How Indonesia Will Shape the Aviation Industry by 2034

As one of the fastest-growing aviation markets in the world, the aviation industry in Indonesia presents a wealth of opportunities for businesses and investors alike. This sector offers potential in various areas, including airline services, aircraft maintenance, pilot training, and infrastructure development. 

A notable example of this growth is the new player BBN Airlines, which aims to contribute to the expanding market. 

The Outlook of Indonesia’s Aviation Industry

Indonesia ranks as the second-fastest-growing aviation market globally, following China, when considering its aircraft acquisitions and trade value.

As the largest archipelago in the world, consisting of 17,000 islands stretching 5,150 kilometers (3,200 miles) from east to west, air travel is the country’s most efficient means of transportation.

This promising growth is reflected in Indonesia’s aviation outlook, highlighting the increasing demand for air travel and investment in aviation infrastructure. The International Air Transport Association (IATA) projects that by 2034, Indonesia will become the sixth-largest air transport market in the world.

Drivers of Growth in Indonesia’s Aviation Sector

Indonesia has a robust aviation infrastructure, with approximately 683 airports, including 35 commercial airports. Notably, state-owned enterprises efficiently manage these commercial hubs, PT Angkasa Pura I (AP I) and PT Angkasa Pura II (AP II), ensuring seamless operations and connectivity across the nation. 

The extensive network in Indonesia strengthens the aviation industry and supports its role as a key player in regional air travel. In 2022, the country recorded over 69 million air travelers. Most international flights to Indonesia arrive at Soekarno-Hatta International Airport (CGK), about 25 km west of Jakarta, the capital city.

Indonesia had 228 flight routes in the same year, which is anticipated to grow in the coming years. Despite facing challenges due to the COVID-19 pandemic, which resulted in a worldwide decline in air travel, the Indonesian aviation sector has demonstrated resilience and has begun to recover.

By mid-2023, international passenger traffic at Jakarta’s Soekarno-Hatta Airport and Bali’s Ngurah Rai Airport had regained their pre-pandemic levels.

Although obstacles such as maintaining security standards and improving operational efficiency persist, Indonesia has made noteworthy strides in adapting to the evolving landscape of international travel.

Investment Opportunities in Aviation Industry

Indonesia’s aviation market is the second-fastest growing globally and shows a strong preference for US products. The market for aircraft replacement parts and services is substantial, alongside a growing demand for air traffic control and airport logistics services, which include ground support equipment. 

With rapid expansion, the Indonesian aviation industry requires significant infrastructure, training, and components investment to ensure smooth operations.

The aviation industry market is projected to achieve a compound annual growth rate (CAGR) of 6.5% from 2022 to 2028, making Indonesia particularly attractive in the maintenance, repair, and overhaul (MRO) sector.

This growth is fueled by rising demand and numerous opportunities for industry participants. In particular, Indonesia offers significant potential for MRO development thanks to its growing aircraft fleet, thriving tourism sector, and supportive government policies.

BBN Airlines Takes Off as Indonesia’s Newest Mid-Service Carrier

BBN Airlines Indonesia has officially launched as the country’s newest medium-service carrier. After obtaining its air operator certificate (AOC) in March 2024, the airline launched operations on September 27, 2024, with its inaugural Jakarta-Surabaya flight. 

Founded in Jakarta in 2022, BBN Airlines Indonesia is a Dublin-based Avia Solutions Group local branch. According to its website, this aviation services provider specializes in ACMI leasing, air charter operations, air freight services, and scheduled flights.

The introduction of BBN Airlines’ passenger service comes at a time when the government is facing a shortage of commercial aircraft, which has led to increased airfares and slowed the recovery of the tourism sector from the impacts of the COVID-19 pandemic.

Types of the Aviation Industry in Indonesia

The aviation industry in Indonesia connects the archipelago and facilitates passenger and cargo transport. The sector encompasses various segments with diverse services, from airlines to pilot training schools.

Airlines 

These organizations provide scheduled flights for passengers and cargo, both domestically and internationally. In Indonesia, airlines like Garuda and Lion Air are the most prominent players in this sector.

