South East Asia Aviation: What You Need to Know


The liberalization of ASEAN’s aviation sector will be a major catalyst for the region’s economic growth by 2030 - Liow Tiong Lai, Malaysian Minister of Transport

The Malaysian Minister of Transport’s thoughts are backed by strong arguments as aviation plays a vital role in developing business, trade, sales, innovation, investments and tourism, all facilitating economic growth. With South East Asia being one of the most dynamic areas in the world, a boost in tourism and trade should have astonishing effects and bring countless opportunities - and challenges - for all aviation players. Latest news indicate that the Single Aviation Market (SAM) is due to be signed by this year.

South East Asia Aviation Market

The Association of South East Asian Nations (ASEAN) is a political and economical organization gathering ten countries and about 9 percent of the world’s population or 625 million people. Taken as a whole, ASEAN would rank 7th in terms of GDP, before Brazil and India.

ASEAN’s core countries are Indonesia, Thailand, Malaysia, The Philippines, Singapore and Vietnam and are home to the biggest airlines in the region. Among them are rather large full service carriers (FSCs), most being under restructuring, like Garuda Indonesia followed by Singapore Airlines as ASEAN’s biggest. But ASEAN's aviation market is being dominated by low cost carriers (LCCs), the major being Air Asia Group and Lion Air Group, both on their way to reach a milestone of 50 million passengers carried per year.

Despite ASEAN's capacity growth shrinking from 30% in 2013 to 13% in 2014 in light of overcapacity concerns, LLCs account for about 60 per cent of the market and are growing faster than their full service carrier counterparts. Even if astonishing growth rates might get lower as markets get more mature, Southeast Asian carriers account for 15% of global aircraft orders (almost 2000 airplanes). In other words, nobody plans to leave the battlefield, no matter how large the cake will grow, and airlines have faith in their ability to grow and compete even beyond their borders.

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Legal Barriers

Contrary to Europe and the US where LLCs mostly emerged after full liberalization (in 1978 with the Airline Deregulation Act in the US, and in 1997 in Europe), ASEAN airlines’ ability to expand beyond their borders is still very much government-regulated. A major step was taken in 2008, when airlines based in a country member of ASEAN were granted the right to fly between the region’s capitals without restrictions. And in January 2011, this right was extended.  Airlines of any of the ten countries were granted the right to continue to an extra destination of the country’s capital they are flying to (fifth freedom).

For airlines, it was not enough. To fulfill their desire of expansion in other countries, foreign airlines had no choice but to create local companies in joint venture with local partners, and to gain a national airline operating certificate (AOC) in the respective country. This allowed competition to develop even more rapidly, as shown for instance by Malindo, Indonesia’s Lion Air subsidiary in Malaysia which launched in March 2013. Malindo claims a 10%-market share on the Malaysian domestic market (versus 45% for rival AirAsia and 38% for Malaysia Airlines), where it operates 13 domestic routes and 13 international routes. Thus, despite various forms of protectionism observed in the past, airlines have been able to significantly expand beyond their borders. For Air Asia, which initiated this trend, international operations are now larger than its historical activity in Malaysia.

But this has come at the price of enormous complexity. Presently, there are 24 LLCs in Southeast Asia, 8 of which are affiliated to AirAsia and operate in more than 17 hubs in five countries. With a single aviation market, these local entities would no longer be needed, nor would be a local partner and AOC. Carriers could be more agile, hence opening new routes. As an example, the number of routes between Japan and Taiwan increased 5 times since an open skies agreement between Japan and Taiwan was signed three years ago, and in the European Union, the number of routes have been multiplied by more than five in twenty years of deregulation.


