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.