PT KAI urges govt to limit airline price war

PT KAI urges govt to limit airline price war

Yuli Tri Suwarni
The Jakarta Post
Bandung, West Java

State railway company PT Kereta Api Indonesia (PT KAI) has
strongly urged the government to limit the ongoing price war
between domestic airlines, which has had a domino effect on the
company.

PT KAI spokesman Patria Supriyoso said here on Friday that if
the government established a minimum price for all domestic
destinations instead of leaving it to the market, PT KAI would be
able to recover from the difficult conditions faced by executive
train services in Java.

"Ticket prices have been a decisive factor for travelers when
determining their choice," he said, when awarding prizes to
senior high school students who had won a contest related to the
railways, in a ceremony here on Friday.

Patria argued that the price war between airlines for domestic
destinations could no longer be tolerated, as prices had dropped
so much, thereby affecting PT KAI's income.

He said that prices had fallen drastically by around 30
percent last year, and again by almost 50 percent earlier this
year.

For example, the price of a one-way ticket for the Jakarta to
Yogyakarta route had dropped to Rp 470,000 in the second half of
2002, from more than Rp 600,000 in the first, while it fell
drastically again to Rp 225,000 earlier this year.

"Obviously, travelers will prefer to fly, as PT KAI charges Rp
250,000 per person for the same journey," he said.

The price war broke out following the start of new airlines
operating beside established ones over the last three years.

The air ticket price war has also affected sea and land
transportation. The mushrooming of airlines serving the Jakarta
to Medan route has caused state-owned airlines Garuda and Merpati
to cut their price to Rp 550,000 at present, from Rp 850,000 in
March and Rp 1.2 million last year. New airlines, such as Jatayu
Air, Batavia Air and Lion Air, charge Rp 380,000 for the same
journey.

Many travelers to and from Medan have flown on the new
airlines, as state-owned ship operator PT Pelni has set a price
of Rp 280,000 for economy class and bus operators charge Rp
310,000 for economy class.

Patria said the decline in the number of passengers on
executive trains had reached 50 percent on the Jakarta to
Surabaya route.

"The company's income from noneconomy-class trains, which had
been a source of financial support for economy-class trains, has
also dropped by 80 percent," he said. It was therefore impossible
for noneconomy-class trains to generate a cross-subsidy for
economy-class trains amid the price war.

Economy-class trains run at a loss, in order to ensure that a
service for low-income people is maintained, as required by the
government.

"Due to the price war, PT KAI has suffered a loss of potential
income of Rp 7 billion per month. Over the last four months, PT
KAI has suffered a total loss of potential income of Rp 28
billion," he said.

He added PT KAI had also started an efficiency drive, to keep
operational costs as low as possible, and had reduced service
frequencies on less well-used routes.