This content is from: Local Insights

Indonesia: Airfare pricing concerns

Oene MarseilleEmir Nurmansyah
Indonesia's Ministry of Transportation has issued an amendment to its previously issued regulation on airfare pricing. The amendment was issued on December 30 2014, and effectively places a non-waivable floor on domestic airfares.

Airfares for international flights are not affected by the amendment and will continue to be governed by the rules of the International Air Transport Association.

The Transportation Ministry denied that the amendment was issued in response to or in connection with the downed AirAsia flight QZ8501, although a ministry official did cite safety as a motivating factor behind the decision. The director general of air transportation of the Transportation Ministry said that the amendment was passed to provide all airlines with a sufficient financial buffer to increase their safety standards.

Under the previous rule, airlines could offer airfares as low as 30% of the threshold fare as calculated by the Ministry. Additionally, airlines could offer lower fares than stipulated under the rule for a limited period of time with the proper approval from the directorate general of air transportation.

Under the amendment, the lowest allowable fare is calculated at 40% of the threshold fare and no exemption is provided. The obvious implication of the amendment is that the zero-rupiah fares that are sometimes advertised by budget airlines are no longer permitted.

The budget airlines, anti-trust agency, consumer watchdog agency, and consumers are generally not very enthusiastic about the amendment. The Indonesian National Air Carrier Association, an airline trade association, takes exception to the assumption that airlines are able to provide low fares, at least in part, by sacrificing safety. The head of Indonesia's antitrust agency (KPPU) expresses concerns that the amendment may unfairly benefit full-service airlines and may have anti-competition effects on the industry. YLKI, Indonesia's consumer watchdog agency, objected to the suggestion that safety is a variable that can be calibrated depending on the fares, and said that "safety can never be compromised".

Oene Marseille and Emir Nurmansyah

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