Airlines need financial help: Analyst
M. Taufiqurrahman, The Jakarta Post, Jakarta
Most airlines plying domestic routes are suffering losses and only those with strong financial support would survive the current stiff competition, an analyst says.
Chaidir Tasran, an air transportation expert at Trisakti University, said that the airfares of most airlines were far from adequate to meet their operating costs, and therefore only airlines with strong financial backing could weather the fierce competition.
He said that although most domestic airlines were suffering losses, they refused to disclose their financial woes.
"My experience in Kartika Airlines showed that the airline business generated only a small margin of profit, and that we survived only because we had sufficient capital to counter losses for two years," he told The Jakarta Post, adding that Kartika Airlines, however, had to find new owners with solid finances after it had been bailed out three times.
He said that most domestic airlines violated the exchange rate benchmark of Rp 5,000 to Rp 9,000 per U.S. dollar as set by the Indonesian National Air Carriers Association (INACA).
"Some even offer an airfare at an exchange rate less than Rp 2,000 per dollar," he said, adding that passengers could buy a Jakarta-Yogyakarta ticket for Rp 180,000.
Despite the fact that an excessive 74 airlines are registered at the Directorate General of Air Transportation of the Ministry of Transportation and only 19 of them are operating, the government plans to issue more licenses for airlines to join the air travel competition. It is estimated that there will be around 9.7 million potential air passengers this year.
To obtain an air operation certificate from the ministry, an airline company needs only to secure $30,000 as initial capital.
The leniency in the issuance of licenses enables a bulk of airline companies to start operating in the country. Among the new airlines are Airmark, Awair, Bayu Indonesia Airlines, Deraya, Indonesia Airlines, Avi Patria, Lion Airlines, Pelita Air, Rusmindo Internusa Air, Star Air, Alatief Alair International, Asia Avia Megatama, Bali International Air Services, Nusantara International Services and Satrio Mataram Airlines.
Chaidir, who has been in the airline business for more than 20 years, mentioned Lion Airlines as one that could get ahead of other airlines in the domestic market, because it has strong financial backing from its parent company, Singapore Airlines.
"With a strong financial backup, the airline can survive the competition, even with an extreme reduction of its airfares, while waiting for the collapse of the others. The survivors of the competition will prevail and there will be less competition," he said.
Another expert, Dudi Soedibyo, said that the fierce competition among airlines might mean disastrous consequences for passengers.
"With the airfares so low, I doubt if airlines can finance the maintenance of their air fleet, and this would be very dangerous for those on board the planes," he said, adding that it was doubtful that the airlines could pay insurance for their passengers.
Separately, an airline executive said that apart from strong financial backup, efficiency was the key to survive the current competition.
Nurwulan Handayani of Star Air told the Post that given the current trend among airlines to lower their airfares, there was no way for her company to not follow suit.
"But our airfare reduction is very modest, so that we can still provide a decent service for passengers. We opt to guarantee the safety of passengers," she said, adding that although Star Air offered airfares above those offered by other airlines, the company's load factor averaged at 80 percent.
Despite the low airfares offered by most airlines, there were passengers who cared for service and safety more, and it was to this segment her company chose to cater, she said.
Estimate of domestic airline passengers
2001 8.01 million 2002 9 million 2003 9.7 million 2004 10.4 million
Source: INACA