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Overcoming high airline ticket prices amid supply-demand gaps
The high price of airline tickets is still being felt today with some ticket fares exceeding the ceiling prices set by the government.
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Workers clean a Garuda Indonesia's Boeing 737-800 NG aeroplane at the Garuda Maintenance Facility (GMF) AeroAsia, at Soekarno-Hatta International airport near Jakarta, Indonesia, on Jan. 21. (Reuters/Willy Kurniawan)
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he high price of airline tickets is still affecting us today. There are even ticket fares that exceed the ceiling prices set by the government. Several things can cause the high price of airline tickets. One of them is the demand for a high number of passengers not yet matched by the capacity of aircraft. There is a supply problem, which is the cause of the high price of airline tickets.
The number of airline planes has decreased significantly due to the COVID-19 pandemic. Flag carrier Garuda Indonesia’s fleet decreased from the original 142 aircraft to 36, Garuda’s subsidiary Citilink’s fleet decreased from 66 to 34 and Lion Air’s decreased from 350 to 184.
The addition of frequencies and aircraft requires higher costs and more human resources. But the working hours of pilots must meet the flying-hours limit; thus, additional frequencies require more pilots. In increasing capacity, one must also consider the routes that have a high number of passengers for optimum load factor. To cover operational costs, we can take advantage of the high demand.
It is not easy to increase the number of aircraft. One must deal with international lessors. High aircraft lease rates require airlines to seek substantial financing. Airlines cannot quickly increase the number of their airplanes. Increasing the number of aircraft should not disrupt ongoing business or even cause lost money.
The existing form of the airline market tends to be oligopoly or even duopoly. The rulers of Indonesian aviation market are two major airlines: Garuda Indonesia Group and Lion Air Group. This is one of the obstacles faced by new airlines that have to compete with big airlines.
New airlines entering the market are members of airline groups, such as Super Air Jet, which is under the Lion Air Group. The decision to enter scheduled flights for Pelita Air, a subsidiary of state-owned energy giant PT Pertamina, has resulted in better airline competition, although currently the airline only has limited routes, connecting Jakarta with Bali and Yogyakarta.
The requirement for new airlines has been relaxed through Law No. 11/2020 on Job Creation. Airlines no longer need to own five aircraft and lease five aircraft. The requirements have been lowered to owning one airplane and leasing two planes. But to date, there are hardly any truly new airlines.
