CEO Message #53
Low Cost Carrier Terminal (LCCT)
When we’re asked whether Indonesia can become a world-class tourism destination? The answer is firmly possible. From the 3A formula (Attractions, Access, Amity) we are very calculated on the global scene. Attractions, for example, many times our destination was chosen to be the best in the world, i.e. Bali, and the warmest recently Java Island has been named the best island in the world Travel + Leisure version.
Likewise with amenities, at the same time Travel + Leisure announced the best hotel in the world, where there were 5 hotels in Indonesia included in the Top 100, even 3 hotels in the Top-10. The hotel is Nihi Sumba (ranked 9), The Mulia Bali (ranked 6) and the champion is Four Seasons Bali ranked as number 1.
However, when talking about accessibility, there is still much homework that needs to be done. I always say we must start from the end, always start with the target to be achieved. To bring in 17 million foreign tourists this year and 20 million foreign tourists in 2019, we must grow an average of 20% every year. Unfortunately, our international pax only grew 16% when we had to grow 21% this year.
Why did it happen?
We want to move fast, but it turns out we chose the wrong “vehicle”. Tourists who come to Indonesia in 2017 on average more than 55% use Full Service Carrier (FSC), and the rest use Low Cost Carrier (LCC). However, it turns out that the average FSC growth was only 12%, far below the LCC which grows at an average of 21% per year. For example in Japan, for 2017, international passenger growth each year averages 12% per year. From this number, the growth of passengers using FSC services was around 5%, while LCC grew 40% per year.
This is what I said on wrongly choosing a vehicle, where we have to grow tall but use more vehicles that grow low, do not connect. Thus, the LCC is a powerful weapon to encourage growth in the number of foreign tourists, with this low-cost airline contributing to a 20% increase in tourist arrivals. To encourage LCC growth, Indonesia must have a Low Cost Carrier Terminal (LCCT).
The target given by the President must increase by an average of 20% per year; if we use the usual method (FSC) then growth will never be achieved. LCCT is one of the main determinants of the success of the target of visiting 20 million foreign tourists in 2019. So far, LCC has come to Indonesia to park in places (airports) that are not competitive in terms of price. Many LCCs are reluctant to come to Indonesia because of the high airport charge.
This LCCT discourse has been carried out at the direction of the President in the Cabinet Ratio some time ago. The president demanded that the growth of the aviation industry this year reach 20%. With the LCCT, airlines can cut operational costs by up to 50 percent, but will have traffic that has doubled.
As I often point out, the fastest way to become the best is to benchmark. Many countries have developed LCCT that we can study, such as Japan, Thailand up to UK.
Airports in Japan have begun setting up low-cost terminals since 2012, at Tokyo’s Narita Airport (NRT), Okinawa’s Naha Airport (OKA), then Nagoya’s Chubu (NGO) airport and Osaka Kansai Airport (KIX).
Narita Airport, for example, has started building T3 for LCC since April 2015. The amount of LCC traffic then continued to grow from 11.5 percent to 31 percent in 2017 from the total in Narita, Tokyo. Currently Narita is developing LCCT capacity from 7.5 mppa to 15 mppa (million passengers per annum) which will soon be operational to anticipate growth.
Traffic growth in LCCT is much higher than Non-LCCT for the same destination. As a result, inbound tourists to Japan grew 33% per year from 2011 to 2015 and became the highest growth rate in the world, reaching 28.7 million tourists in 2017.
In line with Japan, Thailand is also keen to develop LCCT. During the period of 2014 – 2017 International Pax grew by an average of 15% per year with FSC growth of only around 12% per year, while LCC grew by around 25% per year. Pax traffic in Bangkok Don Mueang Airport (DMK) reached 38 million in 2017 and is the largest LCC Airport in the world. International pax DMK grew 20.6% while BKK (Svarnabhumi) grew only 7.5%.
London is also same. There are 6 airports in London with two of them being LCCT namely Standstead (STN) and Luton (LTN). During 2013-2017, total traffic at 6 airports grew by 25.6%, with two LCCTs (STN and LTN) growing at 51.4%, while 4 Non-LCCT airports grew at only 19%.
A decrease in cost / pax at STN by 7% in 2014 was proven to increase the number of pax by 20% in the same period. Now, STN is the fastest growing airport, with slot demand of 12.1% per year; compared to Heathrow (LHR) of 1.4% and Gatwick (LGW) of 2.1%. Gatwick is a Non-LCCT airport but has managed to increase traffic quite significantly by inviting LCCs such as Easy-Jet, FlyBee, Norwegian Air Shuttle, Ryan Air, Vueling, Wizz Air, WOW Air, TUI Airways; by lowering the airport charges lower than Heathrow.
For Indonesia, the airport that is most ready to be developed into LCCT is Terminal 2 Soekarno-Hatta. De facto, actually PT Angkasa Pura II already has an LCCT for domestic flights, i.e. Terminal 1 of Soekarno-Hatta Airport, due to the fact that now all Lion Group and Citilink (low cost) flights are in Terminal 1. In accordance with the information received, Terminal 1 will later become a full LCCT of domestic flights, while Terminal 2 will be full LCCT for domestic and international flights.
Banyuwangi Airport is also being developed into LCCT. The designation of Banyuwangi Airport as LCCT was a follow up to my meeting with Managing Director of AP II Muhammad Awaluddin. Banyuwangi Airport is also being developed into LCCT. The designation of Banyuwangi Airport as LCCT was a follow up to my meeting with Managing Director of AP II Muhammad Awaluddin. Later on the development of the Banyuwangi Airport will be thickening the runway (Overlay Runway) so that it can accommodate Boeing 737-8 NG, 737-9 ER and Airbus 320 aircraft; from the expansion of aircraft parking lots (aprons) were also increased. It was originally only able to accommodate 3 Narrow Body aircraft, now can be 9 Narrow Body aircraft.
For other infrastructures such as vehicle parking area, it was also widened from initially only 2,000 m2 (80 vehicles) to 5,000 m2 (260 vehicles). The last is the expansion of the Passenger Terminal of 7000m2 which is only able to accommodate 700 thousand pax / year. It becomes 20,000m2 or the equivalent of 2 million pax / year.
After LCCT, there are those who want a Low Cost Terminal (LCT), which is a terminal that was originally designed to be low cost, not just to reduce rates like LCCT. The proposed LCT concept is balanced in terms of aeronautical and non-aeronautical aspects. For this reason, I have specifically spoken with several CEOs of Airlines, to help implement the LCT concept in Indonesia.
When tourists use LCC, it does not mean the spending must be small. For example Thailand has many LCC terminals, but its Average Spending per Arrival (ASPA) reaches 1,500 US dollars. While Indonesia is still at 1,200 US dollars. The level of occupancy of passengers (occupancy) planes to destinations is usually also more for economy class. It can prove the use of LCCT does not reduce ASPA.
Closing this CEO Message, I remind that extraordinary results can only be achieved in unusual ways! The development of LCCT is the most effective solution in achieving the target of 20 million foreign tourists in 2019!
- Ir. Arief Yahya, M.Sc.