I Gusti Ngurah Askhara Danadiputra, President Director of Garuda Indonesia, confirmed on Wednesday evening (13.02.2019) that prices of all domestic routes would be cut by 20 percent the following day. He emphasized that it is not a discount nor a temporary promo offer.

His statement came several hours after Indonesian President Joko Widodo had organized a meeting to discuss public outcry related to the high air ticket prices in Indonesia. During the meeting Widodo ordered the Garuda Indonesia Group to cut its prices (the central government owns a 60.5 percent stake in Garuda Indonesia) to make flying more accessible to the people.

Normally, prices of airplane tickets rise ahead of the year-end as more people travel during the Christmas and New Year holiday period. Bu what was unusual in January 2019 was that prices did not ease. This year, air ticket prices remained high and caused public outcry among the Indonesian population. In fact, Indonesia’s Business Competition Supervisory Commission (KPPU) even announced in mid-January 2019 that it had been investigating a number of local airlines related to “alleged cartel practices in determining flight fares”.

Indonesian media highlighted this issue as stories surfaced that it is now cheaper for people to fly from Aceh to Jakarta using international flights through Kuala Lumpur (Malaysia) than flying directly to Jakarta using domestic airlines. Another example that was used in local media is that it is now cheaper to fly from Singapore to Jakarta than it is to fly from Batam to Jakarta.

This situation is primarily caused by two factors: (1) a lack of airlines serving certain domestic routes, especially outside the island of Java, and (2) some foreign airlines can count on financial incentives from their governments and therefore can offer lower ticket prices (hence they are less affected by increases in prices of aviation fuel).

Widodo also called on state-owned oil and gas holding company Pertamina to lower aviation fuel (avtur) prices. Earlier, Widodo had hinted at allowing other companies to sell avtur which would help lower prices and encourage efficiency.

After the Garuda Indonesia Group acquired operational control of the Sriwijaya Group (which consists of Sriwijaya Air and NAM Air) in November 2018 there has been rising concern about oligopoly in the aviation market of Indonesia as there are now two big players that dominate the market: (1) the Garuda Indonesia Group (Garuda Indonesia, Citilink, Sriwijaya Air and NAM Air) and (2) the Lion Air Group (Lion Air, Batik Air and Wings Air). When there exists an oligopoly it becomes easier for the market leaders to manipulate fares, even though this kind of practice violates Indonesian Law No. 5/1999 on the Prohibition of Monopoly and Unhealthy Business Practices. Garuda Indonesia is majority owned by the central government of Indonesia.

Top Ten Market Share in Indonesia's Domestic Aviation Market (2017):

Airline Market
 Share
Passengers
Lion Air    34%  33,131,053
Garuda Indonesia    20%  19,601,133
Citilink Indonesia    13%  12,229,188
Batik Air    10%  10,079,902
Sriwijaya Air    10%   9,745,162
Wings Air     6%   5,869,727
NAM Air     3%   2,437,318
Indonesia AirAsia     1%   1,087,946
Indonesia AirAsia Extra     1%   1,033,969
Trigana Air Service     1%     686,641


Top Market Share in Indonesia's International Aviation Market (2017):

Airline Market
 Share
Passengers
Garuda Indonesia   39%  4,833,194
Indonesia AirAsia   26%  3,273,758
Lion Air   18%  2,234,970
Indonesia AirAsia Extra   10%  1,256,037
Batik Air    4%   499,012
Sriwijaya Air    2%   283,936
Citilink Indonesia   0.3%    45,586
Travel Express   0.3%    42,327
NAM Air   0.2%    25,622

Source: Bisnis Indonesia

The Indonesian government sets minimum and maximum price ranges for domestic flight routes in Indonesia in a bid to protect both the nation's airlines and consumers.

Minimum-Maximum Price Ranges Popular Domestic Routes (One Way):

Route Minimum Price
Maximum Price
Jakarta-Medan IDR 632,000 IDR 2,108,000
Jakarta-Padang IDR 512,000 IDR 1,706,000
Jakarta-Yogyakarta IDR 299,000 IDR 998,000
Jakarta-Denpasar IDR 495,000 IDR 1,651,000
Jakarta-Surabaya IDR 412,000 IDR 1,372,000
Jakarta-Jayapura IDR 1,640,000 IDR 5,468,000

Source: Bisnis Indonesia

For in-depth stories, we refer you to our monthly research report. This report provides detailed analyses of economic, political and social developments that have occurred in Indonesia over the past month.


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