Indonesian Infrastructure Update: Construction of the Karawang Airport
Although initially expected to start in 2015, the government announced that construction of the new Karawang airport (in West Java) may commence in 2014. The administrative process (including a spatial plan review) is near completion, thus clearing the way for the airport's groundbreaking. The Karawang International Airport, which is designed to have a passenger handling capacity of 70 million people per year, will be built on a 900 ha piece of land and is envisaged to relieve passenger and flight congestion at Soekarno-Hatta International Airport.
Soekarno-Hatta Airport, located near Indonesia's capital city of Jakarta, is currently handling much more passengers than it was designed for. In 2012, about 57.7 million passengers passed through the airport, while it was designed to handle 22 million passenger per year only. Apart from building the new Karawang airport to combat ever-increasing passenger growth in Indonesia, the Soekarno-Hatta airport is currently being renovated as well. It will have a passenger capacity of 68 million per year after its third terminal is ready for operation. Moreover, capacity is expected to increase to 88 million people after the fourth terminal is in use.
Growth of the aviation industry in Indonesia is about twice as large as growth of the economy. This means that the double-digit aviation growth puts serious stress on Indonesia's infrastructure.
The new Karawang Airport is part of Indonesia's Masterplan for Acceleration and Expansion of Indonesia's Economic Development (MP3EI). This masterplan foresees large investments in the country's infrastructure with the bulk of funds expected to originate from private investors. The government is also keen on stimulating public-private partnerships (PPPs) under the wings of the MP3EI program. It has allocated IDR 32 trillion (USD $2.8 billion) in funds for the construction and expansion of 14 airports across the country through the MP3EI program.
Recently, the new Kuala Namu International Airport near Medan on Sumatra was opened while the Ngurah Rai International Airport on Bali has been expanded.
Future Outlook of the Indonesian Aviation Business
The aviation industry in the Asia-Pacific region has shown robust growth in recent years. This region is one of the world's fastest growing regions regarding air travel. In the next 20 years, an average annual seven percent growth of air traffic is expected. Indonesia, the current engine of economic growth in Southeast Asia and one of the largest economies in the Asia-Pacific, contains a burgeoning middle class that is increasingly using airplanes for domestic and international transport. Being the world's largest archipelago (containing thousands of islands), air travel is a logical option for fast travel across the country. Moreover, Indonesia's investment grade status makes it cheaper for domestic companies to finance expansion.
| 2010 | 2011 | 2012 | |
| Airline Passengers Indonesia |
58.4 | 68.4 | 80.2 |
| - Domestic Flights (in million) |
51.8 | 60.2 | 70.4 |
| - Foreign Flights (in million) |
6.6 | 8.2 | 9.8 |
Source: Ministry of Transportation
Moreover, a political development will provide new opportunities in Southeast Asia's aviation sector from 2015 onwards. The establishment of the ASEAN Economic Community, which aims for the member countries to become a more cohesive political and economic unity, stipulates the liberalization of air travel between its member countries starting from 2015. As other ASEAN countries contain competitive airline companies, such as Malaysia's AirAsia and Singapore Airlines, it will be vital for Indonesian airlines to be fully prepared to meet this competition.
Matters that are frustrating efficiency of Indonesia's aviation business are shortages of human resources (for example pilots), inadequate air traffic management as well as facilitating infrastructure for air travel. The latter includes the lack of appropriate sized airports (including runways) and tollways/railway tracks to and from the airports.
Another stumbling block is that fierce competition has seriously reduced profit margins for all airlines, while capital investments remain high. In combination with poor management, this has taken a few victims in recent years: Mandala Airlines (a takeover by private equity firm Saratoga Capital and Tiger Airways eventually saved the company), Pacific Royale, and Batavia Air.
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