Pak Ignasius Jonan, Minister for Transport
Pak Suprasetyo, Director General of Civil Aviation
Ladies and gentlemen
Selamat pagi. Selamat datang di IATA Aviation Day.
We are gathered here as partners in an industry that has tremendous potential for Indonesia. Aviation is a force for good in our world. It enriches both economies and the human spirit. And it is in all of our interests - government, airports, ANSPs, airlines, ground service providers - to ensure that Indonesia is well served by an aviation industry that is performing at its best.
State of the Industry
I think that we all know that aviation is a tough business. 2015 looks like a relatively good year for the airline industry Even then, we are expecting a global profit of only some $25 billion on $783 billion in revenues. That’s a 3.2 % margin. And that is after calculating the positive impact of the fall in the fuel price—which by the way is being significantly offset by the strength of the US dollar. And Asian airlines—feeling the pinch of a continuing weakness in cargo—are expected to underperform against the global average with a net profit margin of 2.2%.
My motivation in saying this is not to seek your sympathy. Airlines are quite familiar with the daily battle to keep revenues ahead of costs. What I want to emphasize is that with such small margins and cutthroat completion globally, all stakeholders must be focused on shoring-up efficiency in whatever way that they can – and among other things that means using global standards.
And that is particularly true for Indonesia—where aviation is rapidly growing towards meeting its enormous potential. With 250 million people living on 17,000 islands across 5,200km east to west and nearly 2,000km north to south, this is a country that was made for air transport. As growing numbers of Indonesians are discovering, air is the most efficient option for getting around. With 70% of visitors arriving by air, the importance of aviation to the lucrative tourism industry is undeniable. It may be less obvious, but even more important to note, that aviation connectivity connects Indonesian businesses to markets around the world.
Aviation is big business in Indonesia today. But the potential is even bigger. By 2034 we expect it to rank 6th globally when it serves the needs of some 270 million passengers. That’s three times the size of today’s market.
Wherever aviation grows, it brings prosperity—creating jobs and stimulating business. It is absolutely in Indonesia’s interest to see its aviation sector flourish. But, there is a big role for collective leadership among industry partners—including the government—to make that happen. I hope that today’s event will help us to start seeing the future with a common vision and find the ways to work together to realize it.
As far as I am aware, there is no masterplan for Indonesian aviation. So as we move through the day, I hope that we can start to build the elements of such a plan by frankly discussing issues and agreeing how we can work together to solve them.
To start the process, let me offer three areas which IATA sees as top priorities: safety, capacity and regulation.
Safety is the industry’s top priority and we are constantly working to improve the safety of flight. Earlier this week, I announced the industry’s safety performance in 2014. There were approximately 38 million flights and 12 fatal safety related accidents—9 with turboprops and 3 with jets. There is an overall trend of improvement by almost all measures over the five year trend. For example, the jet hull loss rate was the lowest in history with one for every 4.4 million flights. Sadly the one parameter that took a step back was fatalities. There were 641 fatalities in 2014 which is above the five year average of 517.
Over the past year there were several high profile tragedies involving Asian carriers, including MH370, MH17, the two TransAsia accidents, and QZ8501. Our thoughts and prayers are with the family and friends of all those that were on board.
Many questions have been raised about aviation safety in Asia. The numbers tell us that flying in Asia is safe. There were no jet hull losses in China last year. And in Asia ex-China there was one jet hull loss for every 2.3 million flights in 2014, an improvement on the one in 1.6 million five-year rate. But it would be naïve to think that there are no issues. I am very concerned about safety in Indonesia.
Jet hull losses are rare. As I said there were seven in 2014 (three of which were fatal) and 12 the year before. But Indonesia has had at least one hull loss every year since 2010. This is not surprising given that in the International Civil Aviation Organization’s (ICAO) Universal Safety Oversight Audit Program (USOAP), Indonesia was assessed as below the global average. The US Federation Aviation Administration downgraded Indonesia to Category 2 in its International Aviation Safety Assessment program. And the EU continues to have a ban on all but five Indonesian carriers.
There is a safety problem here. It’s not going to solve itself. We—the people in this room—need to fix it.
IATA is investing resources. Here are some examples:
- In 2013, we partnered with the Indonesian National Air Carriers Association (INACA) to provide safety management systems training for Indonesian carriers.
