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 Jakarta Post - Magazine - - Contents - THE JAKARTA POST/JAKARTA

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

(for­eign).

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.

JP/R. Berto Wed­hatama

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.

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