Category: Airlines

August 2015 | Dios Kurniawan

The newly appointed Minister of Maritime, Mr Rizal Ramli, recently made the headlines by publicly insisting the national flag-carrier airline Garuda to cancel the order of 30 new Airbus A350 wide-body aircrafts on the basis of “the aircraft is only good for Europe and US routes”, and “those routes are unprofitable business, Garuda should concentrate on domestic market instead”. We will see how false these statements are.

Boeing 787 (above) and Airbus A350 (below). Photo: flightglobal.com

To begin with, medium-sized wide-body aircrafts such as A350 and its main competitor Boeing 787 are not necessarily used for long-haul flights. Many airlines use wide-bodies to fly short-to-medium regional sectors, typically flights under 6 hours. Japan Airlines, All Nippon Airlines and Air India fly Boeing 787 for their domestic routes. Thai Airways and Qatar Airways fly 787 for regional flights as short as Bangkok-Kuala Lumpur and Doha-Abu Dhabi. Moreover, some airlines, for example Singapore Airlines and Emirates, exclusively operate wide-body aircrafts.

Modern wide-bodies are preferred because they can carry 200-500 passengers and tons of cargo in one go with superb efficiency. They are also valuable assets for serving busy airports with limited available flight slots.

Wide-body aircrafts are the workhorse of all major airlines, and Garuda as part of its expansion plan should have enough of them in its fleet. Medium-sized 200-300 seater Airbus A350 or Boeing 787 fits nicely into routes not sizeable enough to warrant the operation of larger aircraft such as Boeing 777-300ER. Garuda can make use of A350 (or 787) to serve Japan, China, Korea, Australia and emerging markets in the future.

Next comes the waiting list problem. All major airlines in the world are lining up to get new jets to replace their old ones and to expand their networks. The problem is: there are only two wide-body aircraft manufacturers in the world today; Airbus and Boeing. In the last several years, they have already been swamped with orders from airlines, fueled by growing demand of the world’s air travel which has yet to show sign of a downturn. Current backlog orders at Airbus and Boeing have reached record-high with more than 10,000 planes on order. That is a huge task for Airbus and Boeing to fulfill.

Boeing factory. (photo: boeing.com)

Despite continuing attempts to boost production capacity, Airbus and Boeing can only produce around 1,000 jets each year. That means if you place an order today, the planes will be delivered to you 5-10 years from now. A very long time for most customers to wait, which could mean lost opportunities.

One cannot expect to buy a plane now and have it delivered next week. For airlines, purchasing aircrafts requires proper long-term planning.

The statement “long-haul market is unprofitable” may be true for Garuda at this moment, however the demand for long-haul travel remains stable at around 5% annual growth (source: Boeing Market Outlook 2015). Garuda needs to gradually penetrate the global market, stealing market share currently enjoyed by Emirates, Singapore Airlines and others.

Also, Garuda needs to grab the increasing inbound tourists and business travelers from Asia, Australia, Europe, Middle East and even the US. Last year saw a healthy growth of 7% per year in foreign tourist traffic. To accommodate the anticipated growth, Garuda will require to expand its fleet of wide-body aircrafts, and as well to replace its ageing 1990-era A330 and B747-400 aircrafts.

At the present, Boeing 787 and Airbus A350 are the most viable choices as they offer the right seat capacity, range and operating costs.

Looking at this, either to go with Airbus or Boeing, Garuda’s decision to place order for wide-body aircrafts today is the right one. Garuda needs to stay competitive by expanding its fleet with fuel-efficient aircrafts, both narrow-body and wide-body. If Garuda does not plan to acquire new wide-body jets now, Garuda will be left with not enough wide-bodies in its fleet in the next 5 years as its older aircrafts must leave the fleet for retirement.

Retired Boeing 747s at Cengkareng Airport (photo: Dios Kurniawan)

In point of fact, one of the significant factors that brought Merpati Nusantara Airlines into bankruptcy was its failure to expand its fleet (see my other post). Fleet expansion is crucial.

Mr Rizal Ramli, Minister of Maritime (source: Google)

In spite of this, Mr Ramli thinks that the wide-body purchase is a mistake. He believes that there is no need to gradually build the network of international routes. He prefers to let other countries’ airlines to seize the increasing tourist traffic to Indonesia. A very smart and visionary minister (yes, it is a sarcasm).

July 2014 | Dios Kurniawan

Let’s face it. Fossil fuels – gasoline, oil, natural gas, coal – that people have been exploiting in the last 100+ years are depleting. Their prices are constantly going up. Oil reserves are draining while discovery of new oil wells has slowed in the last decade. Experts predict that by the end of this century, nearly all fossil fuels in the world will be gone, or at least will not be economically feasible to produce anymore.

However, that will not mean the end of the world. Technology has introduced into our lives many renewable energy sources such as solar power and biofuels, lessening our dependence to fossil fuels. We have seen the emergence of electric cars and hydrogen-powered vehicles. Trains have been electric-powered since long time ago. There are ships already propelled by nuclear power today, and in the future as fossil fuel becoming more expensive nuclear-powered ships could become a norm. But what will happen to jet planes? Never seen an aeroplane powered by coal. Or by electric batteries. There was an experiment in 1950’s to carry a nuclear reactor inside a B-36 bomber plane, but it never actually flew the plane.

