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Govt refuses to cancel price floor on airfares
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The Business Competition Supervisory Commission once again called on the government on May 23 to abolish a regulation that sets the lowest rate for airfares at 30 percent of the highest price for a route. (Kontan/Daniel Prabowo)
T
he government has turned down a request to abolish the price floor on airfares, a regulation considered ineffective in forcing the airline industry to obey standard operating procedures.
The Business Competition Supervisory Commission (KPPU) reiterated its call in the wake of a ground-handling violation by Lion Air that saw 16 foreign passengers almost enter the country without undergoing immigration checks.
Transportation Ministry spokesperson Hemi Pamuraharjo said the government regulated a reference rate, not a low rate. The regulation was needed to avoid price wars that could lead to a decline in service quality and safety.
“We don’t want to see a price war in the industry. If we don’t regulate it, they’ll think only about marketing and ignore maintenance costs,” he said as quoted by kompas.com in Jakarta on Tuesday, underlining that prices were not set.
The KPPU called the government on Monday to abolish the regulation, which sets the lowest rate at 30 percent of the highest price for a route, while saying that it would summon Lion Air to question it about suspending its services on 227 routes without clear explanation.
Clearly stating that it backed the ministry’s tough measure against any operator that violated the regulation, KPPU chairman Syarkawi Rauf said law enforcement would be more effective in maintaining safety, rather than setting prices.
"The low rate has made aviation costs more expensive and hindered the growth in airline passengers. Implementing this policy thwarts fair competition and only creates inefficiency in the industry," he said.
The implementation of the low rate, Syarkawi added, did not effectively reduce the number of violations of standard operating procedures in the industry. On the contrary, it has reduced the number of passengers on several routes especially tourist destinations, he said.
As for Lion Air suspending it services to a number of destinations, the KPPU said it was an “abusive act by a business in a dominant position”. Lion Air currently controls 40 percent of the Indonesian market.
“According to the Antitrust and Unfair Competition Law, businesses that dominate the market shall not use their dominant positions to restrain market supply, which leads to scarcity and excessive price increase,” he said.
He called on Lion Air not to act in any way that may lead to unfair competition and harm consumers. (ags)
