“ Indonesia Progress Toward The Next Wave”

Airline Industry Perspective

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Elisa Lumbantoruan - EVP Corporate Strategy & IT/Act. EVP Finance - Group CFO
 Contents

1. Indonesia / Industry Overview

2. ASEAN Open Sky

3. Garuda Indonesia Today

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Indonesia: unique opportunity within Asia
South East Asia GDP Forecasts
Most populous country in the South East Asia (4th largest in the world)
 with people distributed across a number of medium - large cities and GDP per
capita(1) 2,224 1,052 34,346 1,721 1,052 7,469
high density provinces
(US$)

Largest archipelago in the world lending greater importance to air travel;

 potential for taking market-share from land / sea travel

(%)
High growth economy with GDP per capita showing a growth of 12% in
 the period 2000 – 2009

Most populated cities in the region

Kuala Lumpur
1.6 million
Petaling
1.5 million (1) 2009 estimates
Source: IMF, World Economic Outlook (WEO), 2009

Manila Indonesia: GDP per capita

1.7 million

Medan
2.0 million Singapore
4.6 million

Jarkarta
8.0 million
Bandung
4.0 million Source: IMF, World Economic Outlook (WEO), 2009

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 Indonesia: tourism to be a likely major driver for air-traffic going forward

No. of inbound and outbound tourists in 2009

36.9

 The relatively small Indonesia tourist market has great

growth potential
13.2 28.6

 Indonesia has been gaining popularity among the

(millions)

13.4 global tourist community over the years

17.5

4.4 12.6
Government’s emphasis on inbound tourism market
23.3  likely to drive faster growth in the future
6.3
15.2 5.1
13.1


1.3
6.3 Growing affluence among Indonesian residents would
3.8
provide a boost to outbound tourism
Malaysia Singapore Thailand Indonesia Vietnam

No. of inbound tourists No. of outbound tourists

Source: Euromonitor International

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 Aviation Industry: Indonesia to register tremendous growth

Airline passenger volume Airline penetration levels

’07–’09 CAGR Population
70.0
232 87 92 28 67 5
Domestic 5.4% (m)
International 10.1% 496
Total 6.6% 59.4
60.0

52.2 52.1

50.0

40.0
43.5

39.1 37.4
30.0

20.0

10.0
14.7 15.9
13.1

-
2007 2008 2009

Domestic International
International
Source: Company Domestic Source: Euromonitor

 One of the fastest growing airline markets in Asia  Largely underpenetrated market with significant
potential for growth

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Aviation Industry: Asia to lead would traffic growth
 In 2009, Asia-Pacific overtook North America to become the largest air travel market with 647 million passengers and
is expected to grow more rapidly than that of the rest of the world, with an average annual growth rate of 6.5%
between 2009 and 2028

RPKs(1) (bn) World

0 1,000 2,000 3,000 4,000 20-year

2009-2018 2019-2028
growth

4.6% 4.8% 4.7%

Asia

North America Europe CIS

Europe
20-year 20-year 20-year
2009-2018 2019-2028 2009-2018 2019-2028 2009-2018 2019-2028
growth growth growth
North
America 1.9% 2.9% 2.4% 4.0% 4.7% 4.3% 6.2% 5.6% 5.9%

% of 2028 world RPKs: 20% % of 2028 world RPKs: 26% % of 2028 world RPKs: 4%
Middle
East
Latin America Middle East Asia Pacific
Latin 20-year 20-year 20-year
2009-2018 2019-2028 2009-2018 2019-2028 2009-2018 2019-2028
America growth growth growth

5.9% 5.6% 5.8% 7.6% 6.3% 6.9% 6.6% 5.5% 6.0%

CIS
% of 2028 world RPKs: 6% % of 2028 world RPKs: 8% % of 2028 world RPKs: 33%

Africa Africa

20-year
2009-2018 2019-2028
growth
2008 traffic 2009 - 2028 growth
5.4% 5.1% 5.2%

Source: Airbus, Global Market Forecast, 2009 % of 2028 world RPKs: 3%

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Indonesia (Domestic) Market & Forecast

