Is Indonesia too hard to crack for Australia’s airlines?
The overwhelmingly large proportion of Australians going to Singapore or beyond to do business in Asia fly over Indonesia in the dark, and asleep.
As a current article in the Financial Times reminds its subscribers, this could prove a costly pointer to the curious lack of participation in the surging airline sector of a nation that on present trends, will be the sixth largest economy in the world by 2030, and is ranked 16th today.
Neither Qantas nor Virgin Australia have a declared strategy for participating in the manifest potential of air travel in the vast archipelago to our north, which despite some serious Australian trade ventures, registers mainly in the public mind as being a holiday destination, Bali, distantly followed by Lombok, maybe.
The two low cost franchises that have gained traction in Indonesia are Air Asia, and Tiger Airways Holdings, through its investment in a restructured Mandala Airlines.
Qantas did once look at Adam Air, a lethally flawed and now defunct Indonesian operator and was considering a 20% equity in the carrier prior to a 1 January 2007 that crash that killed all 102 people on board an aged and inadequately maintained 737-400 flown by poorly trained pilots which crashed into the sea on a Surabaya-Manado service.
Since then there have been vague indications of interest by Indonesia’s large low cost carrier Lion in participating in Australia’s domestic routes, rather than attracting Australian equity for its own operations, and Lion with orders or options for around 300 Boeing 737s, is proposing to launch a full service subsidiary Batik Air, using a small fleet of 787 Dreamliners.
It is important to recognise that the trajectory of population and economic growth in Indonesia will, as it has in China, rapidly turn that country from being predominantly a destination for Australians into a source of visitors to Australia.
The geographical reality of Indonesia also means that route developments will be widely dispersed, rather than aggregated through Denpasar and Jakarta, and that in turn means the emphasis will for a long time be on single aisle jets like 737s and A320s seeking access to dozens of ports in Australia, a very different situation to the emphasis on large wide bodied airliners by carriers like Emirates, Singapore Airlines or Cathay Pacific.
The Indonesian situation that is emerging in air travel demand is not one that will challenge the Australian carriers with monolithic sovereign funded enterprises with dozens of A380s, but a broad range of private operators flying hundreds of A320/737 sized jets.
The question has to be asked, what sort of whinging will this inspire in Australian carriers, and might they instead, this time, see the opportunities coming at them, and actually do something about it for their shareholders and employees?
The current roster of airline stories on the FT site also includes an interesting report quoting Cathay Pacific CEO John Slosar on low cost carriers, pointing out that their impact, so far, on its fortunes has been unmeasurable, and that it has, as it has often said in the past, no plans to launch a Jetstar type second brand.
Please login below to comment, OR simply register here :
Thank you for registering, we have just sent you a confirmation email, which includes your new password to be entered below.
Ben,
Thanks for highlighting the frustratingly obvious fact that Australian businesses (not just within aviation) are ignoring our northern neighbour at their peril! It astounds me how India- and Sino-centric we are when we have so much more to gain by doing business with Indonesia.
Apart from the huge tourism potential that outside of Bali has lay dormant for years (if not decades) – think Borobudur, North Sumatra, Borneo, Torajaland – Australia is the largest aid donor in Indonesia. Add the burgeoning middle class in Indonesia (not just in Jakarta but across Java, and also in bigger cities such as Medan) and you’ve got huge potential.
I’d be interested to hear your take on JQ’s plans (if any) in Indonesia. Having bought Valuair they don’t seem to have done much more than just provide flights from Surabaya, Medan, Jakarta & Bali to Singapore. Surely if they were game enough, they’d start to consider short haul flights into DRW from Surabaya, Yogyakarta or Lombok? Or are air traffic rights all tied up with flights in & out of DPS?
Gentlemen please! Please keep up to date.
Ben, you of all people should know alol about what I am about to elaborate on below. Perhaps it is simply a lapse of memory.
When carriers outside of Indonesia (particulaly low cost carriers) started to make inroads into the Indonesian’ airlines market within Indonesia (particularly against the government owned Garuda) the Indonesian government basically changed the laws (if they did not acctually changing the laws, then they acheived the same through their actions) to directly discriminate against the foreign owned carriers. They basically refused to give any more rights to new carriers wanting to access the Indonesian market and they curtailed the capacity increases of those that already had access and had any existing rights and bascally would not allowthem establish any new routes out of / into Indonesia.
So bottom line: no new carriers and restrict those that had already gained access.
The Indonesian market is a big market and a growing market, and as you say Ben, an ideal market for the LCCs with single aisle aircraft and low costs. But the Indonesian government currently does not want (a) too much competition for Garuda; and (b) want to give any of the Indonesian market to foreign owned (even 49% foreign owned) foreign carriers if they can help it, whether they be low cost carriers or full service carriers. Air Asia and Tiger were fortunate to get in before the doors closed behind them. Likewise with JetstarAsia and why JetstarAsia still continues to run ValueAir as ValueAir; which is to retain the rights ValueAir had before the door was tightly closed by the Indonesian government.
Hence, Ben the only part of the story that is correct is “that the Indonesian market is indeed a great opportunity”. Regrettably that opportunity has been intentionally diminished by the Indonesian government to contain the opportunity to Indonesian interests.
That’s the wild card risk that you run into in these types of markets. The governments within Asia in general, do not like open-market competition. They like ORDERLY markets; which means operating in a fashion that would be illegal in first world countries that have competition law authorities and proper governance.
It will change; but do not hold your breath in the short term waiting for it to happen.
All true Postman and relevant to Dwyer’s concerns too.
I’d summarise the Indonesian policy toward external investment as being you provide the money and we provide the control.
