Indonesia is an interesting market when it comes to aviation. On one hand, you can find some of the best service in the sky. On the other, you’ll also find low-cost carriers who dominate the market. Right now, Garuda Indonesia and Lion Air are leading the market, but that could start to change soon. New policy presentations from the Indonesian government indicate foreign carriers may receive greater access to Indonesia’s domestic market.
Indonesian aviation is dominated by Garuda Indonesia and Lion Air. Garuda is a full-service carrier that appeals to those looking for some frills on the flight. Recently, Nick from Simple Flying flew Garuda and found it to be an interesting experience. Indeed, Garuda strives to appeal to comfort-seeking passengers.
Meanwhile, Lion Air exists as Indonesia’s dominant domestic carrier. As a low-cost carrier, Lion Air appeals to those looking for a cheap way to get from point A to point B. However, the amenities are somewhat basic.
Flightglobal reported that Indonesian president Joko Widodo was upset with the lack of competition in the Indonesian aviation market. His administration has been notorious in their monitoring of the prices of airfares. This has led to adjustments in both price ceilings and price floors in an effort to stimulate tourism and grow Indonesia’s passenger numbers.
While some will bemoan these changes as being detrimental to the aviation industry, others will welcome them as a necessary intervention in a market with many quirks. Indonesia is one of the largest countries in the world by population, however their aviation market does not reflect that. Garuda Indonesia has struggled to make a European route work. This leaves only foreign carriers operating international long-haul service to Indonesia.
Opening Indonesia’s domestic market
The Jakarta Post reports that Indonesia’s government is working on a new aviation policy that grants foreign airlines greater access to domestic routes. Currently, foreign airlines must establish a new company in Indonesia and limit themselves to 49% of ownership. 51% of the ownership must lie with Indonesians.
While some joint ventures of this nature have been implemented in other countries, the same is not true for Indonesia. To date, the only foreign carrier that operated under this principle is Air Asia.
If Indonesia’s domestic market were to be opened for international carriers, it could lead to the launch of new services. Some of these could include fifth-freedom routes on important domestic connections while others could bring competition to a low-competition route. In this way, the Indonesian government hopes that airfare prices can remain low. Of course, this depends on which foreign carriers launch new services within Indonesia.
Indonesia will have to balance their desire for lower airfare and the survivability of their domestic carriers. If international carriers can operate flights cheaply, it can threaten operations by domestic carriers.
Ultimately, the aviation industry is a cutthroat industry with much volatility. It will be interesting to see how this market changes with this new policy.
Do you think Indonesia’s aviation market needs more foreign carriers? Are prices too high in Indonesia? Let us know in the comments!