The Sky in Blues: On the Recent Development of Indonesian Airlines Industry

Chaikal Nuryakin, Regi Kusumaatmadja, Natanael Massie (), Alvin Ulido Lumbanraja, Sean Hambali and Devina Anindita
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Regi Kusumaatmadja: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Alvin Ulido Lumbanraja: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Sean Hambali: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)
Devina Anindita: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)

No 201941, LPEM FEBUI Working Papers from LPEM, Faculty of Economics and Business, University of Indonesia

Abstract: As the ASEAN put forward aviation industry liberalization measures in 2010, the Indonesian aviation industry has been moving towards the other side of spectrum of late. Two market ventures driving the change was in late 2018, where one of the leading airlines group, Garuda Group, through Citilink agreed to form cooperation with Sriwijaya Air. Second, January 2019 further marked the period in which Lion Air started charging ‘baggage fees’ and Garuda Indonesia stopped offering sub class ticket. Amid the presence of such changes in the industry, this study aims to discuss the current state, challenges, and potential of the Indonesian aviation market; comprehensively discuss the economic implications of such state of the industry; as well as how the government may act to help address the possible market failures. The study utilizes multiple data sources, i.e., data from CAPA, INFARE, as well as official governmental transportation database. We first describe the potential of airlines industry in Indonesia. We identify the periodical breaks in the industry’s growth; that is, during which periods significant changes are happening. What follows is a complete breakdown of the market concentration and landscape. We proceed to show the impacts of the generalized price hike. Our findings suggest that loss of passengers is immense. Further, we find an intriguingly similar capacity drop in the period following the Citilink – Sriwijaya deal conducted by virtually all the members of Garuda Group and Lion Air Group – all against the year-on-year trend. We specifically decompose the changes that follow the late 2018 trend. Further implications are discussed. We conclude the study with relevant policy recommendations.

Keywords: airlines; industry; —; imperfect; competition; —; Indonesia; —; liberalization; —; consumer; welfare (search for similar items in EconPapers)
JEL-codes: D43 L93 L98 (search for similar items in EconPapers)
Date: 2019-41, Revised 2019
New Economics Papers: this item is included in nep-ind and nep-sea
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:lpe:wpaper:201941

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