The decision will impact domestic economy class airlines, both low-cost carriers (LCC) and full-service carriers.

Tulus Abadi, the Indonesian Consumers Foundation (YLKI) chairman, said in Jakarta on Tuesday that the cut in the airfare ceiling price would have little effect, as most airfares were already below the new ceiling.

According to Tulus, the government should also cut the sales tax on airfares, so that airlines could reduce their high operating costs, which had forced them to increase their airfares.

Meanwhile, aviation observer Gerry Soejatman said the government’s decision to lower the price ceiling in the high season ahead of the Idul Fitri holiday was not an effective way to reduce airfares.

“This reduction will not bring prices down to the same level recorded early last year. So, if travelers expect the cut in the price ceiling to bring airfares down to last year’s level, they will be disappointed.”

Gerry said the policy would instead prolong the airlines’ financial problems, which had continued for many years because of high operating costs.

Coordinating Economic Minister Darmin Nasution said on Monday the decision to lower the price ceiling was made after receiving input from stakeholders. The impact of high airfares on the inflation rate in the last two months was another reason behind the government’s decision.

Darmin said that the new price ceiling would result in airfares being reduced by an average of 15 percent. However, airfares will remain above the level recorded in early 2018. Before the sharp increase in prices in the middle of last year, the airfares of the country’s budget airlines were among the lowest in the world, as the low-cost airline operators offered low fares amid tight competition.

The Indonesia National Air Carrier Association’s (INACA) head for scheduled flight airlines Bayu Sutanto said the price ceiling cut would worsen the financial position of most of the country’s airlines. High jet fuel prices and the weakening of the rupiah had contributed to an increase in the airlines’ operating costs, he said.

“INACA opposed the cut in the price ceiling because the costs caused by high jet fuel prices and the rupiah exchange rate, the two main variables in determining the ceiling, have continued to increase in the last two weeks,” he said.

The association estimated that jet fuel contributed 40 to 50 percent to airfares, while aircraft leasing and maintenance each accounted for another 20 percent.

Sriwijaya president director Joseph Adriaan Saul said the airline had strategies to comply with the new price ceiling without sacrificing passenger safety.

“We will also improve our ancillary revenue, from baggage fees, to preferred seating, extra meals and other things. We will observe the market situation, including competition, supply and demand and offers [after the price ceiling is lowered] to define how Sriwijaya will operate in the future,” said Joseph.

Joseph also said Sriwijaya might stop operating some routes if they were no longer profitable.

“For us, we would rather stop [the routes], than sacrifice on safety,” he said.

Previously, Garuda Indonesia commercial director Pikri Ilham Kurniansyah also stated that the airline would maximize its ancillary revenue, especially from cargo and advertising, to cover the lost profit margins from ticket sales.

Meanwhile, Malaysia LCC Air Asia said the lower price ceiling would not greatly affect the airline’s business.

“For us, [the lower price ceiling] is not really a problem, as we play in the price floor area and not in the price ceiling area. The key [in our business strategy] is efficiency,” said Air Asia Indonesia’s president director Dendy Kurniawan on Tuesday.

— Marchio Irfan Gorbiano contributed to this story

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