Indonesia airlines urge government to remove ticket price cap amid soaring costs
[JAKARTA] The Indonesia National Air Carriers Association (Inaca) is calling on the government to remove the price cap on economy-class tickets for commercial airlines, and allow market forces to determine airfares instead.
Bayu Sutanto, the general-secretary of the association, said the higher cost of jet fuel and the ticket price ceiling are weighing on the financial state of many domestic airlines. He stressed that the proposal was not aimed to make more profits, but rather to help airlines with their soaring operating costs.
“We hope that the upper-limit tariff can be reviewed so that it allows flexibility for operators to alter their fares,” he said.
The Indonesian government issued the regulation on the price cap back in 2009, with the law establishing a legal framework for regulating airline ticket prices in the country.
In April 2022, just as air travel was starting to pick up after the Covid-19 pandemic, the government allowed airlines to increase the fuel surcharge for economy class fares by up to 10 per cent for jet planes and up to 20 per cent for propeller planes.
This move was meant to give airlines some help as jet fuel makes up about 40 per cent of the total tariff components in the cost of the airfare. Spare parts and maintenance account for about 25 per cent.
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Irfan Saputra, the chief executive officer of state-owned airline Garuda Indonesia, said this policy has become less effective in recent months as airlines grapple with a depreciating rupiah, which increases the cost of any goods that are priced in US dollars.
He suggested that the government could give airlines more flexibility to determine the maximum fare limit.
“I have mentioned on many occasions that at least 10 airline companies have gone bankrupt since the price cap was implemented,” he said during a parliamentary hearing last week.
Garuda booked a US$72 million loss in the third quarter of this year. The airline’s operating costs went up by 7.1 per cent to US$1.19 billion compared to the previous quarter, which it attributed to the rising cost of fuel and spare parts.
The Indonesian unit of AirAsia also reported a loss of 875 billion rupiah (S$76.3 million) in the third quarter, with operational costs surging by 45.5 per cent to 5.5 trillion rupiah. The reasons cited were similar – the escalating prices of jet fuel and higher maintenance fees.
Industry players in Indonesia said many airlines are still facing challenges to rebuild their fleet since borders reopened last year.
Many aircraft were lost during the pandemic as a result of a failure to make lease payments and a lack of maintenance. There were as many as 650 planes in operation before the pandemic, but this number has since fallen to around 400.
When asked to comment on Inaca’s suggestion to remove the price cap for airfares, Transportation Ministry spokesperson Adita Irawati said this issue is not currently under discussion.
She said the authorities will engage in discussions with the relevant parties, including airlines, to hear their views on the airfares. She added that to eliminate the price cap policy, it would require the law to be revised in parliament.
“We have never officially received Inaca’s proposal regarding the abolition of the price cap. We only became aware of this discourse through media reports,” Adida said in response to queries from The Business Times.
Instead of abolishing the price cap, she said the government would more likely review the ceiling in line with the current market conditions.
Adita said the cap is intended to ensure that air travel remains affordable for the general public, while still allowing airlines to cover their costs and make a reasonable profit.
In 2022, the total number of air passengers in Indonesia was 69 million, an increase of over 34 million compared to the previous year.
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