New ASEAN Competition

Beyond the opportunity of reuniting all local subsidiaries with their parent company with full ownership, an opened market will open doors for mergers and acquisition. This already started in the Philippines with the purchase of Tigerair Philippines by Cebu Pacific. Similarly, the strongest carriers in the region could take the lead and grab the opportunity to become bigger through external growth. But there aren't many. One can count less than five profitable LCCs in the region (for 24 actors), and barely ten FSCs (roughly 40 players). Some like AirAsia, which has only its Malaysian and Thai subsidiaries profitable, initiated a paradigm shift from growth to profitability. FSCs like Thai Airways are also undergoing cost cuts, while others are working hard to develop their low cost subsidiaries (currently six in the region). To say the least the airline industry in the region is not in its best health to welcome an increased level of competition. Yet, with liberalization, the possibility given to carriers to open new routes, and to easily switch planes to their most profitable markets, could help raise profitability and diminish fears of overcapacity. There are also underpenetrated markets like Myanmar. It has a low cost penetration rate of 27% and the country’s tourism is booming, which make it an easier market to conquer. The extra competition will not come without opportunities for the region’s carriers, even though the outcome (with airlines that could as well be stronger, even more aggressive and reluctant to cut capacity as fuel costs slump) will be interesting to watch.

An airline industry massively losing money is not the only matter to monitor as the Single Aviation Market arrives. Infrastructure use, including airport, runway, or air traffic systems capacity will feel a more intense pressure, while being extremely saturated in some countries already like in Indonesia. Lack of safety will be a worse bottleneck than national regulation and protectionism now.

Recently, Air Asia CEO repeatedly said that a change in mindset regarding infrastructure management in ASEAN is needed urgently. Tony Fernandes reminded everyone that his airline attempted to invest in infrastructure several times over the past years, but was always blocked by authorities. The creation of regional aviation regulatory bodies could help make things move forward, otherwise airport space and slots could be used as traffic rights, as Jetstar CEO recently warned.


ASEAN and Asia aviation in general are already among the world’s most competitive markets with 75% of the routes operated by more than three carriers. Besides enhancing direct competition and making air travel more affordable, open skies agreement deals in the past have enabled a huge increase in terms of city pairs flights. This is key to unlock new markets, and LLCs will probably fiercely want their slice of the cake. LLCs play a vital role in allowing a growing part of these countries’ middle class to fly. While most LLCs are losing money, the demand will stay strong: 7.7% on average for the coming 20 years.

With a single sky market, airlines can strategically choose their operational bases, and increase competition between national infrastructure providers. All in all, this matters a lot in this deal: with a single market comes the need for all the ASEAN countries to collaborate.

Hopefully, there will be a regional answer to current infrastructure problems. And other outcomes, such as the opening of bilateral negotiations to increase competition on long haul markets (which stand far behind competition levels seen on the regional market) will follow.

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Related Resources Social benefits of air transport, ICAO Boeing market outlook 2014


Indonesia Airports Build: Overcrowding

Indonesia’s 230 airports are as active as the ones serving its capital, and sadly busy in the same proportions. The 25 Indonesian airports managed by state-owned company PT Angkasa Pur (which includes the country’s busiest such as Surabaya, JakartaMakassar and Bali Denpasar) handled 111 million passengers in 2010, although their combined capacity barely reached 58 million. Bali airport is running at twice its capacity but the in progress-expansion will make it ready to handle 20 million passengers in 2017 – versus 14 in 2012. That would make it ready to cope with the growing traffic until 2017, officials said. The capital of Sumatra North Medan also saw its situation changing for the best in 2013 when its new Kuala Nanu International Airport finally opened. The former Polonia airport closed last July while it was handling 8 million passengers for a capacity limited to 1. Indonesian airlines did not wait long before jumping on it, mainly for its most valuable asset: room.

Yet, despite having a brand new and roomy airport, a key item has been forgotten. The airport’s only road connection to the city is tortuous and tiny, because no road extension have been included to the project. Medan though is the first airport of the country to have rail transport integrated, even though the capacity is low. “Kuala Namu was meant to be a showcase, reassuring foreign investors and Indonesians frustrated by decades of under-investment in roads, airports and power plants” The Financial Times reports (Infrastructure failings clip the wings of Indonesian airport - ), “But instead, it has become a potent symbol for the poor planning, land acquisition problems and lack of co-ordination that have undermined the drive for progress with many other crucial infrastructure developments across Indonesia”.

