Government steps in to force lower Indonesia airfares

The Indonesian government is stepping in to cap domestic airfares after two ministerial directives and a call from the President failed to see airlines lower ticket costs.

Budi Sumadi | Asean News Today — Transportation Minister Budi Karya Sumadi told about new regulation for domestic airlines price. Budi Karya Sumadi

In February President Joko Widowdo ordered the country’s national flag carrier, Garuda Indonesia, to lower its prices following a public outcry over a spike in fares and new charges following its absorption of Swiwijaya Airlines into the Garuda group.

The call received support from the Indonesian Hotels and Restaurants Association (PHRI) who claimed high airline ticket prices were responsible for a 30 to 40 per cent drop in occupancy (See: Indonesia’s ‘father of tourism’ orders flag carrier Garuda to slash airfare prices)

After Indonesian airlines failed to follow the government directive — Indonesia AirAsia and Lion Air both initially said they would not cut prices to match Garuda — Indonesia Transport Minister Budi Karya Sumadi said in late March that an agreement had been reached with the carriers.

LaLast month Transportation Ministerial Regulation No. 20/2019 and Transportation Ministerial Decree No.72/2019 came into effect.

New ceiling prices to be set

Under the new directives the floor price for airline tickets (TBB) is set at 35 per cent of the ceiling price for tickets (TBA). Ten per cent of economy class airline seats on each flight must be sold at the TBB, with 60 per cent priced at the TBA.

A Lion Air 737 Max 9: Lion Air and Garuda Indonesia have an almost duopoly on domestic Indonesian flights Lion Air

Of those priced at the TBA 20 per cent must be sold at a 10 per cent discount, with a further 20 per cent required to be priced at no more than 60 per cent of the TBA. The remaining 30 per cent of tickets will be able to be sold at either the TBB or TBA price. Previously, the TBB was set at 30 percent of the TBA.

Mr Sumadi gave Indonesia domestic airlines two weeks to adjust their airfares, threatening to “issue the subclass fare regulation” if they do not. With airlines remaining defiant, he said yesterday that the government will now set new ceiling prices to force domestic airlines to increase and the number of discounted seats, and bring airfares down.

After a meeting on Monday (May 6) with Coordinating Economic Minister Darmin Nasution, State-Owned Enterprises (SOE) Minister Rini Soemarno, and Garuda Indonesia’s board of directors, Mr Sumadi was quoted by tempo.co., as saying, “We have one week to decide on new price ceilings for economic-class airline tickets. God willing, [we will issue a new policy].”

Pressure to cut fares ahead of Eid

The pressure is on. Today (May 7) Mr Nasution ordered the transport ministry to adjust the range of rates before the Eid al-Fitr festival.

An article on the website of the cabinet secretary’s office attributed to Mr Nasution said, ‘High ticket prices have troubled the people, especially facing the homecoming season (ahead of Eid)’. For something that concerns the benefit of a wider community, rules cannot be solely based on business and market matters’.

Indonesia airline ticket prices

Ministerial Decree No. 72/2019 stipulated the following floor price (TBB) and ceiling price (TBA) for air routes operated by domestic carriers.

Jakarta – Surabaya
TBB: IDR480,000 (US$34)
BA: IDR1,372,000 ($98)
Denpasar – Jakarta
TBB: IDR578,000 ($40)
TBA: IDR1,651,000 ($115)
Jakarta – Padang
TBB: IDR597,000 ($42)
TBA: IDR1,706,000 ($119)
Jakarta – Makassar
TBB: IDR750,000 ($52)
TBA: IDR2,144,000 ($150)
Surabaya – Yogyakarta
TBB: IDR329,000 ($23)
TBA: IDR941,000 ($66)

Feature photo Garuda Indonesia

Related:

New regulations set price floors, ceilings for airline tickets (The Jakarta Post)
Garuda Indonesia comes under state pressure to cut airfares, as Joko Widodo seeks re-election (South China Morning Post)
Govt pledges to push down airfares in one week (The Jakarta Post)