Indonesia To Give Foreign Carriers Domestic Flight Rights

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.

Garuda Boeing 737 MAX
Garuda Indonesia is one of the dominant carriers in Indonesia. Photo: Boeing

Dominant carriers

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.

Lion Air 737 MAX
Lion Air primarily operates 737s. Photo: Boeing

Boosting competition

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.

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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.

Garuda 777-300ER
Garuda Indonesia cannot make long-haul service to Europe work. Photo: Boeing

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.

Air Asia A320
Air Asia is the only foreign carrier operating in Indonesia. Photo: 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.

Overall

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!

6 comments
  1. The key challenge with Indonesia is access. Bali is the main port for wealthy tourists, who then have to connect to head east. Island hopping services ex Darwin with Virgin could have potential to bring in Australian and New Zealand tourists and development, and a safer alternative to Lion Air. However, it would never be able to compete with Lion or Garuda on costs.

    1. I could see additional tourist destinations opening up in Indonesia if foreign carriers get greater access to the domestic market. The ultimate goal of the government is to boost tourism and keep airfares low. Foreign carriers would definitely bring in some additional tourists.

    1. It would open up additional markets for SQ’s regional arms which would be interesting. SQ does seem to have an interest when it comes to establishing carriers in a growing market- just look at Vistara!

  2. The lack of competition in indonesia is a blessing in disguise. Like India, Indonesia’s market are extremely price sensitive. Opening up the market for more competition may not be good for the sustainability of local carriers. You might very well end up with Garuda being like Air India and Lion Air following the footsteps of Jet Airways. As it stands now, Garuda is already having difficulty in maintaining its profitability, reporting losses in the most recent years.
    The better option is definitely the limited fifth degree freedom routes which will boost influx of tourist to other destinations, and improve accessibility to upcoming destinations like Lombok and Manado.

  3. Indonesian market is very big, price and brand sensitive. I think, foreign carrier cannot survive in Indonesia. AirAsia for instance, in domestic market it takes only 2-3% market share, although it’s has lowest price among other LCC. To get the market, foreign carrier must have many route as Lion Air or Garuda. They must have many aircraft to.

    I think the price in Indonesia is normal now. Indonesia governments said that. http://indoaviation.asia/pemerintah-bukan-harga-tiket-pesawat-mahal-tapi-kembali-normal/
    So the problem is not the price. I think passengers and government officials are experiencing a shock due to airline ticket prices returning to normal. Now they have become accustomed to buying tickets again even though the price is up. The number of airplane passengers has increased too, though not as before.

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