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)