Calls to lower airfares 'premature', says INACA

JAKARTA (JP): The Indonesian National Air Carriers Association (INACA) balked at a request from legislators on Tuesday to reduce domestic airfares due to the strengthening of the rupiah.

Burhanuddin Napitupulu, who chairs House Commission IV overseeing public works, transportation, tourism, communications and public housing, said the stronger rupiah would allow airlines to cut operating costs.

"We have calculated that domestic airfares can be lowered by between 12 percent and 20 percent, and this will help increase their load factor," he said in a hearing with INACA and several other land and sea transportation companies.

The economic crisis has cut the purchasing power of Indonesians, resulting in a drastic decline in the number of air passengers, the airlines' largest source of income.

Many executives in major cities in Java who formerly traveled by air have switched to taking executive-class trains, Burhanuddin added.

He said current airfares exceeded the maximum 11 U.S cents per passenger per kilometer allowed by the government. He said that at an exchange rate of Rp 6,800 to the U.S dollar, airfares were Rp 761 (11.2 U.S. cents) per seat/kilometer.

INACA chairman Soelarto Hadisoemarto argued that it would be premature to lower airfares because the rupiah's rate was not stable.

"It is too early to lower the fares. INACA members, including airlines with scheduled services, have agreed to maintain the existing fares at least until the rupiah rate remains stable for three months."

Soelarto said current airfares were inadequate in offsetting the losses suffered by local airlines due to the rupiah's sharp depreciation last year.

The rupiah, which hit a low of 17,000 to the greenback in January last year, climbed to above 8,500 earlier this year before stabilizing at around 6,700 this month.

Soelarto said the sharp depreciation of the rupiah since August 1997 deeply hurt airlines because their income was in rupiah, but most of their operating costs were in dollars.

Since early last year, INACA has sought to raise domestic airfares in order to survive the crisis, following the sharp drop in the number of air passengers and a tripling of airlines' costs.

In May 1998, the government allowed local airlines to increase domestic airfares 37.5 percent, but analysts said the level was inadequate to help the airlines recover from the devastating impact of the crisis.

In August 1998, the House of Representatives approved the government's proposal to allow airlines to effect a staggered 100 percent increase in domestic airfares, entailing a 40 percent rise in September 1998 and 60 percent hike in December 1998.

INACA delayed the December increase, in part because the rupiah strengthened to about 7,500 to the dollar in October.

"The government gave us approval to raise fares to 11 cents per seat per kilometer. Yes, we are now enjoying a small profit, but it still could not offset our losses," he said.

Minister of Communications Giri Suseno Hadihardjono said that the government would immediately order local airlines to lower their fares once they exceeded the 11 U.S. cents ceiling.

"But if the current airfares have not exceeded the ceiling, we cannot require them to cut the fares. It is up to INACA whether it will meet the House's demand," Suseno added.(gis)