indonesia progress toward next wave

8/8/2019 Indonesia Progress Toward Next Wave

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Indonesia Progress Toward The NextWave

Airline Industry PerspectiveElisa Lumbantoruan - EVP Corporate Strategy & IT/Act. EVP Finance - Group CFO


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Contents

1. Indonesia / Industry Overview

2. ASEAN Open Sky

3. Garuda Indonesia Today


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Indonesia: GDP per capita

Most populous country in the South East Asia (4th largest in the world)with people distributed across a number of medium - large cities andhigh density provinces

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% inthe period 2000 2009

Most populated cities in the region

Source: IMF, World Economic Outlook (WEO), 2009

(1) 2009 estimatesSource: IMF, World Economic Outlook (WEO), 2009

Medan2.0 million

South East Asia GDP Forecasts

(%)

GDP percapita(1)(US$)

2,224 1,052 34,346 1,721 1,052 7,469

Kuala Lumpur

1.6 millionPetaling1.5 million

Bandung4.0 million

Jarkarta8.0 million

Singapore

4.6 million

Manila1.7 million

Indonesia: unique opportunity within Asia


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Airline penetration levels

496

Population(m)

232 87 92 28 67 5

13.1 14.715.9

39.1 37.4

43.5

52.2 52.1

59.4

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2007 2008 2009

Domestic International

Aviation Industry: Indonesia to register tremendous growth

Source: Company

Airline passenger volume

One of the fastest growing airline markets in Asia

Source: Euromonitor

Largely underpenetrated market with significantpotential for growth

0709 CAGR

10.1%International5.4%Domestic

Total 6.6%

International

Domestic


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In 2009, Asia-Pacific overtook North America to become the largest air travel market with 647 million passengers andis 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

Source: Airbus, Global Market Forecast, 2009

% of 2028 world RPKs: 20%

0 1,000 2,000 3,000 4,000

Asia

Europe

NorthAmerica

MiddleEast

LatinAmerica

CIS

Africa

RPKs(1) (bn)

2008 traffic 2009 - 2028 growth

% of 2028 world RPKs: 26% % of 2028 world RPKs: 4%

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

% of 2028 world RPKs: 3%

CIS

2009-2018 2019-202820-yeargrowth

6.2% 5.6% 5.9%

Asia Pacific

2009-2018 2019-202820-yeargrowth

6.6% 5.5% 6.0%

Africa

2009-2018 2019-202820-yeargrowth

5.4% 5.1% 5.2%

Latin America

2009-2018 2019-202820-yeargrowth

5.9% 5.6% 5.8%

Middle East

2009-2018 2019-202820-yeargrowth

7.6% 6.3% 6.9%

North America

2009-2018 2019-202820-yeargrowth

1.9% 2.9% 2.4%

Europe

2009-2018 2019-202820-yeargrowth

4.0% 4.7% 4.3%

World

2009-2018 2019-202820-yeargrowth

4.6% 4.8% 4.7%

Aviation Industry: Asia to lead would traffic growth


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Indonesia (Domestic) Market & Forecast

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International market overview(in/out Indonesia)

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%

Market Size (mio)

Sources : IATA, PT. AP, PATA

8

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012 2013 20140

10

20

30

40

50

60

Leisure Traveler Business Traveler


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Tourism Forecasts

Tourism forecasts show modest

growth Growth potential expected to be

driven by a mixture of European,Asian and Australasian markets

Malaysia, Indonesia and Thailand plan

to boost tourism among the threecountries under the IndonesiaMalaysia Thailand Growth Triangle(IMT-GT).

Bali is the main destination fortourists (around 1/3 of total) and has

grown faster than the averagerecently

Forecast of Number of Tourists Visiting Indonesia

2010 - 2014

Year Pessimist Moderate Optimist

2010 6,421,665 6,759,647 7,097,630

2011 6,627,275 6,976,079 7,324,883

2012 6,832,884 7,192,510 7,552,135

2013 7,038,494 7,408,941 7,779,3882014 7,244,103 7,625,372 8,006,641

Source: ID Ministry of Tourism

April 2010

(Note that all assume an average

growth rate of3.1%p.a and onlyvary on base year assumption)

Despite the huge tourism market potential forIndonesia, growth prospects are seen as below therate of GDP growth.Source : Ascend


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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 multilateralagreementwithin two or more countries

whichallowsforeign airlines to operateinternational routes above other countriesregions

without any limitationon routes, frequencies,capacities and other airlines restrictions

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General Impacts on Airline IndustryUnder 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 anIntegration)

1998; HANOI PLAN OF ACTION

3 years programs for ASEAN Integration

2003; BALI CONCORD3 Pillars of ASEAN Integration

1. ASEAN Security Community2.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 ASEANLiberalization in Europe wasdecided upon by a judge in acentral court

ASEAN doesnt have a central

court

European airports are highlyovercrowded and have slotcapacities that need to beaddressed in the transition

Most ASEAN countries would notface that kind of difficulty

European countries entered at thesame or very similar levels ofindustry development, GDP, sizeand policies

ASEAN countries have a widerange of industry development,GDP and size

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National Airlines SWOT

Implementing SWOT analysis to perceive national airlines positionFacing AOS

Strengths

Indonesia has many tourism objects which seen interesting notonly 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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Weaknesses

According to Federal Aviation Administration (FAA), published 8th June 2009 InternationalAviation Safety Assessment Program (IASA) result shows Indonesian appointed on 2ndcategory, which means insecure

Masyarakat Transportasi Indonesia (MTI) evaluation on 16 Indonesian airlines reveals thatmost of them only achieve 30%-50% of OTP (On Time Performance). These figures are farless 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 theirinformation system and to market and conduct operations

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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 expandservice networks

Opportunity for national airlines to develop or boost their HUB

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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 ofcompetition policy

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International Air Transport CapacitiesNational Airlines (Per December 2009)

AIRLINES COUNTRIES ROUTE FREQUENCIES /week

CAPACITIES/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. IndonesiaAirAsia

5 5 196 65.592

6. Sriwijaya 2 2 14 4.2847. Kalstar 1 1 7 672

8. Riau Air 1 1 10 1000

Source: Indonesian Ministry ofTransportation

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International Air Transport Capacities


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International Air Transport CapacitiesASEAN AirlinesPer December 2009

Source: Indonesian Ministry ofTransportation

AIRLINES Cities inIndonesia

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 1.6737. 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

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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 fourairports 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 twoairports in each region

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ASEAN (Regional) MES Sumatera & kep

SUB Jawa, Kalimantan, NusaTenggara

UPG Sulawesi, Maluku

JKT Seluruh Indonesia

DPS Indonesia Timur

ASEAN

Indonesia Hub

InternationalRoute


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Several Competition Issues arise fromOpen Sky

Merger and Strategic Alliances: Firms avoided competition by merging, orby 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 theexistence 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 smallor new entrant airlines

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indonesia progress toward next wave

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