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Domestic market overview

Market Size (mio)

80

70
Premium Middle Budget Traveler
60

50

40

30

20

10

0
2006 2007 2008 2009 2010 2011 2012 2013 2014

Sources : Dephub, PT. AP I & II

• Total Market CAGR 1999-2009 is 21%

• Domestic market 2007 is increased by 20% however decrease by 8.6% in 2008 cause of Oil
Crisis and Adam Air termination

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International market overview
(in/out Indonesia)
Market Size (mio)

25 60

Leisure Traveler Business Traveler 50

20

40
15

30

10
20

5
10

0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014

Sources : IATA, PT. AP, PATA

• The growth of International market in 2008 are increased by 10% however slowdown to 5%
in 2009. Projected the annual market growth from 2008 to 2013 is 6.0%

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 Tourism Forecasts
Forecast of Number of Tourists Visiting Indonesia
• Tourism forecasts show modest 2010 - 2014
growth
Year Pessimist Moderate Optimist
• Growth potential expected to be
driven by a mixture of European,
Asian and Australasian markets 2010 6,421,665 6,759,647 7,097,630

• Malaysia, Indonesia and Thailand plan 2011

2012
6,627,275
6,832,884
6,976,079
7,192,510
7,324,883
7,552,135
to boost tourism among the three 2013 7,038,494 7,408,941 7,779,388
countries under the Indonesia 2014 7,244,103 7,625,372 8,006,641

Malaysia Thailand Growth Triangle

Source: ID Ministry of Tourism
(IMT-GT).
April 2010
• Bali is the main destination for (Note that all assume an average
tourists (around 1/3 of total) and has growth rate of 3.1%p.a and only
grown faster than the average vary on base year assumption)
recently
Despite the huge tourism market potential for
Indonesia, growth prospects are seen as below the
Source : Ascend rate of GDP growth.

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 Contents

1. Indonesia / Industry Overview

2. ASEAN Open Sky

3. Garuda Indonesia Today

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 Airlines Perspective Related
to the ASEAN Open Sky

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 Open Sky
Open Sky is a bilateral or multilateral agreement
within two or more countries
which allows foreign airlines to operate
international routes above other countries
regions
without any limitation on routes, frequencies,
capacities and other airlines restrictions

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 General Impacts on Airline Industry
Under Open Sky

• more capacities will be available for airlines to access

additional markets
• more airline productivity and flexibility
• lower prices benefiting the consumers
• more competitive airline industry.

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 ASEAN Open Sky (AOS)

 Began in 1997; ASEAN VISION ( ASEAN as an

Integration)
 1998; HANOI PLAN OF ACTION
3 years programs for ASEAN Integration
 2003; BALI CONCORD
3 Pillars of ASEAN Integration
1. ASEAN Security Community
2.ASEAN Economy Community
(One of the topic issues is about Air Travel Integration)
3. ASEAN socio-cultural Community

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 European vs ASEAN Open SKY

European
Liberalization in Europe was
decided upon by a judge in a
central court
European airports are highly
overcrowded and have slot
capacities that need to be
addressed in the transition
ASEAN
ASEAN doesn’t have a central
court
Most ASEAN countries would not
face that kind of difficulty

European countries entered at the ASEAN countries have a wide

same or very similar levels of range of industry development,
industry development, GDP, size GDP and size
and policies

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National Airlines SWOT

Implementing SWOT analysis to perceive national airlines position

Facing AOS

Strengths
• Indonesia has many tourism objects which seen interesting not
only by domestic but also international tourists
• Large numbers of Indonesian Populations
• National Airlines Commitment to enlarge number of fleet
• Government arrangement for the continuity of “Visit Indonesia”
program

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 National Airlines SWOT

Weaknesses
• According to Federal Aviation Administration (FAA), published 8th June 2009 International
Aviation Safety Assessment Program (IASA) result shows Indonesian appointed on 2nd
category, which means “insecure”
• Masyarakat Transportasi Indonesia (MTI) evaluation on 16 Indonesian airlines reveals that
most of them only achieve 30%-50% of OTP (On Time Performance). These figures are far
less than IATA standard , which is 70%.
• Weak national airlines competitiveness compared to foreign airlines
• Limitations of Qualified Pilots and Cabin Crews
• Weak economic infrastructure. Since Airlines now rely heavily on telecommunication for their
information system and to market and conduct operations

