Budget airlines gear up for fare hike

Travelers will have to pay more for their flights on the country's busy routes as the government's decision to change the airline ticket price formula will allow budget airline operators to raise their prices.

Muhammad Alwi, the director for air transportation at the Transportation Ministry, said Wednesday that the change in the formula was important to ensure that airlines would have enough funds to maintain their safety on par with international standards.

At present, budget airfares, especially on busy routes, are quite low, and are often far below market value as the airlines have to compete in a tight market.

"With this new regulation, airlines can no longer offer unrealistically low fares, like offering an airfare of only Rp 10,000 (S$1.06) for the Jakarta-Medan route," he said. He also explained that several airline operators often charged passengers only Rp 100,000 for the Surabaya-Jakarta route, which was quite unrealistic compared with the airlines' operating costs.

"There should no longer be airfares of just Rp 100,000 for Surabaya-Jakarta, which is well below the price of a train ticket," he told reporters.

Under Transportation Ministry Regulation No. 91/2014 on a price ceiling mechanism, which was signed by Transportation Minister Ignasius Jonan on Dec. 30, 2014, the price floor for scheduled low-cost airlines is set at 40 per cent of the maximum price, rising from 30 per cent previously.

As stated in the ministerial regulation, the maximum price for a Jakarta-Denpasar ticket is Rp 1.54 million, the maximum price for a Jakarta-Medan ticket is set at Rp 2 million, and the maximum price for a Jakarta-Makassar ticket is set at Rp 1.93 million. This means that the lowest fare should be at least 40 per cent of the fare ceiling.

The new regulation is part of several measures taken by the Transportation Ministry to improve safety following the crash of AirAsia flight QZ8501 en route to Singapore from Surabaya on Dec. 28, 2014.

The measures also include an overall review of the business and technical operations of all airlines operating in the country and the suspension of flights and dismissal of officials under the ministry.

A few days after the crash, the ministry suspended all AirAsia flights between Surabaya and Singapore after an investigation found that AirAsia's ill-fated flight QZ8501 took off without a permit.

Commenting on the fare policy, low-cost carrier Citilink acting president director Albert Burhan said that the airline would support the government's decision to increase the minimum price, saying that the airline normally set its ticket price higher than 40 per cent of the maximum price regulated by the ministry.

"We will just follow the regulation issued by the ministry since our business strategy is not offering the lowest price possible, but offering good service quality, such as maintaining our on-time performance," Albert told The Jakarta Post.

Lion Group's corporate secretary, Ade Simanjuntak, separately said the airline had not yet adjusted its fares.

"One thing is for sure, the regulation will have to be followed by all airlines operating in the country, not only Lion Air, therefore we will just comply with the regulation," Ade said.

Chairman of Indonesia National Carrier Association's (INACA) non-scheduled airline division, Bayu Sutanto, said that the regulation was expected to help the country's aviation industry improve its safety standards.

The change in the fare formula was quite realistic given the high operating costs borne by the country's airlines. Fuel costs alone accounted for 45 per cent of total operating costs, So it was unrealistic to sell tickets below 40 per cent of the fare ceiling, he added.

Indonesia has been placed in a group of category 2 countries based on Federal Aviation Administration (FAA) ratings, signaling that the country lacks regulations necessary to oversee air carriers in accordance with minimum international standards.

"The government decided to increase the price floor based on an allegation of misconduct in the country's aviation safety standards," Bayu said. "This is one of the mechanisms conducted by the ministry in an attempt to increase our FAA rating."

Measures taken after AirAsia incident

* One day after AirAsia flight QZ8501 was declared missing, Transportation Minister Ignasius Jonan ordered a review of the business and technical operations of all airlines operating in the country, including the regulation on minimum airfares.

* Last week, the ministry decided to suspend all AirAsia flights between Surabaya and Singapore after an investigation found AirAsia flight QZ8501 took off without a proper permit

* The Transportation Ministry later ordered the suspension of several airport and control tower officials allegedly involved in the flight irregularity. In response, AP I immediately suspended its operation manager and apron movement control (AMC) supervisor.

* On Tuesday, the Transportation Ministry and state navigation operator, AirNav Indonesia, suspended three more officials.

* Jonan said the ministry would cooperate with the National Police's Criminal Investigation Division and the Corruption Eradication Commission (KPK) given allegations of foul play surrounding the flight licensing.