Going international

Going international

The Indonesian government's green light to all domestic
scheduled airlines to operate international services as of 1998
should greatly spur the tourist industry, increase capacity
utilization at major airports and better prepare the country for
the ASEAN free trade area.

The liberalization of international services, which is the
natural consequence of the partial deregulation of the domestic
airline industry in the late 1980s, is needed to support free and
open trade and to promote the tourist industry. Such a policy
also will expose the domestic carriers to tougher competition,
thereby forcing them to improve efficiency.

The national flag-carrier, Garuda Indonesia, which is beset
with financial problems, handicapped by an aging fleet and
shackled by bureaucratic intervention, is simply not able to meet
the steady increase in international passenger and cargo traffic
to and from the country. At present, two other airlines --
Sempati and Merpati -- have been providing restricted
international services, but these services are far from adequate
to handle the rapidly growing traffic volume.

In turn, allowing the nation's four domestic carriers --
Sempati, Merpati, Bouraq and Mandala -- to operate full
international services requires Indonesia to open its sky to more
foreign airlines because air services are still based mostly on
bilateral agreements. That does not mean that foreign airlines
will be free to eat into the domestic market because the
government apparently intends to maintain its limited open sky
policy.

The government will nonetheless have to grant more landing
rights to a larger number of foreign airlines to enable the four
other domestic airlines to enter international services.

This should not present a problem, however, because Indonesia,
given its size as the world's largest archipelagic country, has
the advantage of being able to offer more gateways for point-to-
point international services. In fact, there are already at least
10 gateways to the country even though most of them, apart from
Jakarta, Denpasar and Medan, still handle mostly regional or
border-crossing services.

Opening more gateways to the country will surely be a boon to
the tourist industry because the facilities will attract
revisits. That will support the government's target of achieving
seven million tourist arrivals in 1999, compared to almost four
million last year.

Initially the four airlines are likely to emphasize regional
services until they gain more experience and better reputations
enabling them to enter into alliances with major international
airlines. But even regional services seem to be quite promising.
The development of the three growth triangles -- the first
linking North Sumatra, Penang in Malaysia and northern Thailand,
the second Riau, Singapore and Johor and the third North
Sulawesi, Mindanao in the Philippines, Brunei, Sabah and Sarawak
-- should generate a substantial volume of air traffic.