The airline market in Indonesia is one of the fastest-growing globally and a leading driver of transport industry growth. Although this expansion has created capacity constraints at its primary air hub, Soekarno-Hatta International Airport in Jakarta, the recent completion of a third terminal has significantly boosted capacity, better enabling the airport to meet rapidly rising demand. The government is now shifting its focus to developing and upgrading airports outside of Jakarta, with plans to build 15 new facilities in the coming years.
Financing gaps represent lucrative opportunities for potential investors, with the government aiming to sell stakes in 10 airports to private firms. This should support long-term industry growth and facilitate efficiency improvements to enable Indonesia to become a leading global aviation hub in the coming decades.
AT A GLANCE: Indonesia hosted an estimated 61 scheduled and chartered commercial airlines in 2017, and is considered the second-fastest-growing aviation industry in the world, after China, in terms of sector value and aircraft orders. Air travel in the country has soared over the past 20 years. According to the World Bank, air passenger traffic has grown more than 10-fold since 1999, rising from 8m passengers to 26.8m in 2004, 59.4m in 2010, 85.2m in 2014 and 96.6m in 2016.
Statistics Indonesia (BPS) reports that total cargo volumes also rose, from 555,899 tonnes in 2011 to 681,950 tonnes in 2015 – a 22.7% increase. Its data also shows that domestic passengers comprise the largest portion of air travellers in the country. Total domestic passenger figures rose from 60.2m in 2011 to 76.6m in 2015, a five-year growth rate of 27.2%, while domestic cargo volumes were up by 16.6% over the same period, from 483,736 tonnes in 2011 to 564,048 tonnes in 2015.
International passenger volumes have also recorded robust growth, rising by 18.8% between 2011 and 2015, according to BPS data. The agency reports that total international passengers in Indonesia rose from 8m in 2011 to a five-year high of 11m in 2013 before falling to 9.5m in 2015. International cargo volumes, likewise, rose from 72,163 tonnes in 2011 to hit a high of 117,902 tonnes in 2014 before falling to 87,067 tonnes in 2015.
AIRLINES: Established in 1999, low-cost carrier Lion Air is the largest domestic airline in the country and has become the budget carrier of choice for low- and middle-income travellers. The airline has recently moved to expand its services into Malaysia and Thailand through Malindo Air and Thai Lion Air, respectively.
Lion Air carried 26.5m passengers in Indonesia during 2015. In May 2017 the company announced that it aims to reach a total global passenger volume of 60m that year – an increase of 20% – by expanding its operations in China, India, Australia and Vietnam through new and more frequent routes during the popular summer months. Expansion initiatives are supported by major fleet orders, and the company made a record-breaking $23bn purchase of 234 A320 aircraft from Airbus in March 2013. Between 2007 and 2013 Lion Air ordered 770 Boeing 737 and Airbus A320 aircraft, receiving 270 of these as of early 2017, with the remaining set for staggered delivery over the next 10 years.
Indonesia AirAsia X is the third-largest domestic airline in operation, carrying an estimated 3.7m passengers in 2015. In March 2017 the airline announced plans to expand into the East Asian market, and new services to Tokyo from Denpasar commenced in May 2017 using A330-300 wide-body aircraft. The company currently operates five A320-200s and two A330-300s on domestic routes, and offers international services to Kuala Lumpur and Johor in Malaysia.
GARUDA INDONESIA: The country’s second-largest domestic airline is national carrier Garuda Indonesia, which flew nearly 20m domestic passengers in 2015, as well as 4.2m international passengers.
Like Lion Air, Garuda has been active in expanding its fleet. The company attributed its 2016 third-quarter net loss of $43.6m – against a $51.4m profit in the third quarter of 2015 – to the purchase of 35 new aircraft. Together with its subsidiary Citilink, which moved 6.86m passengers in 2015, Garuda plans to expand its market share to 50% of domestic passengers and 40% of international passengers travelling through Indonesia by 2020, with plans to purchase an additional 115 wideand narrow-body aircraft over the next three years.
In March 2017 the company reported that net profits fell by 89% in 2016, from $76.5m to $8m, owing to $19m in foreign exchange losses and increased expenses.
