NEW STARTER - Lion Airlines is one of the new starter, operates Boeing 737-200 services Pontianak and recently Pekanbaru and Singapore routes./Foto:Angkasa/D.N.Yusuf
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In less than one year at least seven airline companies have got business license, and three of them acquire Air Operator's Certificate (AOC). These new airlines join Garuda, Merpati, Mandala, Bouraq and Dirgantara Air Services that are already established. It seems to be easy to get
a business license for scheduled airlines as Directorate General of Air Transportation and Communication, Soenaryo Yosopratomo explained to the press in Jakarta, last June. "You just make a report to the Department of Transportation," said Soenaryo.
It is for sure that many other new airlines will operate and soon the capacity will exceed the demand. This possibility of unbalancing condition is emphasized by Sri Hardini, Head Director of Air Transportation of Directorate General of Air Transportation. "The demand is decreasing
also the capacity. However there are great opportunity for rapid growth in the future." she explained.
According to Hardini, it takes much time to develop an operator and increasing the capacity while the market grows more rapidly. Therefore it is understood that the government has positive reason in giving opportunity for new airlines to operate.
Hardini describes that two-ways capacity for international flights provided by national operators' accounts for only 25 percent of it. In 1995 it had reached 45 percent, but in 1996 it decreased to 39 percent and down to 25 percent this year. "Hopefully the capacity increases. But instead,
due to the crisis, the operator fleet is declining."
Flight domestic capacity in May 2000 provided by five scheduled operators for two ways is 235.522 seats per week or 12.241.144 seats per year. The operating fleet is 101 aircraft covering 128 routes and 75 cities. The capacities added by three new airlines operating four aircrafts are
still considered not enough.
Not only for domestic, some of these new airlines also aim for flying international routes. According to Sunaryo, Indonesia has covered 20 percent of the bilateral air agreement with 62 countries. This means that other airlines still have the opportunity to cover the rest. However,
this agreement includes Garuda Indonesia Airways alone. Consequently this agreement has to be renewed so other airlines can be included.
Unlike in other countries, in Indonesia it is easy for newcomers to be allowed to serve outside its origin country. Reasonably it is because the government intends to encounter new foreign airline that wish to come to Indonesia. Although the bilateral agreement had not been
renegotiated yet, the Indonesian government promises new airlines to fill in the reciprocal rights.
With a Gross Product Domestic (GPD) of only US$ 500 per capita per year, Indonesia is far below other countries such as England, France and Germany with a GPD of more than 20.000 dollars. And based on a buying power and US$ 11 cents cost per seat per km (previously 8
cents), obviously the operator will have a hard time to survive. Especially regarding the market decline from 12 million in 1997 to only 6,5 million passengers this year although is presumed to be recovering in 2005.
Although the market is limited, the newcomers are still optimistic. Rudy Setyopurnomo with his Indonesian Airlines seems to be able to see beyond what the established airlines see. Also Haji Rachmat Soebakir, the President Director of AWAir and Rusdi Kirana with his Lion Air, seems
to be able to see the chances.
Rachmat Soebakir sees a prospect in cargo carrier with an Airbus A-310-300 leased from Singapore Region Air Company for US$ 225.000 per month. "Generally the airlines' income is from passenger carrier and cargo carrier is a side income or a bonus. But to AWAir it is the other
way around," said Rachmat. And instead of domestic market, it aims for international routes.
AWAir choose to serve Surabaya with Airbus A-310. In the past Garuda had serve this lucrative route with Airbus A300-B4, but it was unsuccessful. But time has changed, perhaps this time Rachmat's formula can be more effective.
Another surprise came from Rusdi Kirana that at the last moment, change its route from Medan to Pontianak. "Too many competitors. We have to compete for an office space in Medan." explained Yoen K, Marketing Director of Lion Airlines.
