Indonesia’s Labuan ‘Dragon airport’: confusing signals for Changi
Investors in airports have long been confused by government policies in Indonesia where they have, in theory, been welcomed, even coveted, but where the state airport operators continue to acquire those airports around the country that might attract those investors.
At last a consortium, involving an Indonesian company with experience in the air transport business and a Singaporean one of international repute, has acquired a concession on an airport which supports tourist visits to see the 'Komodo dragons' - huge lizards that were only discovered in the 20th century.
But the transaction came just as the government was about to close off the Komodo island and then to bring in a hefty tourist charge to visit it - not what the joint venture wanted to hear.
- A consortium involving PT Cardig Aero Services and Changi Airports International has acquired a concession to develop and operate Labuan Bajo Mutiara Airport in Indonesia, marking the first time a foreign company has been appointed to operate an airport in the country.
- The consortium plans to invest IDR1.2 trillion (USD86 million) over five years to expand the airport's capacity to handle four million passengers.
- The Indonesian government's approach to airport privatization has been described as "uncoordinated," with state airport operators acquiring smaller regional airports while also encouraging private sector interests.
- Labuan Bajo Mutiara Airport is a key gateway to Komodo National Park, home to the Komodo dragons, a popular tourist attraction.
- The government had initially planned to close Komodo Island for conservation purposes and impose high tourist fees, but the ban was later cancelled, adding to confusion about the long-term vision for the park.
- The airport has seen a significant increase in passenger numbers, driven by the addition of services from airlines such as Wings Air, Batik Air, Lion Air, and Malindo Air.
Summary
- Labuan Bajo Mutiara Airport to be developed by a private consortium - the first in Indonesia to feature a foreign firm.
- One of the partners is new to the business of airport operation but the international partner has a great deal of international experience.
- The Indonesian government has sent out mixed messages about its commitment to private enterprise running its airports.
- The Komodo Island and its airport are not typical destinations - tourism is driven by the 'dragons'.
- But the government had planned to halt tourism for conservation reasons and then to charge heavily for visits to the island later.
- The airport has a good mix of airline and aircraft types and is well utilised inside its operational parameters.
- The public sector operator had been targeting two million passengers annually; the private sector one is seeking four million.
PT Cardig International is new to whole-airport operation; Changi Airports International has extensive experience
Indonesia's Transportation Minister, Budi Karya Sumadi, said that the government had awarded the development and operation for 25 years of Labuan Bajo Mutiara Airport (also known as Komodo Airport) to a consortium of PT Cardig Aero Services and Changi Airports International.
This is the first time that a consortium involving a foreign company has been appointed to operate an airport in Indonesia. It was the only bidder.
The consortium will invest IDR1.2 trillion (USD86 million) over five years to expand the airport, including extending the runway and increasing its capacity by more than sixfold to handle four million passengers. The firms are also expected to spend IDR5.7 trillion (USD409 million) over five years on its operation, while the government will provide a guarantee through a state-owned financial company.
PT Cardig Aero Services is a member of the PT Cardig International group, a holding company for aviation services, logistics, catering and security services.
As long ago as Sep-2014 CEO and President Diono Nurjadin advised that the company was planning to expand its services into airport management as part of a wider growth programme. He pointed out that the state operators PT Angkasa Pura I and PT Angkasa Pura II controlled the airport management market in Indonesia, noting "[the market] has been opened for quite a while, but there haven't been really any private-sector companies tapping into the sector". He added that, "the prospects are really good" for a private company to operate and manage airports in the country.
Perhaps so, but it took the company five years to secure its first - and so far only - deal.
The other partner, Changi Airports International, is much better known. CAI has been an operator of, consultant to, and selective investor in, airports outside Singapore for many years. It is currently involved in one capacity or another with airports in Southeast, North and West Asia, and in Latin America.
Active airports for Changi Airport Group/Changi Airports International
Indonesia's privatisation approach: "uncoordinated?"
The difficulties facing both parties in identifying business opportunities among Indonesia's myriad of airports - there are 675 or so airports altogether, though many are no more than grass strips - can be summed up in this quote from the CAPA Airport Privatisation & Finance Review, published in Aug-2018:
"There seems to be a piecemeal and uncoordinated approach to privatisation in Indonesia, involving the expansion of the two state airport operating companies PT Angkasa Pura I and II (especially II, which is to be privatised itself) and the encouragement of private sector interests. Some European and other western investors still tend to be wary of opportunities in this part of the world, where the business culture is quite different and messages about prospects and the procedures to handle their sale or concession tend to be mixed."
This has been the case while these two state operators have been gobbling up smaller regional airports. Indeed, PT Angkasa Pura II requested permission to operate Labuan Bajo Mutiara Airport in 2018, around the time an (unknown) Australian airport operator was being sounded out by the Transport Minister to operate it jointly. Another indicator of a lack of coordination?
In a way that would be understandable as at least one of the two state organisations is in line (and has been for a while now) for privatisation itself. The government would want to keep it as influential and powerful as possible, especially if there were to be an IPO.
This dichotomy continues. Towards the end of 2019 Angkasa Pura II agreed to take over the management of Tanjung Pandan's Hanandjoeddin Airport, Bengkulu's Fatmawati Soekarno Airport, and Bandar Lampung Radin Inten II Airport, effective 01-Jan-2020. Angkasa Pura II also plans to acquire 25% of PT Bandarudara Internasional West Java, the owner and operator of West Java Kertajati International Airport, via a share purchasing scheme.
At the same time, Angkasa Pura II stated that it intends to target African countries for airport development and management opportunities as part of its 'Go Global' initiative to increase investments abroad. AP II took part in the Indonesia-Africa Infrastructure Dialogue forum in Aug-2019, where it identified seven potential investment opportunities to expand airport capacity in South Africa, Egypt, Ethiopia, Morocco and Algeria, as well as potential airport construction projects in Egypt, Ethiopia, Angola, Tanzania, Sudan, South Africa, Rwanda, Burkina Faso and Zambia.
