Abstract
As the ASEAN put forward aviation industry liberalization measures in 2010, the Indonesian aviation industry has moved towards the other side of the spectrum of late. Two market ventures driving the change was in late 2018, where one of the leading airlines group, Garuda Group, through Citilink agreed to form cooperation with Sriwijaya Air. Second, January 2019 further marked the period in which Lion Air started charging 'baggage fees' and Garuda Indonesia stopped offering sub class tickets. Amid the presence of such changes in the industry, this study aims to discuss the current state, challenges, and potential of the Indonesian aviation market; comprehensively discuss the economic implications of such state of the industry; as well as how the government may act to help address the possible market failures. The study utilizes multiple data sources, ie, data from CAPA, INFARE, as well as of?cial governmental transportation database. We ?rst describe the potential of airlines industry in Indonesia. We identify the periodic breaks in the industry's growth; that is, during which periods significant?cant changes are happening. What follows is a complete breakdown of the market concentration and landscape. We proceed to show the impacts of the generalized price increase. Our ?ndings suggest that loss of passengers is huge. Further, we?nd an intriguingly similar capacity drop in the period following the Citilink – Sriwijaya deal conducted by virtually all the members of Garuda Group and Lion Air Group – all against the year-on-year trend. We specifically decompose the changes that follow the late 2018 trend. Further implications are discussed. We conclude the study with relevant policy recommendations.
