The Strategic Role of Aviation
Civil aviation has always been more than a business of transporting passengers and cargo. In Indonesia, it is a lifeline. With more than 17,000 islands spread across an archipelagic landscape, aviation is not a luxury but a necessity. It carries the hopes of regional development, the promise of tourism, and the arteries of national unity. For decades, however, the sector has been treated as though it could grow naturally through market forces alone. The result has been a fragile ecosystem, prone to shocks, heavily dependent on external factors, and uneven in its contribution to the economy.
The COVID-19 pandemic exposed just how vulnerable the industry was when demand collapsed. But the recovery phase has highlighted another truth: the industry is not only resilient but also hungry for structural reforms. Now that demand is returning, geopolitical tensions, energy price volatility, and supply chain disruptions are threatening to erode the gains. Without deliberate economic incentives, Indonesian civil aviation risks losing momentum, falling behind its regional peers, and becoming a mere passenger in the race for global competitiveness.
Stabilizing the Cost Base
The first policy priority in empowering Indonesia’s aviation sector lies in stabilizing operational costs. Airlines operate on razor-thin margins, and every fluctuation in fuel price, spare parts availability, or regulatory fees can make the difference between profit and loss. Aviation turbine fuel, or avtur, represents the single largest cost component for Indonesian carriers. The country has long struggled with high fuel prices compared with global averages. The situation is compounded by the lack of diversification in supply, leaving carriers exposed to market volatility and regional disruptions.
A fiscal incentive on avtur, through reductions in value-added tax or targeted subsidies, would provide immediate relief. But such measures cannot stand alone. A comprehensive strategy to diversify fuel supply sources, encourage local refining capacity, and promote the gradual adoption of sustainable aviation fuel would create long-term stability. Other countries have demonstrated that governments can use fiscal tools to create price parity and stimulate innovation simultaneously.
Beyond fuel, the issue of spare parts and maintenance cannot be overlooked. Indonesia’s carriers depend heavily on imported aircraft and components. High import duties on essential spare parts and the lack of a robust domestic maintenance, repair, and overhaul (MRO) industry add another layer of cost and inefficiency. Offering import duty exemptions for critical parts and incentivizing local production would alleviate the burden. Airlines would not only save costs but also reduce downtime, leading to improved reliability and competitiveness.
Subsidies for pioneering routes remain another critical instrument. Serving remote regions is costly, often commercially unviable, but socially indispensable. A selective subsidy mechanism that rewards efficiency and accountability ensures that connectivity is not sacrificed on the altar of profitability. Rather than being seen as distortionary, such subsidies should be understood as investments in equity, binding the nation together and enabling inclusive development.
Building Infrastructure and Attracting Investment
Civil aviation cannot thrive without infrastructure. Yet airports and supporting facilities in Indonesia remain uneven in quality and capacity. While international hubs like Soekarno-Hatta and Ngurah Rai are modernized, many regional airports lag behind, unable to support growing passenger traffic or meet international standards. Economic incentives can play a transformative role here.
Tax holidays or tax allowances for investors in MRO, component manufacturing, and airport development are not mere giveaways. They are signals of a government that understands the strategic nature of aviation infrastructure. By lowering the cost of entry and de-risking investments, Indonesia can attract both domestic and foreign capital into critical areas of the value chain.
The concept of the aerotropolis—a city built around an airport—is more than a buzzword. It represents a model of integrated development, where logistics, commerce, and industry converge with aviation to create economic clusters. Incentivizing the construction of aerotropolises and air cargo hubs would position Indonesia as a key player in global supply chains. In an era where e-commerce and just-in-time logistics dominate, such facilities are not optional luxuries but necessary assets.
Public–private partnerships (PPPs) remain underutilized in Indonesia’s aviation sector. Incentivizing PPPs with transparent risk-sharing arrangements and clear regulatory frameworks would unlock new streams of capital. Investors, both domestic and foreign, are willing to participate if they see predictability and fairness. With careful design, PPPs could bridge the infrastructure gap without overburdening state finances.
Green Aviation Transformation
No discussion of aviation’s future is complete without addressing sustainability. The industry is under growing pressure from regulators, financiers, and the public to reduce its carbon footprint. Indonesia cannot afford to be left behind in this transformation. Economic incentives are essential to make the green transition feasible and attractive.
Subsidizing research and the use of sustainable aviation fuel (SAF) is a starting point. SAF remains more expensive than conventional jet fuel, creating a barrier for airlines already struggling with costs. By offering subsidies, price support, or blending mandates, the government can create demand certainty and encourage investment in domestic SAF production. Indonesia, with its vast agricultural resources, has the potential to become a regional SAF leader, turning sustainability into an economic advantage.