Expansion Plans

In the coming year, 45 airports are to be built or relocated, including 24 airports by 2017. 14 airport extensions and several involving the country’s busiest will be completed by 2015. Yet, the figures given for Bali Ngurah Rai’s expansion point to other hidden issues. Indeed, with a 15% growth, Bali is expecting to handle more than 24 million passengers in 2016. One could wonder why an airport that has just been expanded would still lack capacity even before it is completed. A possible explanation that as a matter of fact stands for many airports in the country is the lack of available land to expand. For instance, Lion group had to set up maintenance facilities in nearby Singapore because “there is no space in Jakarta”.

Too Late

The current expansion plans look like an emergency response to the overcrowding situation. But nevertheless, it will be hard to get out of years of under investment, lack of leadership and delays. Jakarta’s first extension, which should be completed next year, would raise its capacity to 62 million in 2015. Assuming a 15% growth, Soekarno would see its traffic rising from 58 million in 2012 to 88 million in 2015. In other words, even if the expansion is completed on time, Soekarno would struggle to handle 40% more passengers than it should when 2015 is here.

Contrarily to other countries, such as China which plans infrastructure investments far ahead, Indonesia has not succeeded to update its aviation infrastructure and is now doomed  for overcrowding. The demand is simply growing too fast for infrastructure to keep up.

What Next? 

It is now more than ever urgent to change. ASEAN is poised for open-skies in late 2015, and the number of flights in Indonesia is very likely to increase by then. On the other hand, infrastructure is not only crowded but experience safety issues, as shown last August when a cow was hit by a Boeing 737 on a runway in Gorontalo airport. The aircraft consequently skid off the runway. And with most of Indonesia's airlines blacklisted in the European Union, Indonesia has been criticized for the poor efficiency of its civil aviation authority when it comes to safety checks, partly due to its lack of resources. “You can imagine that with traffic increasing by 20 percent a year for the last five years and you have less than 200 safety inspectors? What do you expect?”, president of the Indonesian transportation society said. And Lion 904’s crash in Bali last year was Lionair’s 6th landing accident of the decade, mostly blamed on poorly trained pilots. And with air traffic radar systems also running at twice their capacity, in a country where weather is strong and fast changing, who knows what could happen next.

“The importance of the airline industry to Indonesia’s economy is massive”, analysts say. While the government attempts to create an environment to democratize air transport through liberalization and increased competition, these efforts are meaningless if there is not enough room for flights to land safely.

This is part 2 of 2 in a series written by Generation Y and  focused on airports in Indonesia. In part 1, we looked at Jakarta airports.

References This Is Why They Tell You Not To Fly On Airlines From Indonesia

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Indonesia Airports Build: Jakarta Airport Failure

In Indonesia, it’s too late. After years of governmental inaction, the country’s airports are heavily saturated, and expansion plans will not be enough. Airlines are still growing fast, trapping Indonesia in a vicious circle. The economy is booming on this tiny archipelago of 17000 islands. Air transport is nothing less than the only solution, and fast-competing airlines brought domestic air traffic's growth to a whopping 20% in 2012. While some emerging countries manage growth well, others don’t.

Behind the amazing success of booming airlines, another reality comes up: Jakarta's Soekarno-Hatta International Airport. It handled 58 million passengers in 2012, but it was only designed for 22 million passengers. This represents a 163% overcapacity that as you will see, sums up pretty well the situation of airports in Indonesia.

Failure to Improve Airport Infrastructure

Indonesia is one of the four Tiger Cub booming economies and the 4th most populous country in the world. Although more than half of its inhabitants are still living on less than 2 US Dollars a day and less than 15% of them have already boarded an airplane, 141 million of the 250 million inhabitants will belong to the middle class by 2020.

With economic growth rates never lower than 6% since 2004, a rough land made of mountains and islands that make “land travel not an option in most cases” according to the state-owned airport operator, aviation has been ineluctably surging over the past decade. Indonesia growth rates are among the world's highest which led infrastructure projects to be overtaken too quickly even though the government increased their transport infrastructure budget to 53 billion US Dollars.

