Tapping into growth in connecting flights
ASEAN RECORDED 205.57 MILLION PASSENGERS LAST YEAR, 66 MILLION OF WHICH WERE AIR TRAFFIC WITHIN THE 10 MEMBER COUNTRIES
The implementation of the Open Sky Policy among the 10-member ASEAN will significantly fuel airline business growth in the region, which has become among the fastest growing aviation markets in the world.
Arif Wibowo, the chairman of the Indonesian National Air Carriers Association (INACA) and president director of national flag carrier Garuda Indonesia, said the Open Sky Policy , which is also known as the ASEAN Single Aviation Market, would not only increase passenger and cargo traffic within the region, but also to and from other parts of the world.
He said the immediate impact would be an increase in the number of tourists from other parts of ASEAN to Indonesia. Statistics shows the number of tourist arrivals in ASEAN member countries reached a total of 105.08 million last year, 46.8 percent of which were intra-ASEAN.
In terms of international air traffic passengers, ASEAN recorded 205.57 million, 66 million of which were air traffic within the 10 members, namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
“The intra-ASEAN air traffic statistics record movements from Jakarta to Singapore, or from Bangkok to Manila. Half of those recorded is actually air traffic that is connected to Jakarta. So Jakarta is either the flight origin or the flight destination,” Arif said.
As an origin, he said had the potential to generate a higher volume of international flights, considering that it only reached an average of 10 million, compared to the 90 million domestic flights.
In INACA’s view, local carriers would get more business from the flight connections rather than from opening new routes to other parts of ASEAN. As a fight destination, Indonesian carriers can benefit from more domestic traffic.
INACA’s chairman said the local carriers would benefit from the expected increase in the number of passengers from other ASEAN members to the designated destinations, from which they can fly them to other parts of the country.
“The key is to establish connections from the entry points to all areas of Indonesia. They must all be well connected and every local airline must take part to bring passengers to these places,” Arif said.
The Open Sky Policy was launched in January last year, but its full implementation has been slow as some members, including Indonesia, the Philippines and Laos, have not yet ratified the single aviation market agreements. The policy was introduced to support the implementation of the ASEAN Single Market, which was launched at the end of last year. It will gradually liberalize the flows of goods, people and services within the region.
The most important aspect of the implementation of the Open Sky Policy is the guarantee of third, fourth and fifth freedoms of the air with a requirement to obtain permits.
Third freedom: the right to carry passengers or cargo from the home country of the carrier to a foreign country. For example: Jakarta (home) to Singapore
Fourth freedom: the right to carry passengers or cargo from a foreign country to the home country of carrier. For example: Jakarta (foreign) to Singapore (home).
Fifth freedom: the right to put down and to take, in the territory of the first country, passengers or cargo coming from or destined to another country other than the home country of the carrier. For example: Jakarta (home) to Singapore (foreign) to Kuala Lumpur (foreign).
Indonesia has opened five cities for the Open Sky Policy , namely Jakarta, Surabaya, Medan, Denpasar and Makassar, which are already connected to about 45 cities in Southeast Asia. However, the fifth freedom is only implemented in Jakarta.
As previously reported, the Transportation Ministry has said that it plans to construct new airports in 15 cities, as well as extend runways in 30 locations this year. In 2015, it started building 17 airports and extended runways at 35 airports.
The new administration’s decision to develop 10 new tourist destinations will attract higher flight numbers as well under the Open Sky Policy.
Some of the new destinations include Lake Toba in North Sumatra, Bromo in East Java, Mandalika in West Nusa Tenggara and Tanjung Lesung in Banten.
However, INACA warns that airline overcapacity may just pose downside risks to the prospects offered by the Open Sky Policy .
“There was no airline that did not order new planes to expand its fleet during the past five years,” as Arif put it. “The delivery period is now.”
Garuda, for instance, ordered 18 new aircraft last year and 17 new ones this year.
The situation has apparently made competition tighter as airlines try to make use of the new airplanes. Some companies, including Garuda, have even been forced to postpone the delivery of the aircraft to cope with the issue.
It didn’t help that airports suffered from full slots either. Jakarta, which is the busiest airport in the archipelago, is seeing higher and higher traffic. It posts 60 to 72 flights on an hourly basis.
As a consequence, it’s becoming more difficult to get takeoff and landing slots during peak time. Despite the difficulties, Arif said that they were “happy problems” as they reflected a vigorous industry.
INACA hopes that the administration can help local airlines compete on a more level playing field with their counterparts through its economic stimulus packages.
An example is the waiver of import duty for aircraft spare parts that was contained in the December package. “That helps. Hopefully more policies will come,” Arif said.
At present, there are 12 local airlines that are listed as INACA members. In addition to Garuda, the membership includes Indonesia AirAsia, Lion Air and Sriwijaya Air as well.