The electrification of ground support equipment offers another opportunity. By incentivizing airports to replace diesel-powered vehicles with electric alternatives, emissions can be reduced significantly. Such programs have been implemented in major hubs worldwide, yielding both environmental and financial benefits in the form of lower operating costs.
Regulations that reward airlines for lowering their carbon footprint would complete the policy mix. Carriers that adopt fuel-efficient aircraft, optimize flight operations, or invest in carbon offset programs should receive tangible benefits, such as reduced fees or priority in slot allocations. Such positive reinforcement not only drives behavioral change but also aligns Indonesia with global climate commitments.
National Connectivity and Social Equity
Indonesia’s aviation sector cannot be judged solely by international benchmarks or profitability metrics. Its social function is just as important. Aviation is the backbone of connectivity, linking remote regions to centers of commerce, education, and healthcare. Without deliberate incentives, the market will neglect these regions, widening inequality and undermining national cohesion.
Prioritizing slot allocations and offering incentives for airlines that open routes to underdeveloped, frontier, and outermost regions is a pragmatic step. These routes may never be profitable in the conventional sense, but their contribution to national unity is priceless. Subsidy schemes that balance commercial and non-commercial routes ensure that no community is left behind.
Digitalizing regional airports is another form of equity. By investing in smart systems for passenger processing, cargo handling, and safety monitoring, smaller airports can connect seamlessly with global networks. Such upgrades not only improve efficiency but also instill confidence among travelers and investors alike. In the long run, digital inclusion at airports translates into economic inclusion for the regions they serve.
Human Capital and the Technology Ecosystem
No aviation system can rise above the quality of its people. Pilots, technicians, air traffic controllers, and security personnel are the human infrastructure upon which safety and efficiency rest. Yet Indonesia faces a growing gap in skilled aviation professionals, compounded by global competition for talent. Economic incentives directed toward education and training are therefore non-negotiable.
Scholarships, tax breaks for training providers, and co-financing models with airlines can expand the talent pipeline. Specialized training for aviation security officers (AVSEC), engineers, and maintenance personnel will ensure that Indonesia is not merely importing expertise but cultivating its own. Partnerships with global institutions can accelerate this process, embedding international standards in local practice.
At the same time, the ecosystem of aviation technology must be nurtured. Supporting startups in areas such as digital passenger services, drone logistics, or data analytics can catalyze innovation. These ventures may appear small today, but they represent the seeds of tomorrow’s aviation economy. International collaboration in certification, research, and technology transfer would anchor Indonesia firmly in global value chains.
Comparative Lessons and Global Relevance
Indonesia is not navigating this journey alone. Other nations have used economic incentives to transform their aviation sectors. Singapore, despite its limited land, has built Changi Airport into a global hub through strategic investments and incentives. Dubai has turned its desert location into a global crossroads by positioning aviation at the center of its economic model. Even within ASEAN, countries like Vietnam and Thailand are aggressively courting aviation investment through tax breaks, infrastructure upgrades, and open skies policies.
Indonesia must learn from these examples without simply copying them. Its vast geography, demographic profile, and resource base offer unique opportunities. The challenge is to craft incentives that reflect Indonesia’s realities while aligning with global best practices.
The Cost of Inaction
The alternative to proactive incentives is stagnation. Without relief on operational costs, Indonesian carriers may continue to struggle, consolidating into fewer players and reducing competition. Without investment in infrastructure, bottlenecks will worsen, deterring investors and frustrating passengers. Without green transformation, Indonesia risks isolation as markets impose stricter environmental standards. Without inclusive connectivity, regional disparities will widen, undermining national unity. And without investment in human capital and technology, the country will remain dependent on foreign expertise and solutions.
The risks are real, and the cost of inaction will be measured not only in lost revenue but also in missed opportunities for growth, employment, and global standing.
Conclusion: Incentives as Strategy
Economic incentives for civil aviation are not about handouts. They are about strategic investment in a sector that underpins Indonesia’s economic and social fabric. They are about creating conditions where airlines can thrive, airports can expand, sustainability can advance, and connectivity can reach every corner of the archipelago.
Indonesia stands at a crossroads. By adopting a deliberate and well-designed package of incentives, it can empower its civil aviation sector to become a driver of national progress, a beacon of resilience, and a platform for global competitiveness. The sky is not just a space to traverse; it is a domain to be owned, nurtured, and leveraged for the prosperity of the nation.
