Edward Sirait: Rupiah Weakening Hurting Operational Costs

President Director of Lion Air Group Edward Sirait (Credit to Sirait's Personal Facebook account).

JAKARTA (TheInsiderStories)— Controlling about 34 percent share in domestic flight markets, the Lion Air Group undoubtedly plays important role in the landscape of Indonesia’s aviation industry.

The group runs three airlines namely Lion Air, Batik Air, and Wings Air. It flies to 183 domestic and international routes, supported by 112 fleets and operates a number of planes, including Boeing 747-400, Boeing 737-800, Boeing 737-900 ER, and Airbus A330-300.

Lion Air group saw the number of passengers grew 13.5 per cent to 50.84 million passengers last year. In 2016, the number was 44.79 million.

However, the company suffered a loss due to the cheap airfares to gain more passengers. The company also suffered a loss in 2016 but the figure was small compared to the loss in 2017.

Meanwhile, airline industry must brace for the ASEAN Single Aviation Market, also known as the ‘ASEAN Open Sky Agreement’, which may pose stronger challenges from competitors from regional countries.

The aviation industry faces more challenge in the recent days when the rupiah is significantly weakening to the U.S Dollar for almost Rp14,000 per US$.

TheInsiderStories interviewed President Director of Lion Air Group Edward Sirait in order to gain the insight of what the investors think about the aviation industry and the current threat of rupiah weakening.

Q: Does the Rupiah Weakening Hurt Your business?

We don’t have a problem with the Dollar debts as we can hedge it. And the debt usually has a long-term tenor that we can manage. The problem is 60 per cent of Lion’s operational cost uses US Dollar, but we mostly earn rupiah income.

Q: How the company cope with the rupiah weakening, which is now almost Rp14,000 per US$?

The rupiah still fluctuates, we should wait until the rupiah meets a stable condition. After that, we will calculate our overall cost and decide our next strategy to cope with this condition.

Q: What’s the level the company sees as ideal level of rupiah?

Actually, the upper limit was Rp13,000 per US$. Because currently reach almost Rp14,000 per US$, we bear a burden. The question is how much we can reduce the operational cost. If will not be a problem if we still have a space to reduce operational cost.

Q: What kind of support do you need to cope with the Rupiah weakening?

If the PT Pertamina [who sell the aviation fuel] could decrease the aviation fuel, we can cope with the rupiah weakens without increase the fare. In addition, if the government could reduce the spare parts import duty, we don’t need to increase airfare and could maintain the passenger growth.

Q: Do you team up with the other airlines to expand your business?

The aviation industry is an agent of development, in my opinion, all the stakeholders actually cannot make money. We, airlines, did not make good profit. If we push to make a huge profit, we will pass through this cost to the passenger and the airfare will increase. Of course, it will decrease the passenger growth.

If the Pertamina and government support us to decrease the aviation fuel and decrease the spare part import duty, I think it will not hurt Indonesia’s economy.

Q: What is the company’s plan to increase the international flight, so your company will earn more Dollar?

We are on track to increase the regional flight, we recently open the Batam-China route and Surabaya-China route. We put effort to increase the percentage of our Dollar income.

Q: What is the company’s plan to increase planes?

We already ordered 758 planes. Around 300 planes already entered Indonesia.

Q: How much is the investment for the 758 planes?

I forgot the number, but approximately hundreds of billion US Dollar.

Q: How do you see the regulatory reform pushed by the government to improve the investment climate in the aviation industry?

The government put big effort to improve the investment climate. For example, we received several facilities including tax facility in Batam Aero Technic (BAT). In addition, the government also gave us the land lease extension up to 50 years.

Q: Do you have a suggestion for the government?

The government should simplify the permit on the maintenance and imported spare parts. It is complicated and takes time.

Q: Is Indonesia’s economy already in the right direction?

Indonesia’s economy is quite good with the economic growth over 5 per cent. We optimize with Indonesia’s economy. The government put a good effort to handle the domestic economy. However, Indonesia’s economy is affected by the international condition. It is out of the government control, but the government should cope with it.

Email: fauzulmuna@theinsiderstories.com