What about solar energy? There are solar-powered aircrafts today, but mostly are experimental only, and none can carry more than two people. Solar power is not efficient if you put it into aviation technology. Let’s see it this way: the best solar panels today produce less than 100W per square meter under sunlight. A Boeing 737, the world’s most popular jetliner, has a wing area of only 125 square meters, that translates into 100×125=12.5kW of electricity produced by the solar panels. OK you you can put a few more solar panels on top of the fuselage, let’s say that adds 10kW = total 22kW. Even that is still very small compared to the power a jet engine can produce, which is in the order of 50-100 mega watts. The solar panels maybe enough to power the lighting and air conditioning of the plane, but a Boeing 737 weighs no less than 40 tons, so definitely the solar power would never be enough to move the plane, even on the ground.

Biofuel could be our only hope, but at this moment it does not seem promising considering the amount land use needed to produce biofuel. Competition with food supply is a major consequence of biofuels. The impact on the environment is huge, and it seems biofuel is still many decades away from being economically viable to be used as jet fuel.

By looking at the currently available technology in renewable energy, the replacement of fossil fuel in air travel simply does not exist. When the world faces the end of fossil fuel in about 90-100 years from now, by that time people will still be able to travel by car or by train, but not by air. Even if there is still fossil fuel left, flying will become unaffordable to most people. So I guess by the year 2100, once again all of us will have to travel by ships if we want to visit a distant country, just like our grandparents did …

February 2014 | Dios Kurniawan

When Merpati stopped its operation last week, it confirmed my prediction long time ago; Merpati would NOT survive.

Merpati was born in the era when the government controlled every aspect of every airline; the regulator decided which routes airlines could fly, set their ticket prices, and even regulated what planes airlines could buy (remember in the 80’s only Garuda was allowed to fly jet planes). Merpati, being a government-owned company, was heavily subsidized. If the government thought Merpati needed more money to cover the operational costs to fly thin routes in remote areas, it simply injected fresh money. For many years Merpati saw no competition in the industry as there were no other major airlines operating in Indonesian’s sky other than its big brother Garuda. For Merpati, life was sweet those days.

But that was then, this is now.

A Fokker F28 in Cengkareng, remnant of Merpati awaiting to be scrapped  (photo: Dios K)

Indonesia is the Asia’s most rapidly expanding air travel market, fuelled by Indonesia’s burgeoning economy in the last five years.  The industry growth rate is more than 20% per year, the fastest in the region, and probably in the world. Only six years ago, Indonesian airlines carried less than 30 milllion passengers each year in total. Today, the number quadrupled to 100 million. Soaring demand in domestic air travel brought many airlines in the playground but somehow Merpati failed to take benefit of the opportunity.

So why Merpati did not succeed? This is my analysis:

1. It failed to expand its fleet. It does not operate new generation of fuel-efficient planes. Instead, Merpati continues to rely on a small number of older aircrafts such as classic Boeing 737-300/400s and Twin Otters, most of them are more than 20 years old. As with ageing old cars, they consume more fuel and are becoming more expensive to operate and to maintain. Newer airlines like Lion have been on shopping spree placing largest-ever order of 200+ airplanes, while Merpati has not been able to procure any new plane for decades (with the exception of several China-built MA-60 turboprops which are not in the same league as the American and European counterparts).

2. It failed to develop a workable business plan. Merpati never positioned itself in the marketplace correctly. Historically Merpati served thin routes in isolated areas, flying turboprops in small airports which could not accommodate jetliners. It should have strengthened its position in that particular market, serving regional routes unserved by jet-operating airlines. Instead, Merpati chose to fly on already very competitive trunk routes such as Jakarta-Surabaya and Jakarta-Bali, and did that with legacy, less efficient aircrafts. With multiple airlines serving the same routes, airline tickets are now like a commodity; customers will fly with whoever offers the best service and/or the lowest price. Flying is flying, no matter who is selling.

Airline business is notoriously tough. It is always regarded as high-risk, high-cost and low-margin business. Planes are extremely expensive to buy and to operate; a brand-new Airbus A320 costs up to $80 million (1 trillion Rupiah) a piece, and its maintenance costs can easily reach $1-2 million per year. Operating costs are constantly increasing, fuel prices never go down, and so do pilot salaries. Competition is fierce and yields are low. Many new entrants already paid the price; Adam Air, Jatayu, Mandala and Indonesia Air collapsed several years ago. Batavia Air followed suit last year.

Merpati has tried repeatedly in recent years to restructure its huge debts and has attempted to attract private investment with little success. It does not take a genius to see that the cash-strapped Merpati, with its huge $600 million debt in the shrinking market share, is not in a good position to invite potential investors. It has been in a serious trouble since many years ago. Only today it is becoming pretty clear that the problem is more serious than ever.

As for Merpati, I believe the end is near. There is no way anyone can save it now.