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KPPU opposes floor airfares plan, high price of avtur
The Business Competition Supervisory Commission (KPPU) has reiterated its stance in opposing the floor pricing plan for airfares, saying it hampers the consumerâs right to cheap air tickets
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he Business Competition Supervisory Commission (KPPU) has reiterated its stance in opposing the floor pricing plan for airfares, saying it hampers the consumer's right to cheap air tickets.
Mohammad Reza, the KPPU's head for public relations and cooperation, said the commission had long supported the idea that pricing plans should only regulate the ceiling price.
'From 2001 until today, KPPU has supported [the implementation of] a ceiling price, but not for a floor price. We believe that fair business principles push airliners to become more efficient,' Reza said on Monday.
According to him, airlines have some options in increasing their competitiveness not only by using the floor pricing plan. They can offer standard facilities and quality services.
Reza emphasized placing a limit on how low airfares would eliminate competition.
'In fair practices, floor pricing has a negative connotation. Consumers will lose the opportunity to access competitive products,' KPPU director of policy review and advocacy Taufik Ahmad added.
'It [also] becomes a disincentive for businesses that planned on offering a product or service below the floor price.'
Responding to the view that low airfares compromised safety, Taufik said the false logic of equating cheap airfare with low-quality services needed to be altered.
Safety in air travel, regardless of its rates, remained the same as stipulated in the safety precautions and regulations.
The price ceiling, on the other hand, functioned to prevent airliners from exploiting customers in certain situations, Taufik added.
'The philosophy behind the ceiling price is to prevent consumer exploitation, especially on routes where competition is less fierce,' he said, adding that the plan also protected consumers during times when demand for air travel increased.
The KPPU is also looking into state-owned oil and gas firm PT Pertamina for increasing the price of aviation turbine fuel (avtur), which the commission deems is a violation of the principles of fair business practices.
Taufik said they would soon be consolidating matters of policies with the Downstream Oil and Gas Regulatory Agency (BPH Migas), before discussing the findings internally.
The commission has thus far called in Pertamina and a number of airliners, which Taufik refused to name.
'We looked into high avtur pricing following complaints by airlines in the media,' he said.
'Whether or not the price is a result of a monopoly, we'll find out. If there's economic reasoning behind the high prices, then it can be cleared up. The regulators should be knowledgeable about it.'
According to the KPPU, Pertamina is the only firm selling fuel for air travel. The commission believes that Pertamina is taking advantage of its dominant role in the country's avtur business, resulting in higher prices than in neighboring countries such as Malaysia and Singapore.
Article 25 of the 1999 Anti-Monopoly and Unhealthy Business Practices Law states that a business has a dominant position in a market when it possesses 50 or more percent of a particular service or product market.
If Pertamina is proven to have violated the law, the company could face a minimum fine of Rp 25 billion (US$2.08 million) and a maximum fine of Rp 100 billion. As an additional sanction, Pertamina officials responsible for the price hike could be sacked.
Previously, the government said it expected to issue a transportation ministerial decree on the 10 percent increase of airfare ceilings this month.
