Rise in the skies: Increasing airport capacity as passenger numbers grow

Domestic passengers have been the main drivers of growth in air transport for the past decade – more than 52m Indonesians were expected to fly domestically in 2011, around half of which on a single low-cost operator, Lion Air, which also runs Wings Air. Sustained competition in the low-cost segment has continued to keep rates low, while rising disposable income levels are set to sustain growth in demand over the medium term. “The average Indonesian traveller flies five times a year, which means that only around 10m people fly domestically every year,” Tengku Burhanuddin, secretary-general of the Indonesia National Air Carriers Association, told OBG. “There is clearly room for growth.”

LIBERALISATION: The government is pursuing liberalisation in the management of physical infrastructure. The offer of public-private partnerships (PPPs) for airports has generated interest from private investors. “Despite the 49% ceiling on foreign direct investment in airports, investors have shown interest in individual projects,” Bambang Tjahjono, the director of airports at the Directorate General of Civil Aviation, told OBG. The historical monopoly of the two state-owned operators, Angkasa Pura (AP) I and II, is now being dismantled to allow private operators to bid for concessions. AP I manages 13 airports in eastern Indonesia, while AP II has 12 in the west. In first quarter 2011, passenger traffic grew by 17.1% at API’s airports, while 6.2% more travellers passed through APII’s facilities.

The state-owned operators’ profitable airports ( mainly Bali and Makassar for AP I and Soekarno-Hatta and Medan for AP II) cross-subsidise the much larger number of loss-making airports. The Ministry of Transport’s Directorate General of Civil Aviation is in the process of detaching air traffic control services from the two APs, forcing them to seek new sources of revenue.

“As a consequence of the new regulation that separates air traffic controllers from airport operators, we will lose our aeronautical revenue,” Tommy Soetomo, API’s president director, told OBG. “So we must increase our non-aeronautical revenue, with a target for non-aero revenue to account for at least 50% of total revenue by 2013, compared to 20% today.” Efforts to recoup income that will be lost with the air traffic control business have led the two APs to diversify their activities. Gapura Angkasa, a joint venture between national carrier Garuda Indonesia and the two APs, was established in 1998 for ground handling services. AP II has already started work with toll road operator Jasa Marga to develop a business centre adjacent to Soekarno-Hatta, in a bid to generate other revenue in the longer term.

SOEKARNO-HATTA: Traffic growth at Jakarta’s international airport – the fastest in ASEAN, at 17.6%, in 2010 – has pushed capacity to its limits, with passenger volumes reaching 44.2m in 2010. This increase is particularly driven by domestic travel, with 34.16m Indonesians passing through Soekarno-Hatta airport in 2010. “The need for a physical expansion of the country’s busiest international airport is imminent as Soekarno-Hatta International Airport is already serving almost double its capacity of airline passengers,” Tri Sunoko, the president director of AP II, told OBG.

This has spurred the government to extend the airport. Under the “World-Class Airport” programme the airport opened a third terminal in 2011, with total capacity of 20m, when the full expansion is completed in 2013. The first section of terminal 3, already open, caters mainly to Air Asia flights. The existing two terminals are also due to be renovated, raising total capacity at the airport to 62m passengers by 2014. A new cargo handling terminal will also be completed by 2013.

EXPANSION: A third runway and a fourth terminal at Soekarno-Hatta are a longer way off, with acquisition of the 820 ha needed likely to pose a problem. The alternative would be a greenfield development in eastern Jakarta, which could be built by 2019. “We are looking at the feasibility of building a third runway, but in the long term it is clear that Jakarta will need a new airport entirely,” Tjahjono told OBG. Debate has already started on whether to add a new airport or to further expand the existing one. Japan International Cooperation Agency (JICA), under its December 2010 framework agreement, is conducting a feasibility study on a new airport plans and is due to report in 2012. Plans for a new airport are now rumoured to be gaining momentum.

