Airfare ceiling may be increased

JAKARTA. The government is mulling over a possible increase in the price ceiling it has set on scheduled flight tickets, as airlines claim to be struggling to survive with high fuel prices and the depreciation of the rupiah.

An increase in the ceiling, which sets a maximum price for scheduled flight services, is considered inevitable as Indonesia’s aviation industry battles to keep its business alive, said Israful Hayat, spokesman of the Transportation Ministry’s air transportation directorate general.

Israful revealed, however, that the ministry was still calculating the consequences for passengers, who will be burdened by the possible extra airfare, especially because most of them are vulnerable to price shocks.

Around 75 percent of Indonesia’s air transportation passengers travel with low cost carriers (LCCs), while the rest use full-service airlines.

“Those who travel with LCCs are highly vulnerable to the price increase, and as a regulator, the ministry is concerned about these people’s buying power if we decide to revise the ceiling price, especially after the increase in the passenger service charge [airport tax] in several airports,” he continued.

Currently, the maximum price for a Jakarta-Denpasar flight is set at Rp 1.48 million (US$126.49); Jakarta-Makassar Rp 1.85 million; and Jakarta-Padang Rp 1.43 million. These prices exclude a 10 percent value-added tax, insurance and the passenger service charge, according to a 2010 ministerial regulation.

Air carriers have been urging the government to revise the regulation and increase the ceiling price, as it was based on an assumed exchange rate of Rp 10,000 per US dollar.

However, the rupiah has been hovering around Rp 12,000 against the US dollar over the past year, squeezing air carriers’ profits, as most of their costs are paid in dollars, including avtur (aviation turbine fuel) consumption and aircraft leasing.

Several domestic air carriers, including state-owned carrier Garuda Indonesia, have been forced to cancel expansion plans due to the ballooning costs.

The flag carrier’s net loss skyrocketed to $211.7 million in the first half of this year after a jump in operational costs and flat revenue.

Budget airline Indonesia AirAsia has also decided to cancel its plan to open new international routes from the archipelago, claiming that high costs have been exacerbated by the lack of increase in the capacity of Soekarno-Hatta International Airport.

Industry groups have demanded that the government stop applying the ceiling price mechanism for busy routes. Fares would remain low due to the tight competition, Indonesian National Air Carriers Association (INACA) chief Arif Wibowo insisted.

“The government should only regulate the ceiling price for certain routes, for instance pioneer routes, or routes that are being monopolized by certain air carriers,” Arif told reporters.

The Transportation Ministry will next week invite several stakeholders including INACA, state-owned oil and gas company PT Pertamina and the Indonesian Flight Navigation Service (PPNPI) or Airnav Indonesia to discuss the plan further. (Nadya Natahadibrata)