60 turboprops when all the aircraft are delivered by 2015. Wings Air will use them to develop new routes departing mainly from Sumatra, Kalimantan, Sulawesi and the Papua islands.

Lion Air, however, is also keeping one eye on Garuda’s full service market segment with its Space Jet plan. These will initially begin with 737-900ERs it has on order in 2013, on both domestic and regional routes, and later include either Airbus A330s or Boeing 787s.

“Right now, if I want to go to Tokyo [I will] have to go from Singapore or Jakarta. This will take the same time as from Manado, and the government is also keen to make this city the gateway to Asia-Pacific,” says chief executive Rusdi Kirana.

Rusdi dismisses concerns about overcapacity in Indonesia because of the fleet expansion plans of Garuda Indonesia and Lion Air. He believes the Indonesian market has room to operate up to 1,000 aircraft.

“If you look at how many people there are in America, Malaysia, Singapore and Indonesia and compare the ASK, we have 230 million people but our ASK is much, much lower than Singapore’s,” says Rusdi. “We have the chance to grow, and we will continue to do so.”

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