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Last Updated: Monday, 5 May, 2003, 08:28 GMT 09:28 UK
Indonesian travellers take to the skies

Rachel Harvey
BBC Jakarta correspondent

Garuda plane

In late April, a bomb exploded in Jakarta's main international airport, injuring eleven people.

You might think that would deter travellers from flying in Indonesia.

But you would be wrong. Despite security concerns and worries about the spread of the Sars virus, passenger numbers on domestic flights have been steadily increasing, and new airlines are being launched to meet the demand.

Elsewhere in the world the airline industry is in trouble. In Indonesia, the sector is just taking off.

Island hopping

New airlines seem to be springing up like mushrooms. And it is the market for internal flights which is booming.

Garuda plane
Flying between local airports is suddenly affordable

Indonesia is a country of more than 14,000 islands, making travel a necessity of life.

There are now more than 20 airlines operating in Indonesia, and at least five more waiting for licences.

Jatayu Airlines launched two years ago with just one plane. Now it has seven and has placed orders for five more.

Jatayu's operations manager, Priyandoko, says his company's success is based on competitive pricing.

"People here in Indonesia are always travelling using the cheapest price of transportation, for example the ferry or bus. So now the price of airlines is close to that price in the ferry or bus transportation. So that's why people are now changing to the airline," he says.

Bonus from disaster

Travel agents agree there is a ticket price war.

Choice in air travel is relatively new. Until 1998, state airline Garuda enjoyed a near monopoly.

Woman places flowers
202 died in the Bali resort bombing

But deregulation has allowed new players into the market, and the newcomers got an unexpected boost after September 11.

Passenger numbers worldwide fell, forcing major US airlines to mothball planes and pushing down aircraft leasing costs.

For example the cost of leasing a Boeing 737 two years ago would have been around $120,000 a month, but now they are available for $45,000, says Fauzi Ichsan, an economist at Standard Chartered bank in Jakarta.

Survival of the fittest

Most of the new airlines that have been launched in the past two years in Indonesia are of the no frills variety.

Profit margins are tight. And the market is now becoming extremely crowded, says Fawzi Ichsan.

"Those airlines which are running at high operation costs and those airlines without a strong capital structure are likely to go under," he says.

"We would expect a lot of consolidation in the next two to three years."

The good times may not last long. But for now it's a buyer's market.

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