The government has refused the proposal from national airline operators to scrap the airfare ceiling currently imposed on busy routes.
The Transportation Ministry’s air transportation director, Djoko Murjatmodjo, said in Jakarta Friday that if the ceiling was scrapped it would hurt passengers as it would allow airlines to apply the highest price during peak seasons.
“We cannot scrap the ceiling price mechanism without revising Law No. 1/2009 on flight services. The law itself has a function to protect citizens,” Djoko told reporters at his office on Friday.
“Therefore, if INACA wants the ceiling price mechanism to be scrapped, it means the law should be revised, which is obviously a very time-consuming process,” he continued.
Previously, Indonesian National Air Carriers Association (INACA) head Arif Wibowo had said that the government should no longer apply the ceiling price mechanism for busy routes.
He said that the removal of the ceiling would not harm passengers because in a tight market, the carriers would not be able to impose the fares as they wanted because if their fares were higher than those offered by their competitors, no one would use their services.
He said that the ministry should immediately make the change, considering the current pricing regulation was based on an exchange rate assumption of Rp 10,000 per US dollar, far lower than the current rate of Rp 12,000 per dollar.
The sharp depreciation of the rupiah against the US dollar, on top of higher fuel prices and import tax on spare parts, had been squeezing the profits of domestic airlines, he said.
Arif said that with the current pricing policy, it would be difficult for domestic airlines to compete with other airlines in the ASEAN region when the ASEAN Open Skies policy was implemented in 2015.
Tony Fernandes, group CEO of low-cost carrier AirAsia, also said that the government should immediately scrap the ceiling price policy on economy class tickets to improve the performance of the country’s airline industry. He said none of the airlines would want to offer passengers high airfares amid tough competition.
According to Djoko, the ministry’s secretary general was currently reviewing the plan to increase the ceiling price by 10 percent. He said the ministry would come up with a decision by the end of this month.
Under Transportation Ministerial Regulation No. 26/2010 on the ceiling price mechanism for scheduled flight services, the maximum price for a Jakarta-Denpasar flight is Rp 1.48 million; Jakarta-Makassar, Rp 1.85 million; and Jakarta-Padang, Rp 1.43 million; Denpasar-Sorong (West Papua) is Rp 2.14 million and Medan-Surabaya is Rp 2.36 million.
The price excludes 10 percent value added tax, insurance and passenger service charges, or airport tax.
Full-service carriers such as Garuda Indonesia and Batik Air are allowed to charge up to 100 percent of the price ceiling, while medium- and low-budget players can only charge up to 90 percent and 85 percent, respectively.
Transportation Minister EE Mangindaan previously said that the ministry would immediately conduct a public survey to garner the public’s response to the plan because most airline passengers flew on low-cost carriers and were more vulnerable to price shocks. He said that an increase in the ceiling price was necessary to boost the performance of airlines, which had been struggling to earn profits, however prices should remain affordable for most of the public.