XML::Simple already does a primitive pretty print in XMLout(). Here is how it's used with your data:

use XML::Simple;

my $doc = XMLin 'air.xml', forcearray => 1;
print XMLout $doc, xmldecl => 1, rootname => 'AIRAVAALABILITY';

__END__
prints:
<?xml version='1.0' standalone='yes'?>
<AIRAVAALABILITY>
  <AIRAVL>
    <AIRAVL007V>Y</AIRAVL007V>
    <AIRAVL018B>HKG</AIRAVL018B>
    <AIRAVL012U>01MAY</AIRAVL012U>
    <AIRAVL012G></AIRAVL012G>
    <AIRAVL0145>SIN</AIRAVL0145>
  </AIRAVL>
</AIRAVAALABILITY>
[download]

Update: fixed up root tag

After Compline,
Zaxo

use XML::Parser::PerlSAX;
use XML::Handler::YAWriter;

my $xmlquery = qq(<AIRAVAALABILTY> <AIRAVL> <AIRAVL012U>01MAY</AIRAVL0
+12U> <AIRAVL0145>SIN</AIRAVL0145> <AIRAVL018B>HKG</AIRAVL018B> <AIRAV
+L007V>Y</AIRAVL007V> <AIRAVL012G></AIRAVL012G> </AIRAVL> </AIRAVAALAB
+ILTY>);

my $ya = new XML::Handler::YAWriter(
'Output' => new IO::File ( ">-" ),
'Pretty' => {
    'NoComments'=>1,
    'PrettyWhiteIndent'=>1,
    'NoWhiteSpace'=>1,
    'PrettyWhiteNewline'=>1,
} );

my $perlsax = new XML::Parser::PerlSAX( 'Handler' => $ya);
my $result = $perlsax->parse(Source => { Encoding => 'ISO-8859-1', Str
+ing => "$xmlquery" });

print qq($result);
[download]

<AIRAVAALABILTY>
  <AIRAVL>
    <AIRAVL012U>01MAY
    </AIRAVL012U>
    <AIRAVL0145>SIN
    </AIRAVL0145>
    <AIRAVL018B>HKG
    </AIRAVL018B>
    <AIRAVL007V>Y
    </AIRAVL007V>
    <AIRAVL012G>
    </AIRAVL012G>
  </AIRAVL>
</AIRAVAALABILTY>
[download]

Some XML apps will be seriously annoyed by your adding whitespace within the leaf level tags. Just a thought but I'd test that carefully before you transform it for more than just debugging by eye.

--
$you = new YOU;
honk() if $you->love(perl)

If you like XML::Twig pretty printing styles, you can also use xml_pp.

# assume that the long string from XML::Simple is assigned to $_:

s/></>\n</g;  # put line breaks between all adjacent tags
my @lines = split( /\n/ );
my $indent = 0;
$_ = "";
foreach my $l ( @lines ) {
    $indent -=2 if ( $l =~ /<\// );  # close tag decreases indent
    $_ .= " " x $indent . "$l\n";
    $indent +=2 if ( $l =~ /^<\w/ ); # open tag increases indent
}
print;
[download]

A lot of nodes above are pointing out solutions using various modules. I'm just thinking about how to do this without using an existing formatter (if only for the intellectual exercise).

Keep a variable named $tab_count, intitilized to 0. Each time you see a valid begin tag, increment $tab_count, and print a newline followed by "\t" x $tab_count after the begin tag. Whenever you see a valid end tag, decrement $tab_count and print the same string as above.

----
Reinvent a rounder wheel.

Note: All code is untested, unless otherwise stated

It is a little more complex than this... what do you do with mixed content for example: how would you indent this:

<ul><li><b>bold</b> statement indeed <i>hardburn</i></li></ul>

Update: Oops! Sorry, I should have read the original question before getting all excited. XML::Simple doesn't do mixed content, so there should not be any in the XML anyway. So then, yes, indenting is a little easier. You still need to parse tags properly though, which is not as easy as it might look.