Harder time for local carriers
The general director of Lion Air, the country’s largest low-cost carrier, Edward Sirait, said the implementation of the Open Sky Policy would, in the long run, turn Indonesia into the jewel of the regional aviation business.
However, he said, in the first few years of its implementation, the Open Sky Policy would make it harder for locals to do business because they had to compete with more developed airlines, especially those from Singapore and Malaysia.
In this situation, the local carriers would have no choice but to consolidate their overall business activities to enable them to operate more efficiently so that at least they would be able to compete in their own home, he said recently. “We have to be able to keep our own market; that’s the challenge,” he added.
Other local carriers are concerned that the implementation of the Open Sky Policy could put them out of business because their operations are as competitive as those of major airlines in other ASEAN members.
But this is not the case for Lion Air, which operates subsidiaries in Thailand and Malaysia, as that allows it to better tap into the growing business community.
Edward said Lion Air was not so concerned about the growing competition as the group had business arms in two ASEAN countries: Malindo Air in Malaysia and Thai Lion Air in Thailand.
“Because we have a company in Malaysia, we can just connect the international flight there. For example, we can fly Indian passengers to all over Indonesia through Malaysia because there is a Malindo flight between India and Malaysia,” Edward said.
Lion Group has also been frequenting Singapore with its flights through Lion Air’s full service arm Batik Air, Edward said, although the company was still undecided about the significance of the ASEAN Open Sky to the commercial operation of the airline.
Lion Air itself currently flies about 600 times per day to connect various areas of Indonesia, according to the company’s data, aided by its 110 aircraft consisting of Boeing 737-900ER, Boeing 737-800NG, Boeing 747-400 and Airbus A330-300. It flies to 79 destinations in Indonesia.
AirAsia Group CEO Tony Fernandes said the company saw that flying to ASEAN countries was lucrative as there was an increasing number of travelers visiting them. “The Open Sky Policy also provides a lucrative opportunity for local airlines to expand beyond their borders,” Fernandes said.
Like the Lion Group, the AirAsia Group also has subsidiaries in Malaysia, Thailand, the Philippines and India, in addition to Indonesia.
Garuda plans to focus on medium-haul flights, flights of five- to six-hour durations, with its 300-seat Airbus and Boeing 777 aircraft to better tap the growing market.
Arif said the company also planned to strengthen its point-to-point flights between ASEAN countries, including Singapore.
“Garuda flies there 10 times a day currently. We will increase the use of wide-body aircraft to 60 percent of the total flights to Singapore, as well as other capacity additions to ASEAN cities. We have to take the benefit through the airline capacity and traffic,” Garuda president Arif Wibowo said.
He said that apart from the five airports listed in the ASEAN Open Sky Agreement, 23 Indonesian cities were already connected with Singapore, signaling that the practice had been done before. However, there are some cities in which the inter-ASEAN flights have lackluster demand, resulting in current flights among ASEAN countries that still focus on the five major cities.
Another opportunity also arose to expand the region’s tourism market through the ASEAN Open Sky Policy .
“For example, how can we get the Chinese market from Malaysia and Thailand to get to Indonesia?” Edward said.
The government has also pledged to focus promotional efforts on attracting Chinese tourists this year, in its bid to tap into the growing tourism market in the world’s second-largest economy to take advantage of the 130 million outbound trips expected to be made this year, which is up from the 120 million trips made last year.
It has also freed Chinese citizens from obtaining visas in advance of arrival as it strives for 12 million foreign tourist visits in 2016.
Fernandes said the Open Sky Policy would also allow more carriers to fly and bring traffic into Indonesia. However, it has so far not lived up to its potential.
“Although Indonesia has a lot to offer, the number of foreign visitors coming into the country is significantly lower compared to other ASEAN countries,” he said, saying that Thailand recorded 30 million foreign tourist arrivals last year compared to Indonesia’s almost 10 million foreign tourist arrivals in the same period.
Tony added that the government must support local carriers to enable them to compete on a level playing field with other carriers in the region. “Fuel prices are 10 to 12 percent higher compared to neighboring countries such as Malaysia and Singapore. This puts Indonesian carriers at a disadvantage,” he said.
Tony cited government regulations, such as the price floor policy on the domestic airfares and high passenger service charges (PSC), as being among the challenges faced by local players.
“PSCs should be relatively cheap. Lowcost carriers can boost the aviation industry because people can buy tickets for low prices. Basically, we don’t need luxury, we need sufficient and safe facilities,” AirAsia Indonesia Sunu Widyatmoko said on a separate occasion.
Recently, state airport operator PT Angkasa Pura II (AP II) increased its PSC by 25 to 50 percent in its seven airports, including Soekarno-Hatta International Airport, because of years of improvements to the passenger facilities.
Welcome on board: Flight attendants welcome passengers on board Batik Air’s Boeing B737-9 00 ER aircraft. The full service carrier launched services to Singapore in August last year with two daily flights from its base at Soekarno-Hatta International Airport.