Indonesia shows a flicker of its tourist potential as Garuda increases focus on Australia-Jakarta routes

18 April, 2017

Although Indonesia has a population of 250 million people and sits only a few kilometres off Australia’s coast, the massive market is a tiny player in tourism rankings. The number of Indonesian tourists to Australia - at 178,000 in the year to Feb-2017, according to the Australian Bureau of Statistics (ABS) - was less than half the number of Singaporeans (population under 6 million). The good news was that was up 20% year on year, but there’s still a long way to go.

Indonesian flag carrier Garuda, is now aiming to grow Australia passenger traffic by 7% in 2017 as it introduces additional frequencies on all six of its Australia routes. Garuda’s passenger traffic in Australia has been relatively flat for the last three years at approximately 600,000 passengers per year. Its Australia traffic declined by 2% in 2015 and was back up by 2% in 2016.

However, improved load factors and improving market conditions are giving Garuda the confidence to resume capacity expansion. Garuda cut capacity to Australia in early 2015 as it suspended services to Brisbane and reduced capacity to its three remaining destinations (Melbourne, Perth and Sydney), essentially reversing earlier capacity increases.

Garuda’s average load factor on Australia routes was only 65% in 2013 and 67% in 2014 due to the highly competitive market, largely dependent on low yielding outbound Australian tourists. Its Australia load factor improved to 81% in 2015 as capacity was reduced and remained a relatively healthy 78% in 2016.

Garuda Indonesia’s annual passenger traffic and seat load factor on Australia routes: 2006 to 2016

Source: CAPA – Centre for Aviation & Australia BITRE

At a Mar-2017 press conference with Tourism Australia, Garuda announced that it expected to carry 650,000 passengers to and from Australia in 2017. This would represent a 7% increase compared to 2016 and be a new record for the airline, surpassing the previous record of 619,000 passengers in 2012.

Garuda is adding capacity to Australia in 2Q2017 and 3Q2017, which should enable it to achieve its growth targets. Garuda announced at the Australian press conference one additional frequency on all three of its Australia-Jakarta routes in response to growing demand for travel from Indonesia to Australia.

Tourism Australia had reported a 15% increase in visitor numbers from Indonesia in the full year 2016 to 174,400, making Indonesia now the 12th largest source market for Australia’s tourism industry.

Garuda and Tourism Australia are confident Indonesian visitor numbers to Australia will continue to increase, supporting additional capacity on Australia-Jakarta routes. Australia-Jakarta flights rely heavily on Indonesian visitor traffic to Australia, in contrast with Australia-Bali flights, which consist almost entirely of Australian passengers heading to Indonesia for holiday.

The additional Australia-Jakarta frequencies are being introduced from the end of May-2017 or early Jun-2017, resulting in five weekly flights from Jakarta to Melbourne, Sydney and Perth. Currently all three of these routes are served with four weekly flights. Garuda is the only airline operating nonstop flights in the Melbourne-Jakarta and Perth-Jakarta markets while Qantas also offers four weekly flights on Sydney-Jakarta.

Garuda will offer more than 3,000 weekly one-way seats from Australia to Jakarta from Jun-2017, according to CAPA and OAG data. This represents a 33% increase in capacity compared to the same period of 2016. Garuda last had over 3,000 weekly one-way seats in the Australia-Jakarta market back in 2H2013, when it had an overall larger operation in Australia.

Garuda Indonesia Australia-Jakarta one-way seat weekly seat capacity: Sep-2011 to Sep-2017

Source: CAPA – Centre for Aviation & OAG

Garuda also announced at the Mar-2017 press conference additional seasonal flights on its Australia-Bali routes. However, capacity increases to Bali are typical during peak periods. Garuda’s total capacity on Australia-Bali routes in May-2017, Jun-2017, Jul-2017 and Aug-2017 will be slightly below 2016 levels, according to CAPA and OAG data.

Garuda has expanded its Australia operation from 22 weekly flights in early Apr-2017 to 32 weekly flights currently, driven by seasonal increases on all three of its Australia-Bali routes. Garuda’s Australia operation will increase to 35 weekly flights in Jun-2017 as the three additional Australia-Jakarta frequencies are implemented.

However, capacity will slip slightly in Aug-2017 as Garuda cuts back three of Australia-Bali frequencies. Garuda typically operates daily or near daily flights during peak periods on its three Australia-Bali routes (from Perth, Melbourne and Sydney) but up to two fewer frequencies during off peak periods.

Garuda also has flexibility to adjust capacity on its Australia routes by changing gauge. Most of its Melbourne and Sydney flights are now operated with A330-300s but occasionally smaller A330-200s are deployed. Garuda currently uses 737-800s on Perth-Jakarta and A330-200s on Perth-Bali.

More growth is likely in 2018

Indonesian visitor numbers to Australia are expected to increase in 2018 and Garuda is keen to continue pursuing expansion in Australia, particularly to Jakarta. Additional frequencies on all three of its Australia-Jakarta routes are likely in 2018 as Garuda launches nonstop flights from Jakarta to London, replacing a current one-stop service via Singapore.

In other words, not all of Garuda’s seats are designed to carry traffic between Indonesia and Australia; but it is always the case that some of the added capacity will default to end-to-end tourism flows. Garuda is keen to compete in the highly competitive kangaroo route from Australia to Europe. And offering one-stop connections from Australia to London could help Garuda improve its performance in London, as well as helping support additional capacity on Australia-Jakarta routes.

Garuda is also planning to bolster its European operation in 2018 with more nonstop frequencies from Jakarta to Amsterdam and a potential new route from Jakarta to Frankfurt or Paris. European expansion will require feed from Australia. While Australia-Europe traffic is low yielding, particularly for a new entrant like Garuda, such traffic is necessary to support Garuda’s ambitions for expansion in both markets. It also begins to fan the small flame of inbound tourism from Indonesia.