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Airfares still high despite new policy
The implementation of the government’s cheap airfare policy, which requires low-cost carriers (LCC) to lower their ticket prices for specific days, schedules, routes and seats, seems to have hit a snag
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span>The implementation of the government’s cheap airfare policy, which requires low-cost carriers (LCC) to lower their ticket prices for specific days, schedules, routes and seats, seems to have hit a snag.
Office of the Coordinating Economic Affairs Minister secretary Susiwijono said implementation of the new policy began on July 11 but had yet to be effective. As of Monday, not all LCCs had fully implemented the cheap airfares policy due to technical problems.
“We found out that Lion Air has not yet implemented the airfare adjustments fully, as it needs some time to input the changes into its reservation system. However, it has promised to fully implement the cheap airfare [policy] by this Wednesday,” Susiwijono told a media briefing on Monday.
Airlines passengers have complained about skyrocketing ticket prices in recent months, with some looking to other modes of transportation, such as cars or ferries, or even choosing to take cheaper connecting flights through Singapore or Malaysia to reach domestic destinations.
The number of domestic flight passengers dropped 27.74 percent in May compared to the same period last year, Statistics Indonesia (BPS) data shows. Cumulatively, air transportation passenger numbers fell 21.33 percent during the January to May period year-on-year (yoy).
To solve the problem, the government has asked LCCs, in particular Lion Air and Citilink Indonesia, to halve their airfares from the stipulated price ceilings on Tuesdays, Thursdays and Saturdays for 30 percent of total seats on flights departing between 10 a.m. and 2 p.m.
Previously, Citilink Indonesia promised to cut airfares for 3,348 seats on 62 flights on these days while Lion Air said it would offer lower prices for 8,278 seats on 146 flights.
However, Susiwijono said it was difficult for the office’s monitoring team as well as passengers to check if the price-adjusted seats were still available. “The seat allocation and their availability should be shown transparently in the reservation system,” he said.
Despite the shortcomings of the current policy, Transportation Minister Budi Karya Sumadi said the idea of applying the policy on all days had been floated.
“However, the airlines have asked for several fiscal incentives,” said Budi on Tuesday, adding that the government and other stakeholders would talk closely to discuss the possible incentives or a new scheme to lower airfares across the board.
Airlines receive various incentives from the government as well as from airport operators. Under Government Regulation No. 50/2019, airlines receive value-added tax exemptions for transportation equipment and spare parts imported from overseas. They are also exempted from import duty on goods for aircraft repairs and maintenance.
State-owned airport operators Angkasa Pura I and II have also committed to providing cost incentives for airlines.
However, new incentives would prove to be less effective in bringing down airfares, said Institute for Development of Economics and Finance (Indef) economist Nailul Huda, as the core problem of Indonesia’s aviation industry was the current airlines’ duopoly.
“The market is increasingly concentrated under two big players [Garuda Indonesia Group and Lion Air Group], which has caused the market to become unhealthy, as prices are very easily controlled by the two big players,” he added.
— Marchio Irfan Gorbiano contributed to this story