Huge Airline Growth, Orders and Deliveries

Indonesia’s biggest carrier Lion Air Group is the most visible sign of the extreme and unstoppable growth of the Indonesian aviation market. It will add 48 airplanes to its 94 plane-fleet this year, allocating 28 brand-new Boeing, Airbus and ATR aircrafts to the Indonesian market. The airline’s backlog says it all: after ordering in 2011 230 single-aisle jets with 150 options in what was Boeing’s biggest order at that time, 234 Airbus jets were piled up last year, bringing the total to a huge 550. Lion Air Group takes delivery of 40 to 60 jets per year, and should keep doing so for at least the coming decade. Its main low cost subsidiary Lion Air is the most aggressive but Lion Air also owns Lion Wings and Batik Air in Indonesia.

Its main competitor, state-owned national airline Garuda competes as a full service carrier and with its low cost subsidiary Citilink. It has even grown faster than the low cost carrier Lion over the past three years, reaching an amazing 36% passenger growth in 2011. Garuda has a 110-airplane backlog but is likely to order up to 250 jets this year. Other competitors include Indonesia Air Asia, subsidiary of the renowned Malaysian low cost carrier, and Sriwijaya Air.

Such growth rates have thrilled the airlines and the manufacturers, although they completely changed the airports' landscape: they are not able to grow that fast.

Soekarno-Hatta Expansion Plans

Soekarno-Hatta Airport is the main hub of the 28 million-inhabitants capital, and ranks 10 among the world’s busiest airports. The busiest airport in South-East Asia and third Asian Airport was handling 38 million in passengers in 2008 – when it took over Singapore airport. In other words, it doubled in 5 years, but it did not double its capacity. The airport has never really been extended, and projects to do so always got delayed or cancelled.

The expansion process has only been started in 2012, and should be completed in 2015, raising capacity to 62 million passengers per year via the expansion of the three terminals. Other plans including a third runway and a fourth terminal that could allow Soekarno-Hatta to handle 87 million passengers are also in the pipeline.

Jakarta’s 2nd Airport: Halim Perdanakusuma 

Jakarta is as it has been for years: crowded. Its very limited capacity of 22 million passengers (the number of travelers it handled in 2007, seven years ago!) had to be overcome urgently. Earlier last year, authorities allowed Jakarta’s 2nd airport Halim Perdanakusuma Airport to be reopened to civil flights. Halim Perdanakusuma Airport would be able to handle roughly 5% of Soekarno-Hatta Airport in terms of air movements, or in other words, 4 months of Soekarno's growth!

Insufficient Expansion for Jakarta

Let’s face it, one single airport in Jakarta will not solve everything, and the capital of the 5th largest aviation market in the world must be provided with another airport.

“We realize that this expansion is not enough, because the number of passengers keeps increasing every year" admitted the vice president of the state-owned company ruling most Indonesians airports.

The busiest airport in the southern hemisphere has been growing fast for years, overtaking Dubai but being overtaken by Istanbul with a 15% year-to-year traffic growth in 2012, and taking into consideration that the population is getting richer, the economy is improving and airlines have hundreds of airplanes to be delivered, it should keep doing so at least for the coming decade.

Jakarta, despite hosting the busiest airport in South-Eastern Asia, is not really a hub, since 3/4 of its traffic comes from domestic flights, and more than 90% of the flights are operated by unaligned carriers. That all changed last March 2014 when Garuda joined Skyteam, which accounts for roughly 30% of Jakarta Soekarno’s traffic. Therefore, having 2 airports in Jakarta would perfectly make sense. Furthermore, airlines are actively developing point to point flights, which help in avoiding the most crowded airports.


The situation in Jakarta is terrible but seems to be evolving since the expansion process is progressing. Nevertheless, this may be too late. The expansions planned will not bring enough room, and if the growth stays as high as it is, the enlarged buildings will be as crowded when the renovation is completed, as they are now, even if they are delivered on time.

This post is part of a new series called Generation Y, where we invite aspiring aviation professionals to contribute. This is part 1 of 2.

References Southeast Asia low-cost airline fleet to expand by almost 20% in 2014 Indonesia's Lion Air Orders 234 Jets From European Plane Maker (you need to be registered to access) Garuda Indonesia aims to order 200-250 aircraft from 2014 -CEO Soekarno-Hatta Airport Expansion Kicks Off Indonesia poised for more rapid domestic growth in 2013, driven by low-cost carriers

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