So AP II, in particular, is expanding both domestically and internationally. AP I not so much, but it did take over the management of Labuan Bajo Mutiara Airport in 2018!
While this is going on the government has been inviting both the domestic and international private sectors to participate in investment in new airport projects such as the Singkawang Airport project in West Kalimantan, via public-private partnerships (PPP) and particularly targeting Malaysian investors. The initiative aims to reduce the dependence of financing major infrastructure projects on the state budget.
Potential investors were told that they could participate in terms of physical infrastructure, runways, and technical equipment.
Then, right at the end of 2019, that message was ratcheted up further when the Transport Minister said Indonesia could offer more airport management projects to foreign investors in 2020, including Medan Kualanamu International Airport, Manado Sam Ratulangi Airport and (again) Singkawang Airport. The minister added, though, that the first two airports would need investment of up to IDR8 trillion (USD573 million).
The key development where Labuan Bajo is concerned was a Feb-2018 decision by Indonesia's Coordinating Minister for Political, Legal and Security Affairs to consider handing over airports in Jakarta, Silangit, Labuan Bajo and the Bangka Belitung islands to be privately managed. The Minister cited Turkey's Istanbul Atatürk Airport as an example of a successfully privately managed state-owned infrastructure asset, although it is hard to see how Atatürk, which has since closed, could be compared to smaller Indonesian airports like Labuan Bajo.
Investors will regard Labuan Bajo Mutiara as a benchmark for their own future bids
It is highly likely that before any non-Indonesian investors commit to any deal to operate any other airport in the country their due diligence will include the Labuan Bajo Mutiara Airport agreement.
So what would be the attraction of this airport to PT Cardig Aero services and CAI?
The only real attraction is the Komodo dragons - if you can get to them
The airport's name comes from Labuan Bajo's status as a departure point for tours to the nearby Komodo National Park - home of the Komodo dragon and a UNESCO World Heritage site.
The Komodo dragon is a species of lizard found in the Indonesian islands of Komodo, Rinca, Flores, and Gili Motang. It is the largest existing species of lizard, growing to a maximum length of three metres and typically weighing 70-90 kilograms. While they have been known to attack humans their rarity and the fact they may be the remnants of an extinct species will guarantee tourism in a world becoming obsessed with conservation.
There are other tourist attractions such as diving and rare pink sand beaches in the area but this transaction takes place just as the Komodo Island is closed to tourists for the initiation of a conservation programme, and there is talk of charging future tourists high fees to visit it.
There is nothing else there: the original Komodo people are now extinct and the present-day inhabitants are descended from criminals who were exiled there. That fact won't be highlighted in the tourist brochures.
Investment by several airlines has forced up passenger numbers dramatically
Passenger traffic at the airport was steady at around 150,000-200,000 per annum through most of the past decade, then increased suddenly after Wings Air added services in 2018, along with services from Batik Air Lion Air and Malindo Air, all of which positively influenced both domestic and international tourist arrivals.
Labuan Bajo Mutiara Airport (Komodo Airport) passenger numbers: 2010 - 2019
Wings Air, a regional low cost subsidiary of Lion Air, now has the largest seat capacity at the airport, supported by Batik Air, a full service subsidiary of Lion Air, Indonesia AirAsia and Nam Air, an Indonesian full service airline.
Labuan Bajo Mutiara Airport (Komodo Airport) seats by airline: week commencing 06-Jan-2020
The route network is quite comprehensive, although wholly domestic, despite the announcement of an international route from Malaysia in 2019.
Labuan Bajo Mutiara Airport (Komodo Airport) network map for the week commencing 06-Jan-2020
The airport handles regional turboprops through to the 737-800 and A320
Komodo Airport, which has a 2150m x 30m runway, also has a broad range of aircraft using it, from regional turboprops and jets (ATR 72 and Canadair Regional Jet 1000) to the A320 and Boeing 737-800.
Labuan Bajo Mutiara Airport (Komodo Airport) seats by aircraft model: week commencing 06-Jan-2020
The breadth of the airline services mentioned previously suggests a positive mix of full service, low cost and charter flights, and that is confirmed by the seat capacity by business model chart below.
Labuan Bajo Mutiara Airport (Komodo Airport) seats by business model: week commencing 06-Jan-2020
The airport is constrained only in that its operations are restricted to the hours of 0700-1900. Within that time frame there is a balanced mix of departing and arriving capacity.
Labuan Bajo Mutiara Airport (Komodo Airport) seats per hour for Wednesday 08-Jan
Both the public and private sectors have declared an interest in investing heavily
Before the takeover Angkasa Pura I had said that it would invest IDR400 billion (USD273 million) to increase the capacity of two airports - Kupang El Tari Airport and Labuan Bajo Mutiara Airport - and was targeting two million passengers annually for Labuan Bajo Mutiara. That will have been attractive to PT Cardig Aero Services and CAI.
However, it does not lie easily with the concept of conservation and notions of charging tourists to visit the islands; at a fee that could have been as high as USD500 per tourist. At the beginning of Oct-2019 the government cancelled the previous decision to close Komodo Island to tourists.
The cancellation of the ban has added to a sense of confusion around the government's long term vision for the park.
The Governor of East Nusa Tenggara wasn't confused. He had said, "Only people with deep pockets are allowed to [see Komodo dragons]. Those who don't have the money shouldn't visit the park since it specifically caters to extraordinary people."
Presumably such threats have now been lifted and the new concessionaire will be catering to people who aren't extraordinary, even if the dragons are.