Analysis: Accelerating the recovery of domestic air transportation

16 October 2024

Jakarta Post - The global air transportationindustry is undergoing a significant recovery following the disruption caused by the COVID-19 pandemic. As restrictions ease and people return to traveling, passenger demand continues to rise.

However, there is a notable discrepancy between the recovery of domestic and international Indonesian air travel. International air travel has not only recovered but also exceeded pre-pandemic levels. The ratio of international passenger numbers in the first eight months of this yearto that of the first eight months of 2019is100.6 percent.

In contrast, domestic air travel has remained below pre-pandemic levels, with a ratio of 83.9 percent in the same periods. This raises critical questions: Why is domestic air transportation recovery slower? Is there a shortage of aircraft serving domestic routes, and if so, how can this be addressed?

One of the primary barriers to accelerating the recovery of domestic air transportation is the limited number of aircraft available for domestic routes. Data from Angkasa Pura (InJourney Airport) shows that only about 420 aircraft are currently operating on domestic routes.

This is significantly lower than the 740 aircraft that were in operation in 2019. This shortfall has a direct impact on flight capacity and contributes to the increase in ticket prices, as high demand exceeds the available supply of flights.

The limited availability of aircraft serving domestic routes is a major factor slowing the recovery. With fewer planes, airlines struggle to meet growing passenger demand, and as a result, ticket prices have surged.

This combination of reduced capacity and high fares further discourages potential travelers, exacerbating the slow pace of domestic air transport recovery. In comparison, international air travel has rebounded faster as a result ofmore readily available aircraft and higher global demand for cross-border travel.

Despite these challenges, several strategic measures can be taken to accelerate domestic air transportation recovery. The first iscreating broader opportunities for new airlines,both domestic and international,to enter the Indonesian market. The entry of new airlines would increase the number of available aircraft, expand flight routes and enhance overall passenger capacity.

A recent example of a new entrant is BBN Airlines Indonesia, which has brought renewed optimism to the domestic aviation industry. Established in August 2022, BBN Airlines Indonesia is part of the Avia Solutions Group, an aircraft, crew, maintenance, and insurance (ACMI) service provider based in Dublin, Ireland. The airline serves key domestic routes, including Jakarta-Surabaya, Jakarta-Balikpapanand Jakarta-Denpasar, operating seven flights per week on each route.

Currently, BBN Airlines Indonesia operates three Boeing 737-800 aircraft for passenger charter flights, three cargo planesand several Boeing 737-400 planes that serve both domestic and international routes.

The airline has ambitious expansion plans, intending to increase its fleet to 10 commercial aircraft by the end of 2024and to operate 40 aircraft by 2027.

The presence of new airlines like BBN Airlines not only boosts flight capacity but also creates healthier competition in the industry, reducing the dominance of a few major airlines and giving consumers more choice and better prices.

The second key strategic step involves controlling the rise in domestic ticket prices, which have shown an upward trend in recent months. While demand for domestic flights is increasing, the limited number of aircraft in operation has led to less competition among airlines, causing prices to rise. This situation risks further hindering the recovery of domestic air transport, as passengers may opt for other modes of travel due to cost concerns.

In response to rising prices, the Indonesian government formed a task force (satuan tugas, or satgas) in July 2024 to review and address the factors driving up ticket prices. The task force has been tasked with reviewing the cost components that influence airfares, including fuel costs, spare parts, licensing fees, value added tax (VAT)and passenger taxes. The government's goal is to achieve a 10 percent reduction in ticket prices by October 2024, just before the end of President Joko "Jokowi" Widodo's term.

In addition, the Transportation Ministry is currently evaluating the upper limit tariff (TBA) and lower limit tariff (TBB) for scheduled airline tickets. We assess that the upper limit tariff (TBA) still tends to be high and does not need to be increased. If it is increased, it will further disrupt the process of recovering passenger demand because it will increase flight ticket prices.

The third critical strategy for accelerating domestic air transportation recovery is ensuring that airlines and airports are prepared for peak travel periods, such as the upcoming Christmas 2024 and New Year 2025 holidays.

These holiday seasons typically see a significant surge in passenger numbers, placing added pressure on airlines to meet demand. Airlines must ensure that there is sufficient aircraft availability to accommodate the increased volume of travelers, while also optimizing flight schedules to minimize delays and overcrowding.

In addition to increasing fleet capacity and controlling ticket prices, airlines should consider leveraging promotions to attract more passengers. Marketing campaigns offering discounted tickets, bundled travel packages with hotel accommodationsand special deals for popular tourist destinations could help stimulate demand for air travel.

The recovery of domestic air transportation in Indonesia faces several challenges, most notably the shortage of aircraft and rising ticket prices.

However, there are significant opportunities to accelerate this recovery through strategic measures. The entry of new airlines offers hope for increasing competition, expanding capacityand providing more affordable ticket options.

By focusing on key strategies, including expanding the fleet, controlling ticket prices, preparing for peak travel seasonsand leveraging promotional campaigns, Indonesia's domestic air transportation sector can achieve a faster and more sustainable recovery. With continued collaboration between the government, airlinesand industry stakeholders, domestic air transportation could soon return to pre-pandemic levels and set the stage for future growth.

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