Recovery on track at Indonesia AirAsia

by DOMINIC LALK  

July 1st 2018

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On December 28, 2014, Indonesia AirAsia was making global headlines for the most tragic of reasons. Read More » In bad weather conditions, one of its aircraft, QZ8501, had fallen out of the sky over the Java Sea. All 155 passengers and seven crew on board were lost.

Subsequent investigations revealed the airliner had stalled after a steep climb and then banked before it crashed mid-flight between Surabaya and Singapore. The search for bodies ended in March 2015 with the recovery of 106 of 162 people aboard.  More than 90 ships and aircraft from Indonesia, Singapore, Australia, South Korea, Japan, China, the U.S. and Russia had participated in the search.

At the time, Dendy Kurniawan was the chief financial officer of the Jakarta headquartered joint venture LCC, Indonesia AirAsia X. He told Orient Aviation last month: “We were all focusing our energy and efforts on especially having the families taken care of and to ensure that all their needs were addressed.

“It was a great loss for everyone here in AirAsia, but also it was a moment when we all stood together to strengthen ourselves internally and externally to do the right thing first,” Dendy said. “The way we handled the crisis as one family and the way Tony [Fernandes] led from the front line really motivated me to contribute more to AirAsia.”

Since the accident, it has taken considerable effort to rebuild morale among the airline group’s staff while also resurrecting the carrier’s brand. Investigators concluded that the crash was caused by several technical factors and the individual responses to them by the two pilots flying the aircraft.

The most immediate impact of the accident was a decline in passenger traffic to Indonesia, most particularly to the island leisure hub of Bali, where visitors dropped by 15% in the 12 months after the crash. The airline’s reputation also took a hit when MRO lapses and procedural breaches at the carrier group were reported by impartial global air accident investigators.

“The turning point for IAA was 2016. During the first half of  2016 we were in a loss situation of almost US$20 million, but then we had a positive bottom line by the end of year,” said the 45-year-old group CEO.

“Turning a profit was very, very important to maintain the confidence of all our staff in Indonesia. They finally saw that ‘OK, we can do it, we can make it’. We made it again in 2017 with an operational profit but reported a net loss due to aircraft impairment charges,” he said. Will IAA be profitable in 2018 and 2019? “Definitely, definitely,” he said.

In 2017, the LCC group became a publicly listed company. It underwent a corporate restructuring that basically increased the AirAsia parent’s holdings in the combined LCC and it long-haul sibling. “The plans for this IPO started way back in 2011 or 2012, but finally we made it,” Pak Dendy said.

In line with competitor growth plans, IAA and IAAX are banking on breakneck passenger growth in the ASEAN region with inter-regional tourism development a key priority in their expansion.

“Tourism is very important for Indonesia – and for us. We have tens of thousands of islands. We are the fourth-largest population in the world. In ASEAN, we are the largest. We have plenty of room to grow,” said Pak Dendy.

As elsewhere in the Asia-Pacific, Indonesian and regional infrastructure shortfalls are holding back that expansion. “We can add as many planes as we want to feed passenger demand, but there are not enough slots for them, especially at the main gateways in Jakarta and Bali,” he said. “The authorities are spearheading plans to create international gateways in the Indonesian archipelago.”

Bali’s Ngurah Rai Airport is operating above capacity and has no room to accommodate another runway. The airport processed 22.9 million passengers in 2017, up 24% year-on-year.

To address the situation, Indonesia is developing Labuan Bajo as “the next Bali”. Labuan Bajo is in the Flores archipelago, a region renowned for its Komodo dragons. “The government is asking airlines to launch flights to Labuan Bajo, but first we need more hotels, restaurants and infrastructure. All the stakeholders must work hand in hand,” he said.

The IAA group has a 23 single class A320s of 180 seats. IAA focuses on domestic and regional flying with short stage lengths. Pak Dendy said the A320 fleet could fly up to five hours, but not as competitively as shorter flights, so it restricts itself to routes no longer than four hours.

“We are the main feeder into the Kuala Lumpur hub [of AirAsia], but we need to grow our direct flights to destinations in North Asia. There are so many cities in China we need to reach. They won’t be reachable from Jakarta so we are looking at Medan,” he said.

“We have a new hub in Medan and we plan to use it for a lot of new flights to China, but also to India. These two countries are the two main targets for tourist arrivals in Indonesia as identified by the minister of tourism.”

Then there is sister carrier, IAAX. “For longer range flights, we have IAAX. It has two A330-300s that can fly 10 to 11 hours. We use them on Bali-Narita (Tokyo) direct flights, which take 7:20 hours. They are underutilized,” he said.

To address this issue, IAAX opened Jakarta-Narita on May 1. The long-haul LCC has cancelled its Sydney and Melbourne services in favour of higher yielding North Asia destinations, but has retained Bali-Perth with A320s.

“Our Malaysian brothers still fly to Melbourne and Sydney. We believe it is more strategic to let them do the job and fly more tourists from Australia to Bali via Kuala Lumpur,” Pak Dendy said. “We will look at returning to Australia, maybe when we have four, five or six wide bodies.”

IAAX plans to “add one to two A330s to its fleet this year” followed by possibly two of the type in 2019. “Five years from now, we are intending to have eight to 10 A330s. Then we will add Bali-Beijing, Bali-Shanghai and Bali-Shenzhen to our network,” he said.

IAA will grow much quicker. The carrier will receive three more A320s this year. “From 2019, we intend to double that fleet in the next five years to 52 or even 55 aircraft,” he said. IAA had considered tapping the group’s huge A321neo backlog for its future fleet requirements but decided it was not yet ready for the larger model to enter the fleet.

“When we did the budget for this year we were going to include some A321s in our planning, but we realised that out of Indonesia it was still more efficient to use the A320 for yield optimization. With the A321neo, the only option would be Bali to Sydney and Adelaide. For North Asia it was not efficient.”

The AirAsia Group has ordered 100 A321neo and approximately 260 A320neo. Its contracts with Airbus offer the flexibility of converting A320s to larger A321s, according to the airline’s latest operational requirements.

 Dendy believed the sky is the limit for LCCs in the region. “It is not only for AirAsia, but I think the future of the global airline industry is about LCCs,” he has told Indonesian media.