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ASEAN Open Sky Policy: Leveraging Indonesia’s Labor Market

May 19th, 2016

By Felix Hidayat, Chief Business Officer and Director of ATI Business Group - The recent launch of ASEAN Open Sky Policy or the ASEAN Single Aviation Market (ASEAN-SAM) is aimed at elevating mobility and increasing trade between the nations. However, to truly succeed in achieving a single aviation market within the region, two important questions remain: a) will all airlines be ready to take advantage of the pace of growth in the aviation markets?; and b) who will be the winners?

As discussed in The Jakarta Post’ Aviation Outlook 2016, the aviation industry is notorious for its highly complex, capital and labor-intensive nature. Company’s performance results is highly dependent on external uncontrollable factors such: fuel prices, weather, volatile foreign exchange rates, and macroeconomic shifts. Hence many of the airlines are focusing more to control their internal cost components, in particular labor cost – the second-largest expense category after fuel costs.

As a consequence of the ASEAN open skies, increased competition among the airlines is inevitable and coupled with other issues—airport inefficiencies, the annual rise in labor costs, the unpredictability in aviation fuel costs—there will be some airlines that will end-up being less competitive compared to their Southeast Asian counterparts.

s maximizing profits will remain at the top of businesses main purpose, the ability to identify quickly sensible cost-cutting measures while maintaining value will be key differentiator for the top performers. In the era of globalization, one potential solution is for airlines to further outsource non-critical tasks to an industry specialist so that airlines may focus on their core competencies. The choices for overseas airlines are: you could pay your staff their regular wages for nine hours through a project outside their skill set, or pay a specialist for three hours.

Early last year, Tholons Inc. a leading US-based services globalization and investment advisory firm published a report that placed Manila ahead of Mumbai as the second largest outsourcing destination in the world, with Indonesia poised to take over the Philippines in the near term. Behind this is therefore the competition between Philippines and Indonesia as an outsourcing hub. Indonesia has a very young demographic profile, similar to Philippines. A country with 250m in population, a young population with a whopping 69 percent of working age with a median age of 29, with annual GDP growth averaging almost 6 percent, contributing 33% of ASEAN GDP according to McKinsey & Company latest report, Indonesia today is a dynamic nation marked by great opportunity.

Data provided by Centre for Aviation & ACI (CAPA) has shown that Indonesia’s domestic passenger numbers doubled in just four years (between 2008 and 2012), surpassing 70 million and making Indonesia the world’s fifth largest domestic market in the world for passenger travels.

Being the largest of the ASEAN nation and 16th largest economy in the world, Indonesia role on the global stage is set for take-off. It seems sensible for the global aviation industry to see Indonesia’s economic potential as a rising star in the business process outsourcing (“BPO”) sector.


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