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National Airlines SWOT
Opportunities
Nevertheless, Indonesia should perceive AOS as the opportunity to
expand its airline industry globally . Therefore;
• National airlines will gain additional profits from obtaining increased
market access
• Leads to improvements on national airlines services and productivities
• Forces national airlines build agreement among them to enhance their
business competitiveness against foreign airlines
• Drives national airlines agreements with foreign airlines to expand
service networks
• Opportunity for national airlines to develop or boost their HUB

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National Airlines SWOT

Threats
• More capacity between the countries will lead to more intense competition
and pressure to low fares
• There is no longer fair competition
• Domestic passengers prefer foreign airlines instead of national airlines, due to
their credibility and reliabilities
• Lack of competition policy

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 International Air Transport Capacities
National Airlines (Per December 2009)

AIRLINES COUNTRIES ROUTE FREQUENCIES / CAPACITIES/

week week
1. Garuda 10 23 205 77.421

2. Merpati 2 2 14 3.752

3. Lion 4 4 61 25.906

4. Batavia 4 4 24 8.536

5. Indonesia 5 5 196 65.592

AirAsia
6. Sriwijaya 2 2 14 4.284

7. Kalstar 1 1 7 672

8. Riau Air 1 1 10 1000

Source: Indonesian Ministry of
Transportation

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 International Air Transport Capacities
ASEAN Airlines
Per December 2009
AIRLINES Cities in
Indonesia
RUTE FREQUENCIES /
week
CAPACITIES /
week
1. SQ 2 2 119 77.826
2. Malaysian A/S 4 4 67 24.772
3. Thai A/W 2 2 14 8.540
4. Royal Brunei 2 2 12 5.346
5. Philippines A/L 1 1 7 3.352
6. Vietnam A/L 1 1 7 1.673
7. AirAsia (MAL) 12 13 127 44.280
8. Firefly (MAL) 4 5 23 4.320
9. Tiger A/W (SIN) 2 2 17 3.240
10. Value Air (SIN) 4 4 43 13.932
11. Silk Air (SIN) 7 7 50 12.736
12. Cebu Pacific (Phil) 1 1 3 1.074
13. Thai AirAsia (Thai) 1 1 7 2.520
Source: Indonesian Ministry of
Transportation

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 Additional Facts of Open Sky
 From the 26 international airports, Indonesia has prepared its 5 international
airports available for Open Sky. There are:
1.Soekarno-Hatta (Jakarta)
2.Kualanamu (Medan)
3.Juanda (Surabaya)
4.Ngurah Rai (Bali)
5.Hasanuddin (Makasar)
 Hang Nadim (Batam), Sam Ratulangi (Manado) and Frans Kaisiepo (Biak)
airports have been appointed for Open sky Cargo, along with the four
airports which are still proposed for Open Sky
 On March 30 ’08 Open Sky agreement between Europe and US had been
settled. Allows airlines based in Europe and US to fly between any two
airports in each region

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ASEAN (Regional) MES – Sumatera & kep

SUB – Jawa, Kalimantan, Nusa

Tenggara

UPG – Sulawesi, Maluku

JKT – Seluruh Indonesia

DPS – Indonesia Timur

ASEAN

Indonesia Hub

International
Route
 Several Competition Issues arise from
Open Sky
 Merger and Strategic Alliances: Firms avoided competition by merging, or
by forming strategic alliances to increase efficiency and product mix
 Collusive Behaviors and Price Fixing: Airlines might agree to fix prices,
keeping them high, instead of competing between themselves as well as the
existence of market sharing; agreement so serve different market, and not
compete one to another
 Predator Behavior: Imbalance competitive strengths of the different airlines.
Established, experienced, financially secure and profitable airlines vs small
or new entrant airlines

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 Thank you

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