SINGAPORE/JAKARTA: When Resti Novita Sari booked to fly from Jakarta to her hometown of Padang to visit family for the Eid holiday, airfares were 40 per cent to 60 per cent higher than she had paid in previous years.
“It made me think twice about buying airplane tickets,” she said, adding that she eventually paid 1.7 million rupiah ($120.48) each way for the short flight from the island of Java to Sumatra.
Soaring domestic ticket prices in the world’s fifth-biggest domestic aviation market, now a duopoly, led the government in May to order Garuda Indonesia and Lion Air to lower fares. But caps and floors on airfares in the vast archipelago nation have not stopped a surge in average ticket prices.
Carriers have slashed domestic seat capacity by 15 per cent from March to October, according to data from the air travel intelligence company OAG, putting the country on track for the first annual decline in passenger traffic since 2014 — and pushing up fares.
That has stifled the domestic hospitality industry, data shows, with hotel occupancy rates down as much as 30 per cent in the country’s east.
Now Indonesia’s anti-monopoly agency, KPPU, is investigating whether Garuda and Lion are behaving like a cartel, as well as looking into Garuda’s operational control of Sriwijaya Air, the country’s third-largest airline group, commissioner Guntur Saragih said on Monday. “We believe there is price setting,” he said, adding that the agency plans to say next week whether it will take the airlines to court.
The maximum fine for price setting is 25 billion rupiah per party per case. Garuda and Lion did not respond to requests to comment on the allegations.
Airlines have stopped selling deeply discounted fares on many domestic routes and are instead selling most tickets at or near the maximum limit, according to industry sources and airline information.
Passenger yields, which measure what each flier pays per kilometre, a proxy for average fares, rose 43 per cent in the five months ended May 31 in Garuda’s domestic operation and were up 94 per cent at Sriwijaya Air in the same period, according to Garuda data.
“We wanted to optimize capacity,” Garuda Finance Director Fuad Rizal told Reuters, declining to comment further. The data showed that despite the capacity cut, its planes were on average less full than the previous year.
DUOPOLY
The high cost of flights has broader consequences for the Indonesian economy, which expanded by 5.07 per cent in the first quarter, missing expectations.
At the country’s largest airport, Jakarta Soekarno-Hatta International, domestic traffic fell 22 per cent in the first four months of the year to the lowest level since 2011, according to government statistics.
Hariyadi Sukamdani, chairman of Indonesia’s Hotel and Restaurants Association, said hotel occupancy rates were down 10 per cent to 30 per cent — depending on region — for the first six months of 2019.
“It is due to the expensive domestic ticket prices,” he said. “I understand regulators and government have tried to press to adjust the price. But it is not working, because two big airlines, Garuda and Lion, dominate the Indonesian market.” — Reuters
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