Indonesia to have world’s fourth-largest air passenger market by 2039: IATA

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November 12, 2020
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November 12, 2020

The International Air Transport Association (IATA) projected Indonesia’s air
passenger market to become the fourth-largest globally by 2039, jumping from
10 position in 2019 thanks largely to travel demand from the country’s growing
middle class, according to an official.
IATA Asia Pacific member external relation assistant director Kelvin Lee said on
Tuesday that the growth of the middle class in Indonesia and Southeast Asia was
making the region a hotspot for air passenger market growth over the next two
decades, surpassing conventional markets such as Europe and Northern America.
“We see that the Asia Pacific will become the region where air travel is expected to
grow very strongly and ASEAN plays a key role in the strong growth,” he said in
an online webinar held by Malaysia-based think tank Institute for Democracy and
Economic Affairs (IDEAS).
IATA expected the Asia-Pacific region to have a 4.5 percent
compound annual growth rate (CAGR) over the next 20 years, far above the
traditional aviation industry market of Northern America and Europe, which is
estimated to see a CAGR of 1.6 percent and 1.8 percent, respectively.
China is also projected to surpass the United States in becoming the world’s
biggest air passenger market in 2039, while India is set to jump to third place that
year from fifth place in 2019, the organization’s data shows.
According to the World Bank’s “Aspiring Indonesia: Expanding the Middle
Class” report, Indonesia’s middle-class population has expanded over the last 15


years from just 7 percent of the population to 20 percent currently, with 52 million
Indonesians currently belonging to the group.
Despite the burgeoning middle-class population, Indonesia saw an 18.54 percent
year-on-year (yoy) decline in domestic air passengers last year to 76.7 million
people, according to Statistics Indonesia (BPS) data.
The COVID-19 pandemic has further pressured domestic passenger travel demand
this year, with only 23.5 million passengers flying as of September, or 58.33
percent lower compared to the same period last year. Meanwhile, the number of
foreign air passengers in the same period plummeted 74.54 percent yoy to 3.5
million people.
The Indonesian National Air Carrier Association (INACA) has projected the
number of air passengers to only reach around 45.8 million by the end of 2020, a
40 percent drop from last year.
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Kelvin said ASEAN member countries should also take additional steps to
harmonize the regulation on the aviation industry among the region’s member
countries, as well as take a more liberal market approach in order to boost the
sector’s development in the future.
“In order for ASEAN to fully reap its travel growth potential, the region needs to
do more in terms of regulatory harmonization to deal with key challenges such as
very diverse regulatory maturity. Furthermore, we also expect government
controls to remain conservative,” he said during the discussion.
The 10-member bloc implemented the ASEAN Single Aviation Market (ASAM) in
2015 to increase regional connectivity.
With the agreement, airlines in the region are allowed the fifth freedom of the air,
which entails the right to carry traffic between two foreign countries with services
starting or ending in the airline’s own country.
However, several member states, including Indonesia, are reluctant to take
further steps by opening its domestic market to foreign airlines in an effort to
protect their local airline industry.

Prasetiya Mulya University aviation law researcher Ridha Aditya Nugraha said
Indonesia had the strictest minimum operating aircraft regulation, which
required an airline to own a minimum of five aircraft and control another five.
The requirement was eased by the newly passed Law No. 11/2020 on job creation.
The Job Creation Law is intended to cut bureaucratic red tape to boost investment,
among other targets.
“Investment-friendly provisions among ASEAN member states should lead to the
establishment of new airlines and create an environment that supports them. That
would bring us seamless air connectivity in ASEAN,” Ridha said during the
discussion.
INACA previously welcomed the controversial law, believing it will spur
investment in an industry that has been battered by the pandemic