JAKARTA (TheInsiderStories)—The airline industry had been facing tough time during the first quarter of 2018, due to the problems which are mainly concerned with operational costs, supporting infrastructure, and management issues.
The airline companies must also brace themselves for the ASEAN Single Aviation Market—also known as the ‘ASEAN Open Sky Agreement’, which may cause tougher competition among the industrial players in Asian region.
One of the airline companies is PT AirAsia Indonesia Tbk (CMPP), which is seeking to expand flight services in Indonesia.
The airline booked a 95.29 per cent drop in net income to Rp218.67 billion in the first quarter of 2018 from Rp111.97 billion in Q1/2017. The company also posted Rp843.84 billion in revenue, a 4.55 per cent drop compared to revenue in Q1/2017 of Rp884.05 billion.
TheInsiderStories interviewed Indonesia AirAsia President Director Dendy Kurniawan in order to gain the insight of what the investors think about the aviation industry.
Q: How do you see the prospect of aviation business in Indonesia?
It is very promising. Indonesia has 13,000 islands that need aircraft to connect these islands. In addition, there a large space to grow as Indonesia has a huge population of 268 million people. With this huge population, we only manage 23 aircraft in Indonesia, extremely low compared to Malaysia where we operate 90 aircraft for 40 million people. In Thailand that has a population of 70 million, we operate 66 aircraft. Furthermore, there are still only four groups operate in Indonesia’s aviation industry namely Lion Air and subsidiaries Batik Air and Wings Air; Garuda; Sriwijaya Air and subsidiary Nam Air, and AirAsia. Our space to grow is much bigger in Indonesia.
Q: How much is Air Asia’s portion in Indonesia’s airlines business?
As a group, we control almost 34 per cent of the international route, but we only control around 3.4 per cent in domestic route.
Q: What is the challenge in Indonesia’s aviation business?
The aircraft procurement and pilot recruitment are not a problem for us. If we want to buy aircraft, the Airbus and Boeing would offer an attractive financing scheme. We have no problem to find a pilot although it takes time. We can recruit and train them.
The main challenge is the airport. There is only limited slot to fly in the popular airports, especially during busy hours. The airports’ operators should tackle this problem.
In addition, there is a restriction for the foreign airlines to enter non-international airports. For example, if we want to open route to Labuan Bajo, we have to connect it through the international airport. It’s inefficient. It would be better if the government allows the foreign airlines to fly direct from overseas to the non-international airports.
Q: How do you see the Government’s efforts to overcome the constraint?
I think the government’s efforts have been maximized to cope with the problems. But the government should do more to generate higher growth in the industry.
Q: How is the progress of the airport hub development?
Air Asia currently has four airport hubs in Jakarta, Medan, Surabaya, and Denpasar. We were asked by the government to see the potential of airport hub development in Silangit (Lake Toba, North Sumatra), Banyuwangi (East Java), Belitong (Bangka-Belitung), Lombok (West Nusa Tenggara), and Labuhan Bajo (East Nusa Tenggara) in order to support tourism industry. We visited Banyuwangi and saw the potential to develop the airport hub there. Developing the three places as airport hubs is possible but we will conduct market test first. Our first plan is to connect the Silangit and Banyuwangi with our existing airport hub. It could be from Jakarta or Kuala Lumpur. I hope the market test can be done in the near future.
Q: Do you think these airports are feasible to serve as airport hubs?
The Silangit is sufficient to be an airport hub as it has an adequate runway for Airbus A320 and Custom, immigration, and quarantine (CIQ). However, Banyuwangi Airport has runway problem that needs to be extended. But the airport operator committed to finishing the extension before October so that it could be operated for passengers of the International Monetary Fund (IMF) and World Bank meeting in October.
Q: How much is your capital expenditure for the airport hub?
It depends. The airport hub development could be related to the two points. First, we just need to create the traffic. Air Asia is the largest connectivity airline in Asia, so we have the capacity to create the passenger’s traffic. Second, when the airport operator offered us to invest in airport expansion in the scheme of joint venture or build, operate, transfer (BOT). We are waiting for such offer from the airport operator.