Fair or not fair competition
A310 AWAIR - New comer AWAir operates wide body A310 aircrafts servicing domestic as well regional routes./Foto:Angkasa/D.N.Yusuf
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Generally, the established airlines make efforts to survive and looking for certain ways to keep their market. According to Garuda's Commercial Director, Bachrul Hakim, his airline is prepare and alert. "We don't underestimate them, but Garuda should stay tough,"
One certain way of making or keeping the market for some airlines is in fixing a fare. Many new airlines and even the established ones compete in fixing the lowest fare. AWAir flying Jakarta-Surabaya route offers a half price fare. "But it's only for promotion. Two weeks after, our
fare was back to normal. It's under Garuda's but above the others'," said Rachmat.
Jakarta-Pontianak route that is already served by four established airlines with their Fokker F-28, hit by Lion Airlines with its B-737. Nearly 40 percents of Merpati's passenger "deserted", even some of Mandala's, Bouraq's and Garuda's passengers migrated. "We didn't cut
fares drastically," said Yoen.
This condition makes Indonesian aviation look unprepared in facing the resulting situation of the reformation. It is more appropriate if there are rules of the game to control the business ethics that guarantee good corporate governance interacting with good government
governance. Therefore there will be no fare discount competition or any other illegal practices.
According to Dr Arif Budiman, an airline's economic observer, war of fares could destroy an airline. However, many other things could cause an airline to collapse. It could be caused by government policy and law/politics that is not conducive. And it could be caused by the
capital problem and the company management that is not qualified.
Single aircraft
A condition that should also be concern is that most of the new airlines operate only one single aircraft. Whereas according to the Head of Sub Directorate of Control and Maintenance DSKU, Mohammad Alwi, the government never recommends a scheduled airline to have only
one aircraft. "The ideal number is three aircraft for initial operations. If they later can not get more aircraft, I'm not sure about their commitment." he said.
Actually, in their proposal they wrote that the aircraft would be coming in phase for every two weeks. "It's assumed that in two weeks there would be no aircraft trouble." said Alwi. What happened to Lion Airlines a few weeks ago was unconditioning. "There was a leak in actuator
flaps, and indeed the condition of this component can not be monitored."
New Airlines are aware of this risk. AWAir that operates two A310-300s is still unstable without one more aircraft. "I'm still nervous. What if something goes wrong with our aircraft?" said H. Rachmat Subakir, President Director of AWAir.
"There are no scheduled operators that have only one aircraft. Now we are evaluating our operations," said Soelarto Hadisoemarto, President Director of Bayu Indonesia (formerly Bayu Air). And Indonesian Airlines (IA) that still has to start operation also realizes this. "When time
comes, we will bring in two B737-200 at once." said Rudy. IA trusts GE Capital Aviation Services and US Airways to provide its fleet.
To overcome the problem during their operation, some of the new airlines cooperate with established airlines. Pelita with Garuda Indonesia, Bayu with Merpati Nusantara, AWAir with Garuda, and only Lion has not done this officially. Even IA from the beginning has been cooperating
with a foreign airline, British Airways. This cooperation places two foreigners as directors, commercial director and project director.
The chosen terminal
GARUDA AND MERPATI'S F-28 - Two F-28s of Garuda and Merpati, two established national airlines now compete with new comers./Foto:Angkasa/D.N.Yusuf
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Terminal F also becomes an object for airlines --new and established ones-- to compete against each other. Garuda, which since 1985 used the terminal in its domestic flights, now has to share it with several new airlines operating from the same facility.
At the beginning AWAir insisted to get a space in terminal F. "Time has changed. Initially we did have a little problem to get it, but we talked to Garuda proportionally. Finally, we get terminal F," said Rachmat.
Lion also operates in terminal F. "It seems to be prestigious to operate in this Terminal 2. Until before our first operating day, we still had no approval. But when AWAir succeeded in getting space in Terminal F, we got more persistent and finally at the last minute we get it." said Yoen K.