- We introduced flight data exchange for the domestic airlines.
- And last week, we organized a partnership for quality workshop here in Jakarta with the support of Garuda. This workshop was attended by 13 Indonesian airlines and 2 ground service providers.
But Indonesia is not taking full advantage of IATA’s resources. The first that comes to mind is the IATA Operational Safety Audit (IOSA). It is at the core of our efforts to improve safety. This global standard is a requirement for all 250 IATA member airlines. And some 150 non-IATA carriers have also successfully met its 900+ standards and are on the IOSA registry.
IOSA makes a difference. IOSA became compulsory for IATA membership in 2009, and ever since then IOSA registered carriers have recorded better safety performance that those not on the registry. Last year the IOSA registered airlines had one accident for every 900,000 flights. Those not on the registry have one accident for every 300,000 flights. That’s all accidents, all aircraft types-not just the jet hull losses I just referred to.
There are 17 Indonesian airlines operating scheduled flights, and 45 airlines providing chartered services. Yet only Garuda is in the IOSA registry.
Why not make IOSA compulsory for an Indonesian AOC? There is no cost to the government. It would ensure that global standards are being practiced. And it would send a very strong signal of a commitment to improve.
Making IOSA mandatory will not guarantee that there will never be an accident again. And it will not solve the issues highlighted in the ICAO USOAP audit. It is not a substitute for implementing ICAO SARPS and providing world-class safety oversight based on global standards. But the numbers tell us that when carriers meet the IOSA standards their safety performance is better. And that would be a very positive result for Indonesia.
And for carriers not eligible for IOSA—because their fleet is under 5,700kg or business model does not conform to IOSA requirements—the IATA Standard Safety Assessment (ISSA) is being launched this year.
There is of course a cost to these audits. We are exploring with some of our partners that have a special interest in Indonesia means by which they might defray the audit costs for Indonesian airlines that successfully complete either IOSA or ISSA as appropriate.
Turning around a safety record is not easy. The best laid “plans” will not achieve anything if they are not followed-up with concrete actions. Setting IOSA as one of the standards required for an Indonesian AOC is but one of many needed actions. Our team stands ready to help as we have done in many other countries which have resolved major safety issues. We are proud to have worked with governments in China, across Latin America and in Nigeria where sustainable major improvements in safety have been realized. And there is no reason why—with well-focused determination—Indonesia cannot be the next big positive story in safety.
For the second pillar in Indonesia’s aviation masterplan I would propose capacity. Within this, there are three elements:
- Building a world-class hub
- Managing scarce capacity to global standards, and
- Modernizing air traffic management
A World-class hub for Indonesia: Indonesia’s airports are in urgent need of additional capacity, or risk the opportunity cost of unmet demand. By 2034, Indonesia’s airports are expected to handle an additional 183 million passengers compared to today. There are 237 airports across Indonesia.
I commend the government for recognizing the need to expand infrastructure. The plan to build a further 62 airports over the next five years is impressive. And the terminal expansions at Jakarta’s Soekarno-Hatta International Airport will be very welcome relief at an airport that is handling about three times the traffic that it was designed for.
But the capacity problem in Jakarta is nowhere near being solved even with the terminal upgrades. Indonesia needs a hub. And the most efficient solution is to maximize the potential of one airport—Soekarno-Hatta where significant investment has already been made.
Fortunately, Soekarno-Hatta has the possibility to grow. There is plenty of land and the basic runway structure is relatively efficient. The terminal areas—even with the upgrades—will need a major re-development. The vision would be something like the super-terminals that we see in Beijing, Hong Kong or Incheon. By starting from scratch and working in close consultation with the airlines I am confident that we would achieve a world-class facility designed around key new technological innovations such as those in the IATA Fast Travel program or the new risk-based process innovations that Smart Security is developing.
Managing Scarce Capacity: Of course Seokarno-Hatta cannot be re-developed over-night. So the airport’s scarce existing capacity must be allocated based on The IATA Worldwide Slot Guidelines. This is the global standard in use at over 160 airports.
The network nature of the airline business means that global standards are critical for this process. They work best when everybody is using the same rules. Remember having a slot to take off from Jakarta is only valuable if there is a slot at an appropriate time at the airport that you need to land in.
There are a large number of instances however, where Indonesia is not playing by established international rules:
- There are two slot management processes at Indonesian airports - one for domestic flights and another for international flights even though both processes are managing the same runway capacity.
