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.