‘Quo Vadis’ in Airport Development and Investment
During the pandemic, the architecture of global civil aviation shifted from multilateralism to bilateralism due to the uncertainty in access to entry points as well as the absence in uniformity of travel conditions.
Airport operators are quite often overshadowed by the promotional prominence of flight carriers. But in fact, the role of the airport is no less important. Smooth and efficient services of civil aviation and air cargo weigh heavily on the professionalism of airport operators.
There is an interesting comparison regarding transportation operations. If the construction of a highway only creates a certain route, the establishment of an airport will create a number of routes. While opening new routes, an airport can call the closure of routes at any time. The presence of an airport is imperative for an archipelagic country like Indonesia. Indicators of connectivity in a country are no longer about the capital city being connected with the regions but inter-region or inter-island air connectedness.
The post-pandemic period is the right time to review regulations related to airports. It is evidently urgent in the absence of a national airport blueprint. Without the regulations being thoroughly determined, airport development will lose orientation, thus making Indonesia's dream of becoming a flight hub between ASEAN and the rest of the world elusive. Investment in the airport sector will become far from appealing.
ASEAN Open Skies
During the pandemic, the architecture of global civil aviation shifted from multilateralism to bilateralism due to the uncertainty in access to entry points as well as the absence in uniformity of travel conditions. The situation put the orientation and momentum of the aviation industry recovery – or in other words “freedom of the air” – at stake.
The government used to impose strict regulations, by which the selection of airports and airlines entitled to international routes was inseparable from authorities’ intervention.
The situation had an impact on the implementation of the open skies policy. As an antithesis concept to over-protectionism, the open sky policy aims to free air carriers to determine routes, ticket prices, passenger capacity and flight frequency. The government used to impose strict regulations, by which the selection of airports and airlines entitled to international routes was inseparable from authorities’ intervention.
Indonesia has been fully committed to the ASEAN Open Skies treaty since April 2016. This multilateral regional flight system consists of three pillars, namely the Multilateral Agreement on the Full Liberalization of Air Freight Services, the Multilateral Agreement on Air Services and the Multilateral Agreement on the Full Liberalization of Passenger Air Services.
However, Indonesia appears to be the only treaty signatory that remains reserved over flight multilateralism in practice. As a result, the ASEAN Open Skies policy is applicable only in five cities, namely Medan, Jakarta, Surabaya, Denpasar and Makassar. The government’s policy is realistic considering that Indonesia has the largest market for domestic flights among ASEAN member countries. Limited protectionism is imposed on national airlines in their opening of international and domestic routes.
Going beyond, they will have to comply with non-open skies bilateral agreements.
At the same time, this policy creates a problem seen from the airport’s perspective. Flight expansion to reach intra-ASEAN routes in Indonesia is faced with exclusivity that limits flight carriers to serve only for these five cities. Going beyond, they will have to comply with non-open skies bilateral agreements.
Another influencing factor is the absence of a definition of “secondary airport”. Neither the 1944 Chicago Convention as the International Civil Aviation Organization (ICAO) magna carta nor national legislation stipulates it. The Airports Council International and the International Air Transport Association have yet to decide on it either. As a result, the airport sector has lost a definite indicator of development.
The paradigm is split between economic and geographic indicators, the former prioritizing healthy competition and economic growth, the latter referring to the distance between airports in a region. London has Heathrow Airport (LHR) as the largest flight hub with five airports surrounding it. Until now, the world has had difficulty in determining the secondary airport in London. Likewise, in Indonesia, it is difficult to decide which has the status of secondary airport between Halim Perdanakusuma Airport and Yogyakarta International Airport.
Navigating the Orientation
The ASEAN Open Skies policy and the polemic on secondary airports determine the direction of national airport development. Choosing airports is important as airlines will bring about two consequences that the government must anticipate.
First, the Transportation Ministry has established a hierarchy of airports into pooling airports (hub) and feeding airports (spoke). National airport operation is regulated through Ministerial Regulation No. 39/2019, which seeks to encourage economic growth. This hub-and-spoke concept needs to be re-examined in adaptation to current development, including the condition of Indonesian flight carriers. The pandemic has prompted carriers to prioritize services to busy routes to maintain cash flow. At the same time, they are ready to operate far from the ideal number, referring to information from Tourism and Creative Economy Minister Sandiaga Uno (13/6/2022).
Direct flights between destinations outside Java have been mostly closed due to unfeasibly high operational costs. As a result, a number of intercity flights within an island have to transit in Jakarta as the meeting hub. As a matter of fact, Jakarta or other cities in Java Island are closer in distance than making transit in an airport within an island for travelers in Sumatra, Kalimantan and even Sulawesi.
Flight travelers are not only government officials or business people, but also children, the elderly and people with disabilities who need special attention.
Travelers in those regions are increasingly affected by lengthy times and long distances of trips, which have pushed up ticket prices. Flight travelers are not only government officials or business people, but also children, the elderly and people with disabilities who need special attention.
The prevalent disparity shows that the implemented concept of pooling and feeding airports has yet to work optimally. Improvements are needed by taking into consideration Indonesia’s landscape as an archipelagic country and the commitment to the ASEAN Open Skies policy, regardless of the reservation approach Indonesia has taken. The goal of ASEAN Open Skies is the equal right among regional airports to offer flights. Thus, efforts pursued by a number of provinces to internationalize airports deserve appreciation. In fact, airport internationalization has become a promotional commodity for prospective regional heads during election campaigns. While probably being a form of regions’ responses to what they see as Jakarta centralism, airport internationalization is the manifestation of both the spirit of ASEAN Open Skies and regional autonomy.
The development of the East ASEAN Growth Area cooperative effort, which involves Brunei Darussalam, Indonesia, Malaysia and Philippines, also needs to be highlighted. In November 2021, Indonesia and Brunei discussed the bilateral implementation of open skies with Indonesian destination cities including Manado, Pontianak, Tarakan, Balikpapan and Surakarta. Its realization will disrupt the hub-and-spoke concept with its mechanism to designate the international airports for passenger and cargo services.
Second, examine the military air bases that serve civil aviation. It is undeniable that the allotted civil enclave is part of a short-term solution in the midst of limited funds for airport establishment. The government should not be carried away and needs to create sub-criteria for the civil enclave in order to find an equilibrium point for defense and transportation functions. Special scrutiny is needed over air bases that house air combat squadrons. This certainly is important to prevent civil-military friction in air transportation in the future.
Clearly defined management will draw investment. The State-Owned Enterprises (SOEs) Ministry is still the dominant airport operator through Angkasa Pura (AP) I and II. The investment law regime allows foreigners to become airport operators with a maximum share ownership of 49 percent. However, their involvement is still minimal, namely at Komodo international airports (Changi Airports International, Changi Airports MENA and Cardig Aero Service) and Hang Nadim (Incheon International Airport Corporation, Wijaya Karya and Angkasa Pura I).
The presence of foreign investors will stimulate international routes and trigger healthy competition with AP I and II. Service innovations will be created, including in the benchmark for air passenger service rates, whose simultaneous increase in last July sparked a controversy. The law should appear as the “commander”. The government needs to pay close attention to airport establishment in restricted areas such as Kediri, East Java.
Legal certainty means ensuring airport operations or rearranging restricted areas. Do not let investors become victims with their interest turning to loss of confidence in the airport sector.
Ridha Aditya Nugraha, Air and Space Law Studies, Prasetiya Mulya University; Expert Staff of the European Union Aviation Safety Agency ARISE+ in ASEAN (2019-2020)
(This article was translated by Musthofid)