More wings color the sky

More wings color the sky

JAKARTA (JP): Air travelers in Indonesia can now enjoy lower
fares and a wider choice in services following the establishment
of a number of new air carriers in the country.

No new measures have been introduced for domestic
liberalization, but an increasing number of investors have shown
a sudden interest in running commercial scheduled airlines. The
government has licensed at least 10 new companies to operate
regular flights in less than a one-year period.

New scheduled airlines include Airmark, Awair, Bayu Indonesia
Airlines, Deraya, Indonesian Airlines Avi Patria, Lion Airlines,
Pelita Air and Rusmindo Internusa Air and Star Air. They complete
with five long-established airlines -- Bouraq, Dirgantara Air
Service, Garuda, Mandala and Merpati.

The new scheduled airlines are from two different backgrounds,
namely those which previously provided nonregular or chartered
services (Airmark, Bayu, Deraya, Pelita and Rusmindo) and newly
established companies (Awair, Lion, Star and Indonesian
Airlines).

It is interesting to note that the founders of Lion and Star
both come from the travel agency business, providing them with
the network to explore the airline business.

In addition, many executives working with the new airlines
previously worked with the established airlines.

Nonetheless, all of the operating airlines are now competing
for passengers, even though the expectations for profits have yet
to be borne out by growth rates in the number of domestic air
travelers. In addition, the airlines all want to serve the most
profitable domestic routes.

In Indonesia, a company may become an airline operator by
owning just one aircraft. The airline can hire pilots and flight
attendants from other airlines and obtain catering from other
companies.

The cabotage principle may have also encouraged Indonesian
investors to enter the commercial aviation industry. Cabotage
protects them from competition from foreign airlines on domestic
routes, which remain closed to foreign airlines.

One major attraction to running an airline is the promise of
overall domestic passenger traffic. The volume is expected to
surge in coming years as the country pulls itself out of the
economic crisis.

The number of domestic passengers dropped to 6.2 million in
1998 from 13.3 million in 1997 when the economic crisis first
struck Indonesia. The overall domestic passenger traffic was
stable in 1999 and 2000 at about 7.5 million.

Indonesian National Air Carriers Association (INACA) chairman
Wahyu Hidayat said the number of domestic travellers was
estimated to grow gradually, reaching more than 10 million by
2004.

Oversupply?

Data from the Ministry of Transportation and
Telecommunications show that the 106 aircraft operated by five
scheduled airlines in 1999 recorded an average decline of about
15.51 percent from 208 in 1995. By 1999, counting total
frequencies and destinations, the domestic seat capacity totaled
some 10 million.

When some of the new airlines start full operations, seat
capacity will exceed 15 million, with Bouraq, Dirgantara, Garuda,
Mandala and Merpati accounting for 13.6 million of it and the new
airlines the remainder.

With the estimated overall domestic passenger traffic of
between seven million and 10 million until 2004, there will
likely be a huge oversupply of domestic seat capacity annually.

To gain profit, airlines must be selective with fleets and
routes. They must consider carefully whether to lease and operate
cheap, aging jets that would have higher maintenance costs, or
lease and operate newer jets with a higher monthly leasing fee
but low maintenance costs.

In setting airfares, they also must consider whether to apply
higher rates to obtain quicker profits, or reduce fares in the
hope of higher passenger numbers and a steady income.

In fact, several new airlines are offering discounted
airfares. The airlines claim the airfares were introduced as
"promotional rates".

"Promotions are common for new airlines or new routes. We'll
cancel our promotional rates after people become familiar with
our services," said Deraya president St. Rahayu Sumadi.

Deraya launched its flights linking Jakarta and Bandung last
December and presently is the only airline serving the route.

Wahyu agreed that discounts were a normal business practice
and the competition was also good for consumers. "But we should
remember that there is business ethics. Once ethics are ignored,
a business will be ruined."

To support the business, INACA has introduced "floor" and
"ceiling" rates based on the rupiah's exchange rate. This is to
avoid creating an oligopoly and so that airlines can still
introduce various fares, therefore giving consumers more options.

Meanwhile, the government will revoke the license of any
airline found to offer "too much of a discount".

But one old problem remains, that there is no definition of
what is an "acceptable discount".

-- I. Christianto