Globally, aviation is a strategic sector that has a significant multiplier effect on the rest of the economy. Aviation can accelerate growth in gross domestic product (GDP), stimulate new investment, create jobs and increase trade activity.

In Europe, for example, aviation contributes to 4.1 percent of GDP and generates more than 12 million jobs, both directly and indirectly. Several countries such as Singapore, Turkey and the United Arab Emirates have successfully developed their aviation sector by integrating and strengthening their aviation ecosystems.

While the Indonesian aviation sector has been growing steadily, it still falls below its full potential given the unique assets and strong underlying drivers. The fast growing middle-class, geography of the Indonesian archipelago, untapped potential of tourism and strategic location between European and Australian trade flows give Indonesia a huge opportunity to boost its aviation sector.

To capture its full aviation potential, Indonesia will need to address three challenges as a priority. The first and foremost challenge is to develop aviation infrastructure.

Most major airports are already struggling and operating above capacity. Other technical limitations such as the length or strength of runways prevent airlines from capturing higher value opportunities.

The second challenge is that of international connectivity. There are less than 40 direct daily flights to international destinations from Jakarta, with 70 percent of international flights directly competing with Singapore, Kuala Lumpur and Middle-Eastern hubs.

While perfectly located between Australia and Europe, Jakarta only captures 0.3 percent of this traffic.

The third challenge can be attributed to cost and service competitiveness. It is critical for Indonesian airports to be competitive compared to major hubs such as Changi, Singapore, in terms of service level and costs such as airport charges, handling and fuel.

The current Jakarta-London connection is a good illustration of the issue faced by Indonesian aviation. The current flight from Jakarta to London is only addressing a total market of less than 500 potential passengers per day.

If this flight could be re-scheduled at a more favourable departure time, such as in the evening instead of early morning, and better connected with other inbound domestic flights, the market could expand from Jakarta to London, to Indonesia to London, and address up to 1,000 potential passengers per day.

Pushing this thinking further, if this flight is better connected with major inbound flights from Australia, Indonesia could offer flights from Australia to London, with a transit in Jakarta, and the total potential market would expand to more than 4,000 passengers per day, representing more than 10 daily flights from Jakarta to London.

Furthermore, a code-share agreement with another airline from London to New York could create a Jakarta-New York connection, with the first leg from Jakarta to London operated by Garuda Indonesia, and a second leg from London to New York operated by a partner airline. Jakarta-London flights could then capture Indonesians flying to the US.

Is it realistic to capture this full opportunity and have more than 10 daily flights from Jakarta to London? No. But today Jakarta is capturing less than 1 percent of this opportunity, and that is clearly below its potential.

Major international hubs can be grouped into four categories. First, domestic hubs connecting domestic flights. Second, there can also be international gateways, where domestic passengers use the airport as the main gateway to travel abroad. Third, developing a regional hub would mean connecting regional and international flights, with a stop in Indonesia. Fourth, intercontinental gateways can be explored such as connecting long-haul flights in Dubai between Europe and Asia.

Currently, Jakarta is clearly a strong domestic hub and a secondary gateway for the rest of Indonesia. Jakarta could capture a greater share as a primary international gateway to Indonesia by increasing international connectivity and position itself as another major regional hub in Southeast Asia.

The development of international transit traffic at Indonesian hubs would yield significant benefits, such as increasing load factors, allowing new flights and destinations to open and increasing non-aero revenues for airports, allowing them to keep airport charges competitive while increasing service levels. Hub development works as a virtuous cycle with direct and indirect benefits for all stakeholders involved in the aviation ecosystem.

Indonesia could start with a few initial priorities. The most critical being airport infrastructure development, which is necessary to meet requirements for long haul flights, including runaway upgrades to support fully loaded B777-300ER flights and increasing capacity to capture demand.

There is also a need to look at optimizing airline network scheduling to enable better flight connections, with airport support to optimize slots in Soekarno-Hatta Airports (CGK) and Denpasar International Airport (DPS) hubs. This may mean commercial negotiations and code sharing with foreign airlines to secure the required slots in foreign airports.

At the macro level, Indonesia could intensify its efforts for growth in tourism by partnering with strategic locations. Partnerships with local governments and marketing campaigns will help to promote new direct flights to Indonesia, especially from China and Australia. Tourism can be complemented by the development of adjacent businesses, focussing on logistics and real estate by partnering with foreign entities to develop a logistics ecosystem and transform CGK airport as a regional cargo hub.

Like in other successful countries, the effectiveness of these strategies require an integrated approach and close cooperation between several ministries, such as state-owned enterprises, transportation and tourism, and several companies such as Garuda Indonesia, Angkasa Pura I and II. Such cooperation can be facilitated by a special taskforce comprised of multiple stakeholders. While it may take 3-5 years to see the full impact, some initial connectivity improvements could yield substantial short-term benefits for the aviation sector and the economy.

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Edwin Utama is the head of office and partner & managing director for BCG Jakarta. Lucas Chaumontet is a principal for BCG Jakarta.

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