Airline industry still struggling to grow
This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.
Investor Daily - Industri maskapai masih sulit berkembang
17 February 2025
By Ichsan Amin
The aviation industry is expected to continue facing development challenges this year. This is largely due to airfares being regulated by upper and lower tariff limits that have not been adjusted, still based on the 2019 exchange rate of Rp12,500 per dollar. Currently, the exchange rate is approximately Rp16,348 per dollar.
Meanwhile, the current exchange rate is approximately Rp16,000 per dollar. Alvin Lie, Chairperson of the Association of Indonesian Aviation Service Users (APJAPI), stated that current airfares have not been revised, despite a significant increase in operating costs. He warned, "If this continues, the industry could collapse if policies are based on populist decisions".
The government's plan to decrease airfares for Eid in 2025 will increase the burden on airlines. He revealed, "Yesterday, airlines were saved, but several suffered due to the cut in the passenger service charge (PSC). The same applies to aircraft parking. Therefore, what must be studied is the elimination of taxes that burden the industry."
Albin mentioned that taxes burdening airlines include value added tax (VAT) for jet fuel, VAT for import duties, income tax for imports, and luxury tax. He stated, "Additionally, the space lease and electricity costs at airports, as well as the separation of the PSC from the airfare, must be reviewed. If all these factors are addressed alongside the elimination of taxes, airfares could decrease by 15%."
Moreover, the government has implemented budget reductions within ministries and agencies. The APJAPI predicts that these reductions will lead to a 17%-19% decrease in passengers. He revealed, "Generally, budget reductions affect 19% of passengers. However, this 19% does not include state-owned enterprise (SOE) employees. If SOE employees are also reduced, passenger numbers will plummet further."
Alvin added that if this situation continues without proactive measures, the aviation sector will become irrelevant for airlines. He remarked, "The state's commitment ten years ago was evident from the number of passengers. However, given the current policies, I am not convinced the industry can develop."
Jet fuel and aircraft lease
Garuda Indonesia President Director Wamildan Tsani highlighted several challenges burdening airlines, including the high cost of jet fuel, which accounts for 35% of total airline costs, and the expense of aircraft leases. He explained that leasing one aircraft costs USD300,000 per month. "These components are the heaviest for an airline," Wamildan stated during a hearing with the House of Representatives (DPR) on 23 January.
In addition to the high cost of jet fuel and airfares, there are also significant expenses related to services and taxes. He stated, "These costs are substantial. As a full-service airline, our cost-to-revenue ratio is very thin at 94%. We must provide food and snacks during flights. For Citilink, the range is around 84%."
Meanwhile, Eddy Krismeidi, Head of Indonesia Affairs and Policy at AirAsia Indonesia, stated that reduced airfares have a clear impact on airlines. He explained, "Reflecting on the policy to reduce tariffs during Christmas and New Year last year, the fuel surcharge was also decreased from 10% to around 2%. However, we are thankful because the PSC was decreased and the jet fuel price remains consistent across various airports." He made these remarks at the Redrun and Free Chair promotional event in Jakarta on Friday (14/2/2025).
He mentioned that, overall, his company anticipates positive growth in Indonesia. "We foresee potential for positive development as we establish more hubs for international flights, which we are enhancing through various promotions and lifestyle initiatives," he stated.
The Transportation Ministry is currently preparing for transportation during the Eid period in 2025. Transportation Minister Dudy Purwagandhi stated that his ministry is developing operational plans for all modes of transportation, including land, sea, air, and rail. The plan also considers the possibility of reducing airfares. "We are still discussing airfare discounts among ministries to ensure the people's purchasing power and maintain the business continuity of aviation businesses," Minister Dudy added.
Strengthen the aviation ecosystem
Meanwhile, BBN Airlines expressed its commitment to strengthening the national aviation business ecosystem in 2025 by focusing on the aircraft, crew, maintenance, and insurance (ACMI) business model.
This measure aims to enhance operational efficiency and flight capacity in Indonesia, in response to the rising demand for both domestic and international air travel. However, the demand for capacity has not yet matched the growth of operating aircraft.
ACMI services enable airlines to offer aircraft, crew, maintenance, and insurance without independently managing operations, thereby reducing costs and increasing efficiency.
BBN Airlines Indonesia Chairperson Martynas Grigas stated that the airline aims to reinforce its role in supporting Indonesia's aviation ecosystem by concentrating on the ACMI service model.
"Through this model, we will offer solutions and innovations that are not only cost-efficient but also support airlines in expanding their capacity and reach. We are prepared to address the immediate need for additional aircraft," Martynas revealed in his official statement in Jakarta on Saturday (15/2/2025).
The ACMI model from BBN Airlines Indonesia also offers rapid operational preparation time. Available aircraft and trained crew can be ready to launch within 2-4 weeks after an agreement. "This will provide airlines with high flexibility to instantly expand their fleet without needing to make a major investment or engage in complex fleet management," he added.
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