Demand for airline seats projected to rise by 6%

Demand for airline seats projected to rise by 6%

JAKARTA (JP): Demand for air transportation services will
recover this year and grow by six percent after declining by over
10 percent last year due to increasing economic activities,
aviation analyst Benny Rungkat said over the weekend.

Benny, a former secretary general of the Indonesian National
Air Carrier Association, predicted that demand for airline seats
would rise to around 6.9 million passengers this year from 6.5
million passengers last year.

The higher demand for seats, however, would unlikely be met by
the country's scheduled airlines because they had no adequate
fleet, Benny said.

Local airlines, he said, were operating with less than half of
their total fleet capacity. They could not afford to repair the
rest of their fleet which had been grounded due to aging
equipment and technical problems.

"The only way local carries can meet the passenger demand is
to speed up their aircraft reparation program. However, they can
not do this due to financial constraints. They need the
government's help to finance the program," Benny told The Jakarta
Post.

He said the country's five airlines -- state-owned Garuda
Indonesia and Merpati Nusantara Airlines and privately-owned
Bouraq, Mandala and Dirgantara Air Service -- were currently
operating with only 85 aircraft, compared to 225 planes used in
early 1997.

"I think US$350 million will be enough to repair all the
planes," he said.

He called on the government to realize its promises to help
save the debt-ridden airline industry.

He estimated the country's airline industry's total debts to
exceed Rp 2.4 trillion (US$328 million). And without the
government's help, local airlines could falter.

The government has pledged to help the airline industry
through various measures.

The government announced in October 1998 that it would form a
team of industry representatives and officials from relevant
ministries to facilitate the establishment of a special agency to
help local airlines settle their debts and financial problems.

The government also announced in early 1999 a plan to allocate
some $345 million to the industry's debt restructuring program.

However, neither the agency nor the allocated funds have been
realized until now.

Benny predicted that local airlines' average load factor would
likely reach a healthy level of 70 percent this year provided
that they could increase the number of aircraft to meet the
passenger demand.

The airline industry had actually started to recover and
recorded a better performance last year with an average load
factor of around 60 percent, higher than the 1998 performance of
35 percent.

The local aviation industry operated at an average load factor
of around 75 percent in the pre-crisis period.

The economic crisis that hit Indonesia in mid-1997 resulted in
falling seat demands and soaring operating costs for local
airlines due to the sharp drop of the rupiah against the U.S.
dollar. All local airlines take their earnings primarily in
rupiah, while paying in U.S. dollars for most of their operating
costs.

Although the industry seems poised to recover, Benny is
concerned that government has plans to increase the prices of
aircraft fuel by about 25 percent, starting in April.

"If that's true, I think the airlines should ask the
government to raise airfares by seven percent or ten percent to
offset the soaring operational expenses," he said.

The state-owned oil and gas company Pertamina increased
aircraft fuel prices in August last year by at least 11.5 percent
for planes serving the international routes and 14.5 percent for
those serving domestic routes.

In late 1998, local airlines asked for an increase of up to 60
percent in airfares, and the government approved it. But the
airlines delayed the increase due to falling seat demands. They
said they would apply the raise as soon as the market shows signs
of recovery. (cst)