BALI’S NGURAH RAI: With close to three-quarters of Indonesia’s tourists heading to Bali, Ngurah Rai, also known as Denpasar International, holds a strategic importance in government air transport plans.

The 11.1m passengers passing through the airport in 2010 exceeded capacity by more than 3m. International airlines are increasingly looking at direct routes to the island, with the UAE’s Emirates Airways the latest to announce such plans in early 2011. With traffic expected to reach 24.6m by 2025, the government is forging ahead with expansion plans. AP I has tendered the first phase of its expansion in August 2010, valued at roughly $210m. The new 120,000-sq-metre terminal will be capable of handling 20m passengers a year and is due to be completed by 2013, when Bali hosts a major Asia-Pacific Economic Cooperation summit. The expansion will also include the building of a transit hotel, a new access road and luggage-handling system. The existing international terminal will become the new domestic terminal, since the current domestic building is set for demolition in 2013.

NEW CAPACITY: The ministry aims to develop 20 new international airports in the next 15 years, raising its total to 65. It is starting with a $450m budget for 2010-11 to renovate its existing infrastructure. Alongside the private sector, provincial governments are also driving new developments. Lombok recently finished construction of a new airport able to handle long-haul aircraft. South Banten province has plans to develop a greenfield airport to cater to the large number of resorts in the area. West Java intends to replace the existing airport of Bandung with an entirely new airport – indeed, it had already started acquiring the land in mid-2011. Medan is also building a new airport with two runways, which will have annual capacity for 11m passengers.

Samarinda, the capital of East Kalimantan, is tendering a new airport to the private sector, which will complement AP I’s upgrade and expansion programmes on the two Kalimantan airports of Pontianak and Tarakan. Meanwhile, Papuan air traffic routes are to be restructured in line with the creation of the province of West Papua. Flight services will now use Manokwari and Jayapura, the provincial capitals of West Papua and Papua, respectively, as dual centres. At present, the extensive air network in Papua is very much centred on the small hubs of Sorong, Jayapura and Timika.

AIRLINES: The number of airlines has grown by leaps and bounds since liberalisation over a decade ago and new interest does not seem to be letting up. As the region moves to fully liberalise regional air traffic by 2015 under the ASEAN Open Skies agreement, the government is moving to upgrade the services of its national carrier, Garuda Indonesia, while standards among private airlines also have to improve across the board.

Whereas other countries in ASEAN have only one airport that will be affected by liberalisation the under open skies agreement, Indonesia has five: Jakarta, Bali, Medan, Surabaya and Makassar. “Given the larger impact in Indonesia, liberalisation will have to be a gradual process to allow airlines to adapt to the new competition,” Burhanuddin said. Indeed, the skies are crowded. There are currently 16 scheduled flight operators in Indonesia, down from 19 in 2010 as three airlines including Mandala and Cardig Air have been temporarily suspended. The five largest airlines are Lion Air, Garuda, Sriwijaya Air, Metro Batavia and Indonesia Air Asia.

Air Asia is the top carrier of international traffic for Indonesia, followed by Garuda, while Lion Air dominates domestic routes. A network of over 30 charter airlines, the latest of which, Surya Air, was launched in March 2011 by cigarette-maker Gudang Garam, complements the scheduled flights. This is essential in provinces such as Papua, where charters, including Manunggal Air or Trigana Air, provide the only transport links to the surrounding area.

Flag carrier Garuda announced plans in October 2011 to spend $720m on new aircraft to expand its domestic routes, which totalled 31 in late 2011, with a particular focus on developing new secondary hubs. This follows the airline’s August 2011 purchase of 25 new Airbus planes at a cost of $2.13bn.

The regulator has tightened operator requirements in recent years. “The requirement to have at least 10 aircraft, including five wholly-owned, is meant to insure that only serious investors with long-term visions can establish a new line,” Tjahjono told OBG. “Since liberalisation in 2000, the number of airlines has surged, and we do not want to endanger safety standards.”