- The slots are coordinated by the airport or air traffic control not the independent slot coordinator that is the case just about everywhere else in the world.
The IATA team is ready to assist Indonesia with the introduction of professional and independent slot coordination at the earliest opportunity. And that appointment could commence the process of bringing the rest of the working procedures in line with global standards.
Air Traffic Management: Increasing traffic not only puts pressure on the airports, it puts pressure on air traffic management. There are over 800 aircraft on order by Indonesian airlines. As they are delivered, Indonesia’s already busy skies will become even more crowded. There is lot of work to be done!
The full implementation of Automated Dependent Surveillance - Broadcast, or ADS-B, for flights over 29,000 feet from 25 June will help improve the system. But much more will still be needed to be addressed. Along with upskilling controllers, Indonesia must move forward with the implementation of Performance Based Navigation and introduce Air Traffic Flow Management (AFTM). The latter - AFTM - will require regional cooperation because one of the basic principles is to coordinate take-off permission time with expected availability of an arrival slot. It pays big dividends by minimizing flight times and holding patterns.
In addition to having a safe industry supported by infrastructure capacity, it is equally important to have government regulations which are consistent with global standards and that facilitate success and ultimately growth.
Aviation is a highly regulated industry. Safety regulation based on global standards is critical. But over the last few days I have discovered several regulations on Indonesia’s books which counter-productive and which treat airlines unlike any other comparable business.
- Why, for example, are airlines are required by law to sell air tickets in Indonesian Rupiah. Yet, their suppliers—ground handlers and fuel suppliers—can bill them in US dollars?
- When there is so much competition in the market, why must airlines price within regulated limits?
- When you can purchase a train ticket at a train station or a boat ticket at the departure terminal, why are airlines forbidden from selling tickets at airports?
- Is it fair to require airlines to purchase 2% blend biojet fuel from 2016 when the supply market is not yet mature? There needs to be equal regulation (or subsidies) on the production-side to balance the market.
- And could the recent requirement to screen cargo outside airport—a step in the right direction—have been handled better? It was announced suddenly and before appropriate facilities and standards were ready. The result: double-screening.
We know and accept that governments will regulate. It’s your job! And there certain considerations which we have seen produce the best results—smarter regulation. These include:
- Clearly defining the problem that you are trying to solve
- Consulting closely with the industry;
- Doing a rigorous cost-benefit analysis—including of potential unintended consequences
- And ensuring consistency with global standards where they exist.
And this also means implementing international conventions which help integrate Indonesia into the global system. The Air Asia accident provides a very sad example of the consequences of Indonesia’s failure to implement the Montreal Convention 99 (MC99). MC99 is a comprehensive instrument which governs liability in 110 states. Under MC99, the compensation limit for personal injury or death is set at around $160,000.
The families of passengers who had bought return tickets in Singapore were covered under the MC99 limit. But the families of those who had purchased their tickets in Indonesia—probably the majority of the victims—have a treaty cap of around $12,000. I understand that the Indonesian government took special measures to increase this amount. Having a treaty in place would have been a better solution.
I will take this opportunity to remind the government that ratification of MC99 needs to happen—for its positive impact in the aftermath of an accident and to create the legal framework for important evolving industry processes such as e-freight.
I have been speaking about potential elements for an Indonesian aviation masterplan:
- Improve safety by making IOSA a requirement
- Ensuring capacity by
- Building a strong hub in Jakarta
- Fully implementing the IATA Worldwide Slot Guidelines
- Modernizing air traffic management
- And ensuring a smart regulatory framework that includes MC99
I am not here with our team to rhyme off a list of needed solutions and run. First, I will be back. This is my second visit already as IATA DG. And we have a country manager based here in Jakarta - Shirley Leiwakabessy - to represent us with a day-to-day presence. And she is supported by our Singapore regional office under the leadership of Conrad Clifford. We are here as long-term partners in developing the potential of Indonesia’s aviation sector.
Indonesia and IATA have more than a partnership in common – both are 70 years old this year. Although, IATA was founded in very different circumstances—in Havana, Cuba on 19 April 1945.
The theme for our 70th anniversary celebrations is “Flying Better. Together”. And I sincerely hope that is what today’s discussions and our growing partnership are able to achieve.