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Aviation Business Predicted To Slow Down Towards The End Of The Year
Thursday, 31 Oct 2024
The airline business in Indonesia is expected to slow down in the second half of 2024. This is due to several factors, including high operational costs for airlines and a challenging business environment.
"Like a patient just recovering from hospital treatment, Indonesian airlines now face tough conditions, with profitability slowing down," said aviation expert Gatot Rahardjo in a written statement on Wednesday (October 30, 2024).
For instance, in the first half of 2024, AirAsia Indonesia reported a loss of IDR 1.29 trillion, which is nearly seven times (643.92%) higher than the IDR 174.21 billion loss in the same period last year.
On the other hand, Garuda Indonesia is somewhat fortunate, showing a year-on-year performance growth of 32.88%, reaching US$ 76.50 million as of June 2023.
According to him, the first half of 2024 is supposed to be the peak season for flights, with many holidays, including Eid al-Fitr and Eid al-Adha, which can last up to a month, along with school vacation periods.
There is also an election season that increases the movement of people between cities and islands, with many using airline services.
In the second semester, the peak season is limited to Christmas and New Year. Therefore, if many airlines report a decline in performance during this period, it is likely that the Indonesian aviation industry will become even quieter for the rest of 2024.
"The current business sector is not doing well, and if this situation continues, it could worsen. Garuda is a full-service airline, Sriwijaya offers medium service, and Indonesia AirAsia is a no-frills airline. If all of them are losing money, it’s certain that all national scheduled airlines are facing the same issues," Gatot explained.
He noted that the profit and loss reports will show that losses occur because expenses exceed revenue. The largest expense is fuel costs, which can account for 30% of total costs for full-service airlines and even up to 50% for low-cost carriers (LCC), Gatot stated.
The second largest cost is maintenance, which is 16%, including spare parts procurement. Importing spare parts takes a long time and is often subject to high tariffs, he added.
The third largest cost mentioned is aircraft rental, which accounts for 14%. When these three costs are added up, full-service airlines reach 60%, while low-cost carriers (LCC) can hit 80%. This increase in costs will certainly affect the total expenses of the airlines.
Unfortunately, these costs are also influenced by the exchange rate of the rupiah against the US dollar. As the dollar price rises, the costs for airlines increase because their income is in rupiah, he explained.
In addition to costs, Gatot believes that another factor causing airline losses is the poor business climate. While operational costs for airlines continue to rise, the upper limit on flight fares set by the government since 2019 has not been increased.
As a result, airline revenues are limited and cannot cover expenses, leading to guaranteed losses. Furthermore, there is unhealthy competition because one airline group holds a very large market share, allowing them to dictate the market, he concluded.
