Flag carrier Garuda Indonesia and Lion Air are estimated to serve between 70 and 80 per cent of domestic passengers annually. - The Jakarta Post/ANN
JAKARTA: Experts and industry players balk at the notion that the entry of three new private airlines this year will lead to a rebound in air travel as the industry struggles to regain its pre-pandemic footing.
Newly established carriers, namely Fly Jaya, Indonesia Airlines and Mukhtara Air will be wading into a high-risk domestic market where softening demand, soaring operational costs and outdated policies had stunted recovery, they warn.
Even established players have been feeling the strain and some had scaled back operations as costs outpaced revenue, according to aviation industry expert Alvin Lie, who also chairs the Association of Indonesian Aviation Service Users.
“The Indonesian market is hardly attractive for newcomers. With existing players cutting back operations, that’s just keeping us stuck in the mud,” Alvin told The Jakarta Post on March 27. Alvin said this had led Lion Air, the country’s largest private carrier, to move part of its fleet to Malaysia and Thailand, where “profits are higher and the market is steadier.”
Last year, Indonesian domestic passengers amounted to 62.56 million, growing 1.76 percent from last year, according to Statistics Indonesia.
Indonesia’s aviation sector welcomes Jakarta-based PT Surya Mataram Nusantara, operating as Fly Jaya, which had secured an Air Operator Certificate (AOC), Transportation Minister Dudy Purwagandhi said in March, Bisnis.com reported.
PT Mukhtara Indonesia Air, the local subsidiary of Saudi Arabia-based Manazil Al Mokhtara Group, has reportedly started its licensing process. Its official website said it already had a head office close to Soekarno Hatta International Airport in Banten, and was recruiting engineers and flight operation managers.
Meanwhile, PT Indonesia Airlines Group, the local arm of Singapore-based Calypte Holding, has yet to apply for the necessary permits to operate scheduled commercial flights in Indonesia, the ministry said in a statement released in late March.
Despite public excitement as new carriers promise more choices and lower fares, officials and experts urged caution. “We advise the public to not be easily swayed by unverified sources,” said Lukman F. Laisa, the Transportation Ministry’s acting civil aviation director general, in a statement on March 23 regarding Indonesia Airlines’ permit status.
Indonesia Airlines chief operating officer Hadi Surya declined to answer about its permit applications when contacted by the Post on March 27, only stating plans for a soft launch in May. Mukhtara Indonesia Air did not immediately respond to a request for comment, but the Transportation Ministry said on April 6 that the airline was still applying for an operational licence.
Aviation industry expert Gerry Soejatman expressed wariness regarding Indonesia Airlines’ ambitions due to the absence of visible progress in securing essential permits. “Indonesia Airlines seems to be making big promises without taking concrete steps,” Gerry told the Post on March 27, adding that a full launch within months would be unrealistic, let alone solely on international routes.
Launching an airline “is a lengthy and complex process,” he noted, with the air operator's certificate (AOC) alone taking up two years. Carriers must also prove strong financial backing, firm fleet commitments and detailed route plans, as mandated by government regulations.
Aircraft procurement also further prolonged the timeline, with backlogs potentially stretching out over one to two years. “We’ve seen many companies start the process, but only a handful actually make it to operations as aspirations often collided with harsh industry realities,” Gerry said.
The government has long looked for new airlines, hoping to improve competition and lower airfares in the country’s duopolistic aviation market with flag carrier Garuda Indonesia group and Lion Air group estimated to serve between 70 and 80 per cent of domestic passengers annually.
The airline industry is notorious for its razor-thin profit margins, with the International Air Transport Association (IATA) forecasting a 3.6 per cent net profit margin for 2025. Total industry revenue is expected to increase by 4.4 per cent year-on-year (yoy) in 2025, while expenses are projected to rise by 4 percent yoy, leaving little room for profit growth.
Without stronger passenger demand and regulatory fixes, both new and existing players would face turbulence on their journey to industry success, and some might not survive. “Domestic aviation performance has not fully recovered and it only depends on government policies and passenger demand, both of which remain challenging,” Bayu Sutanto, secretary-general of the Indonesia National Air Carriers Association (INACA), told the Post on April 4.
Weak consumer spending among the middle class and official travel budget cuts by the government, traditionally major sources of demand, had slowed air travel recovery, he noted. Official travel cuts have hit demand harder as civil servants account for nearly 40 per cent of total domestic passengers, Bayu said, cautioning that if the policy was prolonged, it would risk a decline of up to 25 percent in passenger volumes.
“Look, new airlines can jump in if they want, but let's be real, the government runs the show here with outdated rules that need updating,” Bayu argued. INACA data show that domestic seat load factors, a key measure of how well airlines fill seats on domestic flights, remain tepid with figures hovering between 70 and 75 per cent since the start of the year.
Gerry said outdated government policies such as the price ceiling for airfares exacerbated the profit squeeze, he added, as it failed to account for soaring operating costs. These rising costs were mainly driven by the weakening rupiah against the United States dollar along with surging expenses, such as aviation jet fuel prices, which constitutes 35 per cent of total airline expenditure, as well as increased costs in aircraft leasing, maintenance and spare parts. - The Jakarta Post/ANN
