Local airlines launch price war on lucrative domestic routes<\/p>\n
Adianto P. Simamora, The Jakarta Post, Jakarta<\/p>\n
Domestic airlines are cutting airfares on the Jakarta-Medan
\nroute by between 30 percent and 50 percent due primarily to
\nmushrooming overcapacity which has placed serious pressure on
\ntheir bottom lines.<\/p>\n
Marketing director of PT Mandala Airlines Ndan Kamandanu said
\non Wednesday that the recent entry of new players had multiplied
\nseat capacity on the once highly profitable Medan-Jakarta route.<\/p>\n
\"The huge excess seat capacity has forced domestic airlines on
\nthe Jakarta-Medan route to reduce their fares,\" Ndan told The
\nJakarta Post.<\/p>\n
He pointed out that the normal passenger volume on the route
\nwas between 700 and 800 passengers per day, but that seat
\ncapacity had jumped to between 1,500 and 1,600.<\/p>\n
He said that the price war had created new difficulties for
\nthe ailing airline industry, particularly because it was already
\nfacing problems on the cost side with the current weakening in
\nthe exchange rate of the rupiah against the U.S. dollar.<\/p>\n
Some 80 percent of local airlines' operational costs,
\nincluding aircraft leasing and maintenance, are denominated in
\ndollar terms, while revenue is obtained in rupiah.<\/p>\n
\"We are in a difficult position... because operational and
\nmaintenance costs are very high,\" Ndan said.<\/p>\n
\"But it is impossible for Mandala to maintain the old fares
\nwhile our competitors, who offer better facilities, continue to
\nreduce their fares,\" he added.<\/p>\n
The government recently issued new licenses to nine airline
\noperators to provide regular domestic flights.<\/p>\n
The new players are Airmark, Awair, Bayu Indonesia Airlines,
\nDeraya, Indonesian Airlines Avi Patria, Lion Airlines, Pelita
\nAir, Rusmindo Internusa Air and Star Air.<\/p>\n
The new arrivals will be competing with five long-established
\nairlines, namely Garuda, Mandala, Bouraq, Dirgantara Air Service,
\nand Merpati.<\/p>\n
At present, Mandala's fare on the Jakarta-Medan route is about
\nRp 700,000 (about US$70) compared with a previous fare of about
\nRp 980,000.<\/p>\n
National carrier Garuda Indonesia's executive director Bachrul
\nHakim said that the price war on the Medan-Jakarta route spelled
\ntrouble for the industry as it would be difficult to generate
\nprofits and maintain good service.<\/p>\n
\"All of the airlines operating now are competing for greater
\npassenger numbers by lowering airfares and providing discounts,\"
\nBachrul told the Post.<\/p>\n
He said that Garuda had also cut its fares in a bid to
\nmaintain market share.<\/p>\n
At present, Garuda's travel agent fare for the Jakarta-Medan
\nroute was about Rp 800,000 compared to the previous fare of Rp
\n1,125,000.<\/p>\n
Meanwhile, Indonesian National Air Carriers' Association
\n(INACA) chairman Wahyu Hidayat played down the concerns over the
\nprice war.<\/p>\n
\"It's not a serious problem because that (price cutting) is a
\nnormal business practice,\" Wahyu said.<\/p>\n
He regretted, however, the recent government decision
\nprohibiting INACA from launching a floor and ceiling price
\nmechanism for domestic air fares following a protest by the local
\nantimonopoly watchdog.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/local-airlines-launch-price-war-on-lucrative-domestic-routes-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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