The Impact of The Air Transport on Tourism Sector in Indonesia

by | Dec 30, 2021 | slider, Study Insight | 0 comments

How can the air transport industry give an impact on the tourism sector in Indonesia?

Air transport in Indonesia shows exponential growth over the last decade.
Source: Unsplash.com

Air transport in Indonesia shows exponential growth over the last decade. The geographical condition as an archipelago country has made air travel the most popular way of transport. This leads the government to put a lot of expectation on the air transport industry as the engine of economic growth.

Based on data from Air Transport Regulatory Competitiveness Indicators developed by The International Air Transport Association (IATA) in 2018, Indonesia’s passenger facilities score of 4,8 out of 10 points was slightly above the Asia-Pacific average of 4,7 out of 10 points. Indonesia ranks 2 for visa openness and 42 out of 136 countries in terms of competitiveness on cost factors. Where all the scores in this ranking indicate that the higher the score the better. 

The Overview of Air Transport Industry Development in Indonesia

As an archipelago country, Indonesia faces serious limitations in connecting the whole country. Over the last decade, air transport has become a reliable solution as a means to connect each area and province.

Nowadays, it is the cheapest and fastest way to travel all around Indonesia. According to the data World Bank in 2012, the air transport liberalization in 2004 has doubled the number of air passengers from 12 million in 2003 to 26 million in 2004.

The interaction between air transport and economic development has been said to be a two-way mutual benefit relationship. Air transportation makes a unique contribution, including being a bridge between cities, investment, goods flows, and people, as well as ideas that can foster economic development that must flow by minimizing obstacles to be able to maximize these contributions, especially to consumers and wider economic impacts.

So that it can make it easier for people and goods to be able to cross the border both borders to countries. The air transport sector supports airlines, airport operators, airport on-site enterprises restaurants and retail, aircraft manufacturers, and air navigation service providers employ 115,000 people in Indonesia.

However, air transport could not grow without interaction with other industry sectors, this is due to its nature as transportation means rather than an industry that produces goods and services to the market. The market of air transport itself is the output of other industry sectors.

Air Transport Industry Give an Impact on Tourism Sector in Indonesia

According to data from the Oxford Economy, to measure the impact of air transportation there are various ways, three of which are jobs and expenditures generated by national airlines and their supply chains, trade flows, tourism, and investment generated from users of all airlines serving the country, and the existence of connections between cities so that there is a flow of goods and people.

The Bardsen transformation proved that only the tourism sector has a significant effect on air transport, while other sectors did not. Indonesia being a tourism-oriented country, air transport would most likely affect economic development by providing a platform for the tourism sector to grow.

According to the data from the Bank of Indonesia in 2011, a tourism-oriented country, Indonesia’s tourism sector is seen as the main contributor to economic development. It is currently the second-largest contributor to the national account of total Gross Domestic Product (GDP).

  1. The Air Transport Sector is a Major Contributor to The Indonesian Economy

In total, 4,2 million jobs are supported by air transport and tourists arriving by air. The air transport industry, including airlines and its supply chain, is estimated to support USD 8,2 billion of GDP in Indonesia.

Spending by foreign tourists supports a further USD 15,8 billion of the country’s GDP, totaling USD 24 billion. In total, 2,6% of the country’s GDP is supported by inputs to the air transport sector and foreign tourists arriving by air.

On top of this, the sector is estimated to support a further 117,000 jobs through the wages it pays its employees, some or all of which are subsequently spent on consumer goods and services. Foreign tourists arriving by air to Indonesia, who spend their money in the local economy, are estimated to support an additional 3,5 million jobs.

  1. Air transport facilitates flows of goods, investment, and people

The most important benefits from air transport go to passengers and shippers and the spillover impacts on their businesses. The value to passengers, shippers, and the economy can be seen from the spending of foreign tourists and the value of exports through note these figures include all modes of transport. A key economic flow, stimulated by good air transport connections, is foreign direct investment, creating productive assets that will generate a long-term flow of GDP. 

According to data from The United Nations World Tourism Day (UNWTD), The United Nations Conference on Trade and Development (UNCTAD), and World Bank, Asia – Pacific is the largest source of arrivals to Indonesia, followed by the Middle East and Europe. 118 million passengers arrived in Indonesia from Asia – Pacific 97,2% of the total, 1,5 million passengers arrived from the Middle East 1,3% and 1,5 million passengers arrived from Europe 1,2% of the total.

  1. Ease of travel, cost competitiveness, and trade facilitation are vitally important

Indonesia’s facilitation of air cargo through its customs and borders regulations ranks 89 out of 124 countries in terms of the Air Trade Facilitation Index (ATFI) and 63 out of 135 countries in terms of the freight Friendliness Index (EFFI) globally 8. The Enabling Trade Index (ETI) 9 ranks Indonesia 70 out of 136 countries globally for the facilitation of the free flow of goods over borders and to its destination.

However, little has been done on finding how air transport impacts economic development in a country that depends greatly on its tourism aspect.

The Future Prospects of Air Transport in Indonesia 

Forecast scenarios for passenger traffic, jobs and GDP footprint air transport market in Indonesia is forecast under the current trends scenario to grow by 219% in the next 20 years. This would result in an additional 268 million passenger journeys by 2037.

If met, this increased demand would support approximately USD 77 billion of GDP and around 6,9 million jobs. Acknowledging the large potential of air transport users, the Indonesian government is trying to accommodate the air transport growth by rebuilding its Infrastructure.

Currently, the Indonesian government is trying to rebuild its air transport industry by building new airports throughout the archipelago and renovating their major airports to increase their capacity. Therefore, the Indonesian strategy to stimulate tourism sectors by developing a better air transport industry could indeed increase economic development.

Enter The Indonesian Air Transport Market with BRIGHT Indonesia 

Because of the huge impact of air transport on the tourism sector in Indonesia, of course, it takes a lot of in-depth research about the electric battery market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you. 

BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.

BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

  1. Provide assistance for you in expanding and developing your business by identification of potential partners.
  2. Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
  3. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
  4. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net.

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