Emirsyah Satar, CEO, Garuda Indonesia: Interview

Interview: Emirsyah Satar

What will the revision of Indonesia’s GDP figures for 2013 mean for the aviation sector in 2014?

EMIRSYAH SATAR: The country’s GDP output for 2013 may have been revised down farther than some expected, but growth prospects for aviation remain positive. While a lower GDP will indeed correlate in some way, the most urgent challenge for Indonesia’s aviation sector is infrastructure. Future growth in market size and demand is guaranteed. The challenges include hard and soft infrastructure, and the speed at which both must be developed. Hard infrastructure such as airport terminals, runways and air traffic control systems, must be supported by the requisite number of pilots, engineers and air traffic controllers. At current human resource output, however, it will be very difficult for Indonesia to meet such demand for talent.

Assuming capacities similar to the US market, which carries about 100,000 passengers per aircraft per year, Indonesia will need over 350 more aircraft in the next three to five years. This means doubling current domestic capacity. These figures are adjusted to account for higher incomes in the US; we’ve discounted the numbers 20-30%. Regardless, this is the sort of growth trajectory the aviation sector will be facing, and we really need to be ready for it. The government has already invested Rp2.8bn ($280,000) in several airports in Indonesia via its MP3EI plan. Though demand continues to exceed supply, the developments at Bali, Lombok and Medan airports are concrete signs of progress.

How do you assess competition in the aviation sector, such as is catalysed by low-cost carriers (LCCs)? How will this affect the sector’s development?

SATAR: Competition forces players to be more creative, innovative and efficient. In Indonesia’s current market, I believe there is potential for all types of carriers to grow. However, LCCs and full-service carriers will become increasingly segmented. A number of full-service carriers have entered the LCC market simply because the pie is so big, but in the next couple of years players will consolidate. This will breed efficiency throughout the sector. Even so, at present there are still new opportunities in areas like turboprops, where domestic demand has not been met over the last few years.

The Indonesian market continues to face new challenges, but this can only help the evolution of competitive private players and of the market around them.

Will the ASEAN Open Skies initiative be ready for implementation in 2015? How prepared are Indonesian carriers for the fresh competition it will bring?

SATAR: ASEAN Open Skies turns on two issues: full liberalisation and multilateral agreements within ASEAN.

Thus far, it appears that multilateral agreements have won out, though the roadmap aims toward unlimited traffic. The subject of cabotage – the rules dictating whether an airline registered in one country can fly within the borders of another – is still a sensitive one, and must be discussed as openly as possible. Indonesian airlines are prepared for Open Skies, but a level playing field is still important. Whatever rights foreign airlines are getting in Indonesia, Indonesian airlines should be getting in foreign markets.

Often, technical barriers are put up to obstruct the regional operation of airlines. At certain airports, for example, scheduled slots are often artificially listed as full even though an airline has the right to fly there.

There is little recourse to negotiation. This means the airline may have to fly to a far-off secondary airport, which is unlikely to be commercially viable. To overcome such obstacles, Indonesian airlines must continue to be as well-prepared and flexible as possible, and continue providing efficient and quality services to passengers. This, in turn, will help market retention.

Indonesia is, after all, the biggest market in ASEAN, both in domestic traffic and to and from other ASEAN countries. Its aviation sector must take steps to ensure that, when ASEAN Open Skies takes off in 2015, there is a level playing field and proper transparency between regional authorities, for the future benefit of all involved.