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AirAsia cancels expansion plan due to rising costs

Publication Date : 10-06-2014

 

Budget airline Indonesia AirAsia has canceled its plan to open new international routes from the archipelago due to rising costs in the airline industry arising from the weakening of the rupiah against the US dollar.

AirAsia Group CEO Tony Fernandes said the aviation industry in Indonesia was facing tough challenges this year amid the depreciation of the rupiah, higher airport taxes and the absence of improvements in the airport’s capacity.

“AirAsia has tried to develop many international routes but the airport tax keeps going up so we have to cancel routes,” Fernandes told reporters on the sidelines of the Invest Malaysia 2014 conference in Kuala Lumpur on Monday.

“Indonesian airlines have been squeezed from two sides — rising costs and a lack of capacity growth,” he said, referring to slow growth in airport infrastructure in the country.

“The demand is huge but there is not enough landing space in Indonesia,” he said.

As previously reported, state-run airport operator PT Angkasa Pura II (AP II) officially increased passenger service charges, known as airport tax, in three airports in Sumatra. For instance, for every domestic flight from Kualanamu International Airport in Deli Serdang, North Sumatra, passengers will be charged 60,000 rupiah (US$5.07), up from 35,000 rupiah. For international flights, the tax was increased to 200,000 rupiah from 75,000 rupiah.


AP II’s sister company PT Angkasa Pura I, which manages airports in the eastern half of the country, has increased airport taxes in its five international airports. For every domestic flight from the airports in Bali, East Kalimantan and East Java, passengers are charged 75,000 rupiah and for international flights, it is 200,000 rupiah.


Fernandes said the Malaysia-based carrier, which set up a regional headquarters in Jakarta in 2012, had also decided to rationalise its routes, as it had stopped several services in Indonesia on the back of efficiency measures.

Indonesia AirAsia has stopped services from Makassar, South Sulawesi, to Surabaya, East Java and to Denpasar, Bali starting June 1.

“I think a lot of airlines in Indonesia are losing a lot of money. Indonesia AirAsia may make some money this year, but it will be very difficult. The rupiah collapsed and so I think you see more and more airlines struggling. On the other side, airports are not helping airlines,” he said.

“Indonesian aviation could be massive but costs are going up too fast and its not as affordable as it was,” he continued.

Fernandes said the upcoming ASEAN single market, or AEC 2015, that was set to come into effect at the end of 2015 would create a big opportunity for the airline industry, particularly budget airlines.

However, it was not yet supported by adequate infrastructure in some member countries.

“Because of budget airlines such as Air Asia, people are traveling a lot more. The potential is huge, but I think the government has to look after the airports,” he said.

In addition, Indonesia AirAsia has delayed its plan to launch an initial public offering (IPO) this year due to the presidential election affecting the market.

“We won’t make money at the moment. The market has to be stabilized first. We’ll see how the market goes after the election,” Fernandes told The Jakarta Post.

The airline had expected to launch an IPO in the third quarter of 2013 and had appointed an underwriter.

In 2014, AirAsia is hoping to accommodate 8 million passengers.

At present, the airline operates 30 airplanes, covering five main hubs in Bali; Bandung, West Java; Jakarta; Medan, North Sumatra; and Surabaya.
US$1:11,792.5 rupiah

 

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