Before the new airlines, there have no other national airlines that dare to disturb Garuda. "Once I talked unofficially, what if Merpati would like to be in Terminal F. At that time Angkasa Pura responded that the slot is full. The point is they didn't give any chance for other airlines."
Wahyu Hidayat, Director of Merpati, admitted. But it was not official. "If I really want it, I wouldn't accept the rejection just like that. I would ask the reasons," he added.
According to the Head of Soekarno-Hatta Airport Branch, Arifin Razak, to place airline in terminal that he runs, AP II gives priority to business interest. About Terminal F issue, said Arifin, his party had several meetings with the concerning parties. "All agreed," he said. Garuda
itself until now is still looking for legal aspect of its right in Terminal F.
IA instead wants to be in Terminal A, where Sempati Air once operated and now it is for haj terminal. However, AP II does not give permit because they still wait for larger number of passengers. Therefore, IA will be operating in Terminal B that has always been occupied by Merpati.
Bayu operates in Terminal C. "But for the time being we operate more often in Medan. And perhaps later on in another city," said Permadi Wiratanuningrat, Managing Director of Bayu. Terminal C is already occupied by Mandala Airlines, Bouraq Indonesia Airlines and Airfast. AP II
used to say this terminal was for national private airlines.
Placing airlines in airports had triggered a reaction. "I heard that Garuda domestic flight will be moved to terminal 1. We should run things consistently," said Rachmat. Wahyu also said that Terminal 1 is for domestic and Terminal 2 is for international flights and it has to be consistent.
However, Hardini explained that all aspects still need to be evaluated. "We should also consider the investment of Garuda. It needs an evaluation because it concerns Garuda's right that had been in Terminal F since the beginning. It is not that simple to find a solution.
Reconciliation
IN ACEH - Garuda's wide body A330 now can land at Aceh's Blantang Bintang Airport./Foto:Angkasa/D.N.Yusuf
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Dr Arif Budiman, an airline economic observer said that developing competition among scheduled airlines is good because the competition is a main of efficiency. "From a certain point of view, the war of fares is obviously dangerous but from another point of view, this could mean
a "combat" training for "generals" and airlines "soldier," said Budiman. And According to Michael Porter, a Harvard University Professor in competition strategy, a world class company can only be achieved through the hard "training" in domestic competition.
Meanwhile, former functionary of Directorate General of Air Transportation George Risakotta who is now a President of PT Jakarta International Hotels Management, emphasizes the necessity of an independent institution similar to US Civil Aeronautics Board (CAB).
CAB was founded through Civil Aeronautics Act in 1938 and reached its final form in 1957, stresses only on controlling airline's economics while Federal Aviation Administration (FAA) that was formed in 1958 controls any issue regarding safety in air transportation. And at the same
year, Indonesia legislated an Act No. 83 concerning flight issues.
In the old days, Indonesia had such an institution, Indonesian Board of Aeronautics and Space (Depanri) that coordinated the aviation issues, which should be reactivated.
In 1970, US suffered an economic recession. "An occurrence of stagnation and inflation or sluggish economic growth coupled with severe inflation rate had made ideas to the economic deregulation and airlines became the main target of this regulatory reform." explained
Cartono Soejatman, an airline economic observer. The starting point of this reformation is Airline Deregulation Act-1978 with the result of liquidating CAB in 1985.
During post-deregulation, hub-and-spoke (HaS) route was developed and now it is applied all over the world. In European countries, this system is determined by its geographic condition. HaS is known to be able to solidify the flight network system and its development depends on
the situational condition of each country.
According to Bachrul, Garuda will introduce this system by cooperating with Pelita Air Service in order to solidify its existence in domestic route. Hub-and-Spoke also becomes a support for Indonesia Airlines. And Lion Airlines will be applying this system by cooperating with a
foreign partner from Malaysia.
Although there are still worries of how national airlines could survive without "killing each other", Indonesia do need air transport in uniting the nation. "It is time to reconcile national flight systems to get one vision and mission and prevent an anarchist innovation." said Cartono.
