RI aviation industry 'should consolidate'

The Jakarta Post, Jakarta | Wed, 05/07/2008 9:39 AM

With cutthroat competition in the country's aviation industry and soaring oil prices, a consolidation within the sector is the way forward, national flag carrier Garuda Indonesia Airlines said Tuesday.

"The way I see it, there is a distinct possibility there will be fewer airlines in the country soon... Other airlines know this too, whether they like it or not," Garuda president Emirsyah Satar said.

The imminent increase in domestic fuel prices and continuing global uncertainty over skyrocketing oil prices will take its toll on local airlines, he said.

The government said it would raise fuel prices to control the burgeoning fuel subsidy. The resulting inflation would affect people's spending power and consequently discourage them from traveling by air.

The price of jet fuel has also been increased, forcing Garuda to raise its fuel surcharge from about Rp 80,000 (US$8) to about Rp 100,000.

Against this backdrop, competition among local airlines -- which have been engaged in a price war for the past two years -- has heightened, giving added impetus to airlines to consolidate, said Emirsyah.

The European Union's ban on Indonesian airlines flying into Europe will also be a factor in any possible consolidation, he said

In April, the EU renewed its ban, while warning European citizens against taking Indonesian airlines following four fatal crashes last year.

Emirsyah did not rule out the possibility of Garuda acquiring smaller airlines.

"If the opportunity presents itself, and it proves to be lucrative, with strong benefits coming from such an expansion, then yes we'll take it," he said.

Garuda, the nation's largest airline, increased its fleet by 60 airplanes, including 10 Boeing 777-300ER jumbo jets and 50 Boeing 737NG next-generation jets, which would begin arriving in 2009.

The shift toward consolidation follows a global trend that has seen many airlines declare bankruptcy or merge with other airlines to stay afloat.

Last year, U.S. carrier Continental Airlines announced a possible merger with United Airlines, following the merger of Delta Airlines and Northwest Airlines.

Hasyim Arsal Alhabsy, public relations manager for Lion Air, said in two years time his company would consider acquiring airlines from Thailand, Vietnam and Bangladesh in anticipation of the free airspace market in the ASEAN region.

Indonesia has 25 airline companies, including charter airlines, compared with only three in China. (anw)