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SEPTEMBER 1 , 2000 VOL. 26 NO. 34 | SEARCH ASIAWEEK
Indonesia's new airlines fight flag carrier Garuda — and each other By JOSE MANUEL TESORO Jakarta ALSO: •When in Debt, Spend Heavily: LG is the latest chaebol with outsized dreams Think of Indonesia's much-criticized, pre-Crisis economy and a few words might come to mind: corruption, collusion, crony monopoly. These days, the C-word is . . . competition. Some worry there is too much of it in the aviation sector. The Transportation Ministry has awarded more than 10 licenses to new rivals of flag carrier Garuda Indonesia and three smaller companies. Four newcomers are already flying. About 50 other operators are queuing for franchises, although some plan to operate cargo and helicopter services. "The two most common outcomes in these circumstances: survival of the larger incumbents and eventual consolidation of some or all of the participants," says Peter Harbison, managing director of the Sydney-based Center for Pacific Aviation.
The explanation behind Indonesia's decision to open its skies is persuasive. When the Southeast Asian financial crisis slammed into the country in 1997, debt-ridden Garuda shut down most of its international routes and retired 16 planes. No. 2 airline Merpati also slimmed down its fleet by about 60%. Sempati Air, a carrier linked to former president Suharto's youngest son Hutomo "Tommy" Mandala Putra, stopped flying altogether — it went bankrupt in June 1998. All in all, Indonesia lost over half the planes plying its domestic routes. According to an official at the transport ministry, only 20% of the international routes under Indonesia's bilateral air agreements are being served by local carriers. The skies emptied for a reason. Since the Crisis, fares have rocketed even as personal incomes cratered. Every sustained downward dip in the rupiah's value against the dollar jacked up ticket prices, as airlines passed on dearer leasing, debt payment and fuel costs to their Crisis-scarred passengers. From a peak of some 13.5 million in 1996, the number of domestic passengers plummeted to less than half that in 1998, or about 6.2 million. While the Indonesian National Air Carrier Association predicts growth, the number of air travelers is not expected to top 10 million until 2004. Says Harbison: "So much will depend on what happens to the economy and to the rupiah — both unfortunately beyond the control of the airlines." The biggest — and most ambitious — of the hatchlings is Awair. The company rented two Airbus A-310-300 jets in order to make it the only Indonesian carrier offering both first and business class on domestic flights. The wide-bodied craft is part of Awair's strategy to prepare to carry international travelers. Of the 55 routes it is licensed to operate, 28 are foreign ones. Awair wants to begin its global push by offering flights to Taiwan and Australia. It has some tailwind. The new airline's management includes former senior executives from Garuda, who come to Awair with expertise and contacts. But the company also suffers some drag. "A.W." are the initials of Muslim leader Abdurrahman Wahid, who was among the founders of the company a month before he was elected Indonesia's president in October 1999. Wahid's masseur Suwondo, who early this year absconded with $4 million from the former food monopoly Bulog, was another. Despite Awair executives' insistence that both Wahid and Suwondo had long given up their interest in the company, rivals as well as the public still harbor suspicions about its connections to power. "That impression is absolutely incorrect," says Awair's commercial director Kussuyono. As for Lion, its sights — and strategy — are a lot more conservative: to attract travelers with better service. For example, it offers tray (rather than box) meals and toy giveaways. In July, the last month of Indonesia's high season, Lion carried the most people per flight of all airlines to Pontianak. Says president-director Rusdi: "We want to be a big fish in a small pond." The next step, he says, will be to establish his carrier as a conduit between several Indonesian cities and regional hubs Kuala Lumpur and Singapore. Both new airlines flew at least as many passengers on average per flight as the established carriers in July. In some cases, they won over more travelers. Awair boasted a 90-passengers-per-flight record to Sumatra's main city of Medan, at least 20 more passengers than Garuda. Still, Awair's flights to Balikpapan and Surabaya in July were more than half- empty on average. Says Awair's Kussuyono: "We will try to compensate our losses on passengers with cargo." Garuda, which plans to privatize in 2003, is unfazed. It is still $1.8 billion in debt, but the drastic shutdown of so many routes and fleet cutbacks have helped the bottom line. Income is up despite the fare cuts. So are passenger loads (from 56.3% in June 1998 to about 70% in June 2000) and yields (from 3.4 cents per seat/km in 1999 to 5.1 cents this year). Even on-time performance is better. "We're focused on improving ourselves," says Garuda's vice president for corporate communications Pujobroto. "Let the market choose." And enjoy low fares while they last. Write to Asiaweek at mail@web.asiaweek.com
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