However that’s a formula that can nevertheless become highly attractive depending on how it is finessed. It was undoubtedly a topic touched upon in general terms in Darwin today when Susilo Bambang Yudhoyono’s entourage met Julia Gillard’s most senior trade officials as well as our diplomatic and defence leaders, and I notice the Indonesian preference for managed trade relations rather than doctrinaire open skies has already been mentioned in the ABC News 24 coverage. Tony Fernandes (Air Asia) has found the possibilities so attractive he recently told the media he was moving house to Jakarta.
Taking a cue from TF, now is a good time to work on and leverage the relationships.
Ben, agree with all the comments made.
But why not highlight the poor state of Qantas’s scheduling of services to Indonesia?
I lived in Jakarta for four years, and brought my kids to Jakarta twice a year during school holidays. They still go back once a year now.
Whereas we ALWAYS flew Qantas, usually B-767 out of Jkt to Syd, and later on, on B747, which was good. As I remember, they flew about 5 times a week.
Now QF is only flying three times a week to Jkt. Our 8th largest trading partner only scores three lousy services a week on A-330-200?
What is happening here? Garuda, who used to be the last airline you would consider (based on safety), has put considerable effort into upgrading its aircrew performance standards, maintenance standards, and cabin service, and now offers daily services 7 times a week on A-330 (older aircraft than Qantas’s, having been delivered in late 1990′s but which pax’s can tell after a repaint and refurb?
GA has now become an acceptable alternative to QF on the Syd-Jkt route. They are lower cost, acceptable cabin service, and an acceptable safety record (GA’s international services have been relatively accident free … last one I remember was a DC-10 aborting a takeoff at Narita due to engine fire, and killing a couple of paxs in late 1990′s, but don’t recall anything since in their International operation).
It wouldn’t surprise me if GA starts offering multiple flights per day to Australia via the major cap cities direct to Jakarta while QF forces a transit via Syd.
I just shake my head, and now send my kids via GA. Breaks my heart
Hi PeterP.Syd
I agree with your comments.
This is a route that Qantas should develop. They could easily grow into the route by initially testing additional frequency with a narrow body rather than additional A330 (it is within range) and then expanding the guage (capacity) as the route developed. BTW, there is nothing wrong with an A330 for this route. It is a good aircraft to fly on and a perfect work-horse for a route like JKT.
At the moment QF is leaving Indonesia far too much to Garuda who have greatly improved their product and attracting passengers. (personally, I stopped flying them some years back when they had too many crashes for my liking; but I would try them again when they have clearly demonstrated (to me) that they have overcome some of their pilot and engineering shortcomings).
Bottom line, however, is that I agree with you. Qantas should have its eyes firmly fixed on Indonesia with three of its brands; namely
- Qantas mainline international (JKT and beyond JKT if they could get the rights to pick-up and set-down JKT other than to AU);
- Jetstar Australia International (Bali and other ports within Indonesia and great if they could get rights beyond as QF above);
- JetstarAsia [ValueAir] (multiple points both within and without Indonesia) This was I understand always intended to be a major market focus for Jetstar Asia but has been prevented from expanding ValueAir/JetstarAsia beyond grandfatherd routes. It is lucky that it even has those with the current Indonesian government protectionist attitude.
I know that Indonesian government is a hindrance with all of the above, but if Indonesian government is not prepared to create a level playing field then the Australian government should in return take affirmative action to restrict to rights of any Indonesian registered carrier flying to/from Australia. In this latter case I am not advocating protection of Australian carriers per se, but simply the Australian government doing what is its job for Australian enterprises and that is using its powers in the aviation arena as leverage or a bargaining tool to get Indonesia to open its market to Australian carriers; rather than simply go on in general giving foreign carriers almost unfettered, unlimited capacity into and outof Australia without negotiating a reasonable quid pro quo for Australian enterprises. And by that I mean trying to do the best to create a level playing field for Virgin. Qantas, Jetstar and any other carrier that starts up in Australia in the future and passes the designated Australian international carrier test of greater than 50% Australian equity; short of actual protectionism.
I could be very critical of Qantas in many ways; but it also needs to be recognised that the Australian government by simply pandering to tourism interests in Australia (who could in turn not care less if there was any Australian carrier left flying into or out of Australia, as long as there were more seats overall) has in some ways contributed to the demise of Qantas.
No government in the world has abandoned its national carrier (and in that statement I also refer to other Australian carriers such as Virgin) as much as the Australian government has abandoned Qantas (and Virgin) and expected it to openly and easily compete on a very lop-sided playing field.
I may end up standing corrected, but name me one that has done this and still has a national carrier that is not either government owned, majority government owned or otherwise bankrupt.
And by this I reiterate that I am not asking for protectionism (as I am actually anti-protectionist) but I do expect that the government to do its job where it can to help create a level playing field of open competition; at least in the aviation arena where if the government had the guts to do what is required of it to foster Australian enterprises; this could be achieved.
I now step down off my high horse, on to my soapbox and then step from this with a large thud back to the ground and my idealised world of generally expecting too much from too many and people doing the right thing.
When a Balinese decided to make wine on that little island a few years back he got the Indonesian government to slap a 500% tax on foreign imported wines. This is the way Indonesians do business in their country. The military own the 5 star hotel business in Bali and its in their interest to fill them up with westerners, thats why Jetstar and Virgin are given free access to Bali. This is a very hard country for western companies to do business, as the rule of law does not exist.
Please login below to comment, OR simply register here :
Thank you for registering, we have just sent you a confirmation email, which includes your new password to be entered below.