Air Charter

Charter Airlines operates flights outside their regular schedules based on passenger agreements. They have legal permits for commercial operations. Examples include Susi Air and Premi Air in Indonesia.

Pilot Schools

These educational institutions provide pilot training. Indonesia is home to several notable pilot schools. These include the government-owned Sekolah Tinggi Penerbangan Indonesia (STPI), Bali International Flight Academy, and Nusa Flying International.

Private Jets 

This sector is underutilized in Indonesia. While many individuals and organizations use private jets, like MAF and BPPT, most aircraft are registered abroad due to unfavorable local regulations. Many Indonesian owners operate these jets primarily within the country.

Agricultural Aircraft 

Agricultural aircraft are utilized for fertilization and pesticide spraying across large areas, significantly improving farming efficiency. However, despite Indonesia’s extensive agricultural land, only a few companies operate in this sector.

Aircraft Maintenance Organizations (AMOs) 

Companies like GMF Aerosia (owned by Garuda), Batam Aero Technic (Lion Group), and Merpati Maintenance Facility (MMF) provide maintenance services. Currently, only airlines own AMOs in Indonesia, leading many non-airlines to seek maintenance abroad, particularly in Singapore and Australia.

Training Centers 

Institutions like the Garuda Training Center offer certification programs for aviation industry professionals, ensuring a skilled workforce.

Challenges Inside the Aviation Industry

Indonesia’s aviation sector faces several ongoing challenges that have intensified over the past decade. Despite the recent recovery in the industry, these issues continue to shape the landscape for airlines, regulatory bodies, and aviation-related businesses. Below are some key challenges:

Maintenance, Safety, and Infrastructure Constraints

Before the pandemic, Indonesia’s aviation industry was plagued by frequent incidents, with over a hundred severe occurrences in the last decade. This has drawn attention to the need for improved safety standards, stricter regulatory oversight, and better infrastructure. 

The country’s aviation sector is now taking steps toward recovery, bolstered by strategic investments. Garuda Indonesia reported a record net profit in 2022, signaling a positive path toward growth.

Rising Operating Costs

Commercial airlines in Indonesia face rising aircraft operating costs, significantly impacted by fluctuations in the rupiah’s exchange rate against the US dollar. With approximately 70% of flight operation costs tied to the US dollar, these fluctuations heavily influence fuel, aircraft leasing, and maintenance expenses.

The volatility in currency exchange rates has made it challenging for airlines to manage costs effectively, necessitating adjustments in operational strategies.

Government Coordination

Another pressing challenge is the need for more effective coordination among government ministries regarding the impact of exchange rates on transportation costs, including air travel.

The Indonesian National Air Carriers Association (INACA) has called for better communication between relevant authorities, particularly concerning adjustments to the fare cap for economy flights. The Transportation Ministry is discussing revising the upper airfare limit to help alleviate cost pressures.

Shortage of Commercial Aircraft

The aviation sector also needs approximately 200 commercial aircraft. This deficit, attributed to business cycles and the surge in travel demand post-pandemic, has increased airfares and hampered the tourism industry’s recovery.

This shortage has prompted new players like BBN Airlines, which recently launched passenger services, to address the rising demand.

Government Support and Airfare Reduction Plans

To tackle some of these challenges, the government is stepping in with plans to reduce domestic airfares by 10% starting in October. Tourism and Creative Economy Minister Sandiaga Uno announced that the fare reduction would be achieved by lowering taxes on critical components such as the value-added tax (VAT) on tickets, aviation fuel, and import duties on aircraft spare parts.

This initiative aims to make air travel more affordable, stimulate tourism, and support the aviation sector’s recovery from the pandemic’s effects.

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Invest in the Indonesia Aviation Market with InCorp

Despite the challenges, Indonesia’s aviation sector is set for remarkable growth. Projections indicate that by 2037, it will become the fourth-largest aviation market globally, serving an estimated 390 million passengers annually. This presents immense opportunities for investors and businesses looking to tap into the booming industry.

If you’re interested in exploring the Indonesian aviation market, partnering with InCorp Indonesia can be the key to your success. With over a decade of experience in market entry, our business licensing and Investor KITAS services ensure a smooth and efficient process, helping you easily penetrate the Indonesian market.