Airlines allowed to hike ticket prices by up to 20%

Debbie A. Lubis, The Jakarta Post, Jakarta

Domestic airlines will be allowed to raise their economy class airfares on certain routes up to 20 percent starting March 1 under new governmental regulations, designed to increase competition for customers.

However, the airlines could also cut prices by the same amount to attract customers.

Director General of air transportation at the Ministry of Transportation, Soenaryo Y, said Thursday that the new regulations on airfares was aimed at creating competition among domestic airlines.

The government issued ministerial decrees No. 8/2002 on the mechanism for economy class tariff formula and No. 9/2002 on the air tariff ceiling to replace ministerial decree No. 25/1997 which gave exclusive rights for the Indonesia National Air Carriers Association (INACA) to set airfares.

The government decided to revoke the 1997 decree at the request of the Business Competition Supervisory Commission (KPPU) which considered the decree a violation of the anti-monopoly law.

Under the old decree, INACA did not allow domestic airlines to cut or raise their prices outside a specified range permitted by the organization. This was criticized as hindering competition in the industry.

The new ministerial regulations eliminate the minimum rates and set only the maximum. As such, airlines are free to cut their airfares to compete for customers.

"The airlines are allowed to raise their airfares, but they also may decide to cut prices. The airline companies are thus urged to compete," Soenaryo said.

Soenaryo said the government had given the domestic airlines until Feb. 15 to submit their pricing scheme in line with the new regulations.

The new regulations allow for a maximum price hike of between five and 20 percent on 37 routes, 15 more routes are unchanged and 364 routes will have the ceiling price cut by between five and 20 percent.

Routes which will experience an increase of between 10 and 20 percent in maximum airfares include the Solo-Surabaya, Bandung- Yogyakarta, Bandung-Semarang, Denpasar-Surabaya, Denpasar- Mataram, Semarang-Surabaya and Solo-Surabaya.

Maximum airfares from Jakarta to other main towns of the country will increase less than 10 percent.

Soenaryo however did not disclose routes which will see the decrease in the ceiling price under the new regulations.

The new regulations would boost competition among domestic airlines, Soenaryo said, but he warned the airlines not to cut their rates at the expense of safety.

"The air carriers should prioritize passenger safety," Soenaryo said, adding that his office would keep watching the competition and punish any delinquent airlines.

He also said the government would regularly review the new policy in view of other factors influencing the airline industry, including the rupiah's value and fuel prices.

INACA's chairman Wahyu Hidayat, who is also president of state-owned Merpati Airlines, said the new tariff policy had been made in consultation with INACA and its members, who agreed upon the policy.

"The new tariff policy will boost competition as various airlines may offer different rates on a given route to attract customers," he said