Indonesia lowers price floor for domestic economy flights

[JAKARTA] Indonesia's transport ministry has lowered the price floor for domestic economy flights just eight months after raising it, to keep fares affordable while unemployment rises in an economy growing at its slowest pace in six years.

From Sept 26, airlines will be able to sell tickets for as little as 30 per cent of a ministry-set ceiling price, Mr Suprasetyo, director-general for air transport, told reporters on Thursday. The ceiling will be adjusted later, he said.

On Dec 30, two days after AirAsia Bhd flight QZ8501 crashed into the Java Sea, the ministry raised the floor to 40 per cent to help increase profit margins and encourage airlines to spend more on safety. "This is related to the purchasing power of the people," Mr Suprasetyo said of the latest change.

On Tuesday, the Indonesian Employers Association labelled worker demands for steep wage hikes "unrealistic" and warned of more layoffs at companies struggling with the economic slowdown.

Latest official data put unemployment at 5.81 per cent in February from 5.70 per cent a year prior. But the data does not adequately cover the informal sector, which is two-thirds of the economy, and reports of heavy lay-offs paint a bleaker picture.

The change in pricing policy is the transport ministry's latest measure for the airline industry.

Last month, the ministry extended the deadline for airlines to meet its "positive equity" rule to Sept 30 after carriers including the local affiliate of Malaysia's AirAsia failed to meet it by July 31.

The ministry previously said 13 airlines had "negative equity" - meaning assets used to secure loans were worth less than the outstanding balance of the loans. It said those airlines risked suspension if they did not turn equity positive.

REUTERS