Rule sets fare floor for budget carriers

Rule sets fare floor for budget carriers
Indonesian Minister of Transportation Ignatius Jonan.

Indonesia's Transport Minister Ignasius Jonan has signed off on a new regulation which he believes will ensure budget carriers have sufficient funds for safety-related costs - it sets the lowest possible fare for such carriers operating here at 40 per cent of the highest fare.

"In the future, there will no longer be any cheap ticket offers going for, say, 50,000 rupiah (S$5.50). The lower limit will be set to 40 per cent," said ministry official Hadi Djuraid, adding that the rule is awaiting approval by the Law and Human Rights Ministry.

Acknowledging that there is a base level now of 30 per cent of the highest fare, he noted that the current regulation is sometimes relaxed when an airline offers promotional fares.

Once the new regulation is effected, it will spell the end of cheap tickets and threatens to clip the wings of the country's burgeoning aviation sector, which has seen airlines racing to buy planes to meet surging demand for air travel in the past few years.

Passengers are not the only ones grumbling about the new rule. Industry experts have criticised the move, widely seen as a knee-jerk reaction to the Indonesia AirAsia crash that has exposed the aviation sector's shortcomings.

To redress the problems revealed, the Transport Minister has already announced changes such as making face-to-face flight briefings between pilots and flight operations officers mandatory.

He has also called for a review of all flight permits after his ministry discovered that Indonesia AirAsia had not been given approval to fly the Surabaya-Singapore route on Sundays, and suspended staff for lapses that allowed the plane to fly.

Showing how serious they are about enforcing these rules, the authorities grounded an Indonesia AirAsia flight scheduled to fly from Medan to Palembang on Tuesday, after it was found that the airline had no permit to fly on that day. This led to irate passengers shouting and banging tables.

Another three Indonesia AirAsia flights from Bandung to Singapore have also been suspended. In addition, four other carriers - Lion Air, Sriwijaya Air, Trigana Air and KalStar Aviation - reportedly had their flights on some routes suspended. All the suspensions were for the same reason.

Indonesia AirAsia's head of corporate secretary and communications Audrey Progastama Petriny said cheap tickets do not compromise safety.

"There are safety and security standards that apply internationally which must be met by all airlines," she was quoted as saying by the Kompas news daily.

Low-cost carriers keep their fares low in comparison with full-service airlines by cutting frills, but make money through the sale of food and beverages and charging for extras such as baggage stowage and seat selection.

Mr Jonan, who is just over two months into his job at the Transport Ministry, is using this incident as an opportunity to review its operations.

But his policy of capping the base airfare has been slammed as a mistake.

"The minister has shown that he has no clue about how the aviation market works," said aviation analyst Gerry Soejatman.

"Maintenance cost, safety- related costs are already embedded in the operating cost of the airline operator," he told The Straits Times.

"These costs are the same whether it is a low-cost carrier or a full-service airline."

Mr Muhammad Nawir Messi, chief of the Business Competition Supervisory Commission, said the cost of an air ticket is irrelevant to the safety standards of a carrier.

"The more expensive the ticket, the less people who will buy... and to what end? The aviation industry will then shrink because the number of passengers is reduced," he told reporters, adding that this move will only stifle competition.

Other analysts have urged the ministry to be fair and review all other carriers' schedules.

It remains unclear how the new regulation on base fares will be implemented or how the flight permits issue will be resolved without having more stranded passengers.

The Transport Ministry did not divulge details.

But its hasty reactions so far have created havoc in the aviation industry here.

This article was first published on Jan 08, 2015.
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