CAPACITY CONSTRAINTS: Soekarno-Hatta is the busiest airport in Indonesia, with domestic passenger volumes rising from 15.5m in 2010 to 23.3m in 2013, before moderating to 20m in 2014 and 19.2m in 2015, according to BPS data. The agency reports that international passenger volumes rose from 4.76m in 2010 to 6.5m in 2014, before dialling back to 6.4m in 2015.
BPS figures show that total international passenger departures at Soekarno-Hatta rose by 4.1% to 6.6m in 2016, and increased a further 14.1% between January and April 2017 to reach 2.4m passengers, compared to 2m during the same period of 2016. Domestic passenger volumes rose by 7.5% to hit 20.6m in 2016.
The total passenger volume at Soekarno-Hatta was estimated at some 54m in 2016. However, the airport has faced serious capacity restraints, with the maximum terminal capacity standing at just 22m passengers annually in 2014, according to a 2015 report published by the French National School of Civil Aviation.
SOEKARNO-HATTA UPGRADES: Angkasa Pura II (APII), a state-owned enterprise responsible for managing and operating western airports including Soekarno-Hatta, recently completed construction of a third terminal at the facility. The Rp4.7trn ($354.3m) project added 422,804 sq metres of space to the airport’s existing operations, and offers 10 international gates, 18 domestic gates, a sky train to shuttle passengers between terminals, and new retail and hotel space.
Known as Terminal 3 Ultimate, the facility opened in August 2016 and can handle an additional 12m passengers per year, with capacity slated to rise to 25m upon completion of later stages of construction.
Garuda Indonesia began as the only airline permitted to operate from the new terminal, but carriers from Saudi Arabia, Vietnam and South Korea joined during the summer of 2017. The expectation is that Soekarno-Hatta will rival Malaysia’s Kuala Lumpur International Airport for regional dominance in the coming years.
APII had announced that construction of a third runway would begin in April 2017, but local press reported in September 2017 that land had yet to be acquired due to price issues. The Rp2trn ($150.8m) project is expected to see a 3000-metre long, 60-metre wide runway constructed before 2019, boosting flight capacity from 72 flights per hour to 114. It will be built on a 216-ha plot on the northern side of the facility.
AVIATION PROGRAMME: Outside of Soekarno-Hatta, the administration of President Joko Widodo has launched an expansive aviation upgrade programme to ease capacity constraints across the country with its five-year Medium-Term Development Plan. Covering 2015-19, it includes plans to build 15 new airports and nine new air cargo-handling facilities. Airports will be constructed in Letung, Kertajati, Tambelan, Teblian, Muara Teweh, Samarinda Baru, Maratua, Miangas, Siau, Morowali, Buntu Kunik, Namniwei and Kabir-Patar, while new cargo hubs will be built at Soekarno-Hatta, as well as the Kualanamu, Syansuddin Noor, Banjarmasin, Juanda, Hasanuddin and Sam Ratulangi airports.
In January 2016 Angkasa Pura I announced that plans were under way to upgrade Juanda International Airport in Surabaya, involving construction of a new terminal, rail access and two new runways. The project’s first of three phases is under development, involving master plan approval, and land acquisition and reclamation for the runways. The new terminal is expected to accommodate more than 75m passengers annually.
The Ministry of Transportation reports that plans are also in the works to redevelop 100 existing airports and upgrade an additional 26 facilities to improve passenger-handling capacity. In March 2016 the government announced plans to develop 10 “new Balis”, tourism hotspots requiring significant investment in airport and tourism infrastructure.
STEADY PROGRESS: Aviation development is progressing steadily, and in March 2017 the country’s newest airport, located in Bungku in Central Sulawesi, began operations with six weekly flights to Makassar in South Sulawesi Province using ATR42 aircraft.
In a positive development for aviation investors, President Widodo announced in November 2016 that the government intends to sell minority stakes in 10 regional airports to private investors. Offering up to a 45% share, facilities include Kualanamu International Airport in North Sumatra and Sepinggan Airport in East Kalimantan. Sales are expected to begin in late 2017. This could offer lucrative opportunities to savvy investors: total passenger volume in the country is forecast to rise to 242m by 2035, transforming Indonesia into one of the world’s 10 largest aviation markets, according to the International Air Transport Association.