Aviation Indonesia: New Airfare Price Ceiling & Removal Fuel Surcharge
Recently, the Indonesian government decided to raise the airfare price ceiling by ten percent in an effort to support local airlines. This measure is required as Indonesian airlines face financial difficulties due to the depreciating rupiah exchange rate and higher global fuel (avtur) price. However, airlines have become worried as the government also decided to remove its fuel surcharge policy (that was implemented in February 2014). This fuel surcharge also aimed at supporting local airlines amid rising fuel costs.
Several stakeholders within Indonesia’s aviation business said that if the airfare price ceiling is lifted by 10 percent but the fuel surcharge is removed, then government policy will still fail to truly support Indonesian airlines. In February 2014, an IDR 60,000 (USD $4.9) per seat per hour surcharge was imposed as airlines faced difficulty to cope with the rising costs of fuel. The new price ceiling will come into effect in November 2014 as stipulated by the new Transportation Ministerial Regulation No. 51/2014 on the Price Ceiling Mechanism. Air Transportation Director General at Indonesia’s Transportation Ministry, Djoko Murjatmodjo, said airlines can no longer impose fuel surcharges by the time that the new price ceiling comes into effect.
Murjatmodjo added that airlines have no reason to become worried about the removal of the fuel surcharge because the new regulation uses a much weaker avtur price assumption (at IDR 13,000 per liter) than previous calculations. Moreover, the airlines should know that the surcharge policy was only a temporary or interim measure until the government would revise the price-ceiling policy. The government applies a price ceiling for airline ticket sales to safeguard people’s purchasing power.
Earlier this year, Indonesian airlines had requested the government to lift the price ceiling on popular routes (for example Jakarta-Bali) in an attempt to offset the negative influence of higher fuel prices in combination with the depreciating rupiah rate. The new regulation will see the maximum price for a one-way Jakarta-Bali ticket increase to IDR 1.54 million (USD $128). The regulation also includes a minimum price for tickets in an effort to ensure airlines’ safety standards when offering promotions. The minimum price of a one-way Jakarta-Bali ticket will become IDR 770,000 (USD $64).
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