New airlines upbeat despite tought competition

New airlines upbeat despite tought competition

By Christiani Tumelap

JAKARTA (JP): Seven new airlines are ready to start operations
this year, and are upbeat about their business prospects despite
having to face tight competition from five long-established
airlines.

The new airlines' executives said here over the weekend that a
continued increase in the demand for commercial flights within
the archipelago would allow them to survive the tight market.

The fact that many important routes have been abandoned by the
existing commercial airlines as part of their consolidation
measures would make their operations in their early years much
more easier, they said.

The seven airlines to begin operations this year -- AIRWAGON
International (AWAIR), Pelita Air Service, Indonesian Airlines
Avi Patria, Bayu Indonesia Air, Lion Mentari Air (Lion Airlines),
Rusmindo Internusa Air and Jatayu Air -- said they would
initially operate at areas that were not, or inadequately covered
by the five existing commercial airlines.

Pelita Air president Soeratman said over the weekend his
company decided to enter the market this year because he believed
it was the right time to tap into the predicted growing market.

"Many areas have not been properly covered by airline
services. So, we have to enter the market now to provide more
supply to meet the increasing demand," he said.

He said Pelita, which currently operates as a chartered
carrier, was upbeat that it would not need too much time to make
a profit from its new business.

Soeratman estimated that Pelita, which had allocated about
US$3 million to lease a Fokker 70 and a Boeing 737-200 to be used
in the initial stage, would be able to break even in the second
year of operation.

According to data from the Indonesian National Air Carrier
Association (INACA), the country's airline industry is expected
to continue its recovery with demand for airline seats estimated
to grow by 10 percent this year to reach about 7.5 million
passengers from 6.89 million passengers.

INACA predicted that local demand would continue to grow to
8.27 million passengers next year, and swell to over 10.4 million
passengers by 2004.

The existing commercial airlines, state-owned Garuda Indonesia
and Merpati Nusantara, and private carriers Bouraq, Mandala and
Dirgantara Air Service could no longer meet the demand after they
had to reduce their operations to survive the economic crisis,
which started in late 1997.

Total commercial flights have dropped to about 130 flights to
90 cities as at end of last year from 201 flights connecting 115
cities in 1997.

Lion Airlines' director, David Lumbun, acknowledged there
would be fierce competition but said he was upbeat his fleet
would be able to compete and survive.

"Our company is expected to experience some losses during the
first two years of operation, but after that we will start
earning profits," he said.

AWAIR's president, Rachmat Soebakir, said in order to avoid
possible overlapping of routes with the other airlines, AWAIR
would focus on international routes in partnership with regional
airlines.

"We will make international destinations our main service," he
said, mentioning Taipei and Australia as the company's initial
international destinations.

Indonesian Airlines' president, Rudy Setyopurnomo, said his
company would keep its operational costs efficient by focusing on
flight services and subcontracting others sectors such as ground
handling, crew training, maintenance and catering to existing
airlines that provided such services.

"That way, we don't have to hire too many people, so we can
cut operational costs on personnel, maintenance, etc.," Rudy
said.

However, the entrance of seven new airlines has not scared the
existing airlines.

Airline expert and founder of existing commercial airline
Bouraq, Benny Rungkat, said the entrance of new airlines would
not really affect the existing fleets.

"Of course, the entrance of seven new players will result in
tighter competition. But, with such a large territory, Indonesia
needs more airline services," he said over the weekend.

Merpati's president, Wahyu Hidayat, said: "I don't see any
problem with seven new airlines entering the market at once."

Three of the new airlines, AWAIR, Bayu Air and Lion Airlines,
said they would start operating this month using 10 aircraft,
most of which were of the large size Boeing.

AWAIR was founded by Rachmat along with President Abdurrahman
Wahid and Soewondo, the President's masseuse, who has been
missing since being linked to a scandal involving Rp 35 billion
(US$4.3 million) of funds from the National Logistics Agency
(Bulog).

Rachmat said Abdurrahman pulled out immediately after being
elected president in October, and Soewondo resigned later on.

Pelita Air will start its scheduled flights to Yogyakarta,
Sorong, Balikpapan and East Kalimantan next month, while
Indonesian Airlines is expected to fly to Medan, Surabaya and
other cities in August.

The remaining two new airlines, Jatayu Air and Rusmindo
Internusa, have yet to announce their plans.

According to Benny, 27 other local airlines are now in the
process of finalizing their business plan as new commercial or
chartered carriers.

He predicted that at least 10 of the 27 new companies would be
ready to enter the market by the end of next year.