Indonesia’s push to improve air safety has consequences for market competition

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Indonesia’s new requirement that all scheduled airlines in the country must operate at least ten aircraft is a move designed to weed out smaller players.

The assumption is that small airlines with only a few aircraft lack the money and resources to be be safe.

But the new law – which is to take effect in January 2012 – is a boon for Indonesia’s larger carriers because it limits competition.

It is also a boon for aircraft leasing companies and aircraft-makers. Based on data available on the website of Indonesia’s Directorate-General of Civil Aviation (DGCA), the country had 13 scheduled passenger airlines and a significant proportion of these will have to increase their fleets to meet the new requirement.

The new law also makes it hard for start-ups. Today I spoke to the DGCA’s director of airworthiness and aircraft operations, Yurlis Hasibuan, who told me that as of 12 January 2012 – when the new law takes effect – any new scheduled carriers will have to launch with a fleet of ten.

If an airline has fewer than ten aircraft then it will have to be a charter operator, he added.

But whether large airlines are any safer than smaller carriers is a bone of contention. The new ten aircraft rule is part of Indonesia’s push to improve air safety following a series of fatal air crashes in Indonesia.

But many of those crashes involved larger Indonesian airlines such as Adam Air, Garuda Indonesia and Mandala Airlines.

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One Response to Indonesia’s push to improve air safety has consequences for market competition

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