English
Domestic airfares soar in Indonesia despite government price cap
SINGAPORE/JAKARTA: When Resti Novita Sari booked to fly from Jakarta to her hometown of Padang to visit family for the Eid holiday, airfares were 40% to 60% higher than she had paid in previous years.
“It made me think twice about buying airplane tickets,” she said, adding that she eventually paid 1.7 million rupiah ($120.48) each way for the short flight from the island of Java to Sumatra.
Soaring domestic ticket prices in the world’s fifth-biggest domestic aviation market, now a duopoly, led the government in May to order Garuda Indonesia and Lion Air to lower fares.
But caps and floors on airfares in the vast archipelago nation have not stopped a surge in average ticket prices.
Carriers have slashed domestic seat capacity by 15% from March to October, according to data from the air travel intelligence company OAG, putting the country on track for the first annual decline in passenger traffic since 2014 – and pushing up fares.
That has stifled the domestic hospitality industry, data shows, with hotel occupancy rates down as much as 30% in the country’s east.
Now Indonesia’s anti-monopoly agency, KPPU, is investigating whether Garuda and Lion are behaving like a cartel, as well as looking into Garuda’s operational control of Sriwijaya Air, the country’s third-largest airline group, commissioner Guntur Saragih said on Monday.
“We believe there is price setting,” he said, adding that the agency plans to say next week whether it will take the airlines to court.
The maximum fine for price setting is 25 billion rupiah per party per case. Garuda and Lion did not respond to requests to comment on the allegations.
Airlines have stopped selling deeply discounted fares on many domestic routes and are instead selling most tickets at or near the maximum limit, according to industry sources and airline information.
Passenger yields, which measure what each flier pays per kilometre, a proxy for average fares, rose 43% in the five months ended May 31 in Garuda’s domestic operation and were up 94% at Sriwijaya Air in the same period, according to Garuda data.
“We wanted to optimise capacity,” Garuda Finance Director Fuad Rizal told Reuters, declining to comment further. The data showed that despite the capacity cut, its planes were on average less full than the previous year.
DUOPOLY
The high cost of flights has broader consequences for the Indonesian economy, which expanded by 5.07% in the first quarter, missing expectations.
At the country’s largest airport, Jakarta Soekarno-Hatta International, domestic traffic fell 22% in the first four months of the year to the lowest level since 2011, according to government statistics.
Hariyadi Sukamdani, chairman of Indonesia’s Hotel and Restaurants Association, said hotel occupancy rates were down 10% to 30% – depending on region – for the first six months of 2019.
“It is due to the expensive domestic ticket prices,” he said. “I understand regulators and government have tried to press to adjust the price. But it is not working, because two big airlines, Garuda and Lion, dominate the Indonesian market.”
When Garuda took over operational control of Sriwijaya in November, its share of the Indonesian market rose to 48%, compared with Lion’s 47%, according to OAG data.
Ari Askhara took over as Garuda’s CEO in September 2018, setting a new strategy of capacity cuts and price increases. The airline reported a $19.7 million profit in the quarter that ended March 31, up from a $64.3 million loss the prior year, including a 12% rise in revenue.
Lion Air, a private company, does not disclose financial information.
But squeezing customers too much could result in stronger competition from AirAsia 
Indonesia Tbk PT. The AirAsia Group Bhd offshoot has a domestic market share of just 2.4% but is planning to add five planes this year, for a total of 30, to accommodate 20% passenger growth.
“We want to expand as much as we can,” AirAsia chief executive Tony Fernandes said of the Indonesian market at a recent event in Jakarta.
RESHAPED FARES
Government pricing regulations can distort the market for seats, which typically sell for higher prices at times of peak demand and lower prices in quieter periods, said Andrew Herdman of the Association of Asia Pacific Airlines.
For example, Garuda is allowed to charge a maximum base fare of 1.167 million rupiah each way, excluding taxes and fees, on the popular Jakarta-Surabaya route, down 15% percent from the previous cap, according to the regulations.
Garuda is now pricing all Jakarta-Surabaya tickets at the exactly the maximum base fare for any time of day or day of the week, according to Reuters checks of its website. The same is true for other routes, including Jakarta-Bali and Jakarta-Padang.
Garuda Corporate Secretary Ikhsan Rosan said the airline would not sell tickets below cost, which averages 800,000 rupiah per flight. He declined to provide any details of discounted fares.
Lion Air’s online offerings, as checked by Reuters, was more variable. None of the lowest-priced promotional fares was available on the Lion flights, but prices were often slightly below the fare caps at peak times and even lower at times of less demand.
A Lion Air spokesman said the carrier always complied with pricing regulations.
But travellers are feeling the pinch.
Alan Perwiranda, who works at a palm oil company, used to fly regularly from Ketapang to Pontianak in West Kalimantan province on the island of Borneo for short breaks.
He said the price of the 40-minute turboprop flight has nearly doubled to 700,000 to 800,000 rupiah.
“I have started to limit my travel because the tickets are really expensive,” Perwiranda said. “I think what the government is doing is not helpful at all. Everything is just discourse and there is no concrete evidence of any change.” – Reuters
Source: https://www.thestar.com.my/business/business-news/2019/07/11/domestic-airfares-soar-in-indonesia-despite-government-price-cap/#MMm48FE6IyUhVB3C.99