Travel Boom Drives Multi-Billion Indonesian Airports Expansion

(Bloomberg) -- Indonesia’s largest airport operator is looking to spend billions of dollars to build a new facility in Jakarta and upgrade the existing one to cater to an unprecedented travel boom and compete with neighboring countries for tourism revenue.

Angkasa Pura II, the state-owned operator of 16 airports across Indonesia, will conclude a feasibility study for a greenfield airport in the archipelago’s capital this year that may require an investment of about 100 trillion rupiah ($7 billion), according to President Director Muhammad Awaluddin. The company is already spending hundreds of million dollars in adding a new terminal and a runway in Jakarta’s Soekarno-Hatta International Airport, he said.

Travel Boom Drives Multi-Billion Indonesian Airports Expansion

Jakarta is the latest to join cities in Southeast Asia including Bangkok and Kuala Lumpur to expand capacity as travel demand in the Asia-Pacific region is set to double in the next two decades on rising wealth. Passenger traffic in Soekarno-Hatta may surge 46 percent to top 100 million within a decade, Angkasa Pura estimates. With President Joko Widodo identifying tourism as a key foreign-exchange earner in the face of declining exports of oil and gas, better airport connectivity will be important in luring travelers, Awaluddin said.

Travel Boom Drives Multi-Billion Indonesian Airports Expansion

“Jakarta and the surrounding areas with a population of about 50 million will need a multi-airport system that’s connected to meet the demand,” Awaluddin said, pointing out that the London metropolitan area with less population is served by at least five facilities. “The new airport will be a masterpiece of the country.”

Indonesia’s domestic airline market has boomed in recent years to become the fifth largest in the world. Local air traffic more than tripled between 2005 and 2017 to 97 million people, according to the CAPA Center for Aviation, and is dominated by flag carrier PT Garuda Indonesia and Lion Air Group.

Travel Boom Drives Multi-Billion Indonesian Airports Expansion

Reclaim Sea

The nation’s capital city and its suburbs are currently serviced by Soekarno-Hatta and Halim airports, which together handled 73 million passengers last year, much more than their designed capacity, Awaluddin said. Angkasa Pura may build the greenfield airport in Jakarta on its own or in partnership with other companies, a decision the State-Owned Enterprises Ministry needs to make, he said.

The site for the greenfield airport could be close to the Soekarno-Hatta airport or could be built on land reclaimed from the sea, Awaluddin said. The facility, if built adjacent to the existing airport, will need clearing of about 600 hectares (1,483 acres) of land, and reclamation of 2,000 hectares if in a new location, according to Awaluddin.

A new terminal, whose construction will begin in 2021, will be able to handle about 45 million passengers. Angkasa Pura is also “revitalizing” the existing terminals one and two to boost capacity to 25 million each from about 9 million, Awaluddin said.

Airport investment plans are afoot in other Asian cities as well. South Korea’s Incheon International Airport is spending about 4.2 trillion won ($3.7 billion) to expand, while China is set to open its second airport in Beijing later this year at a cost of about 80 billion yuan ($12 billion). Malaysia Airports Holdings Bhd. said last year that it plans to double Kuala Lumpur International Airport’s capacity to 150 million in the next two decades or so.

Travel Boom Drives Multi-Billion Indonesian Airports Expansion

The operator is in the process of selecting a strategic investor for Kualanamu International Airport in Medan, in Sumatra island. It sees the airport as a hub for airlines from Southeast Asia, East Asia, China and the Middle East with passenger volume surging to 17 million in three years from 11 million in 2018.

Angkasa Pura will call for proposals this month from 16 preferred bidders, mostly from Asia and Europe, which have expressed interest in becoming an equity partner, Awaluddin said. The selected partner may own a maximum of 49 percent in the venture operating Kualanamu airport, he said.

"Kualanamu is a sexy airport. In terms of productivity of the airport, it’s a profitable airport,” Awaluddin said. Sumatra, the second-most populous island in Indonesia with about 60 million people, holds huge potential for air traffic, he said.

©2019 Bloomberg L.P.