Domestic airlines hope to raise fares by 20%

Domestic airlines hope to raise fares by 20%

JAKARTA (JP): The Indonesian National Air Carriers Association
(INACA) said on Wednesday it would propose a hike in domestic
airfares by at least 20 percent to offset increasing operation
costs amid the depreciation of the rupiah against the U.S.
dollar.

INACA chairman Wahyu Hidayat said with the proposed 20 percent
increase, the new airfare rate would be 11 U.S. cents per seat
per kilometer, compared to about 9 U.S. cents at present.

"We will soon finalize the proposal and submit it to the
government for approval this month," he said on the sidelines of
a hearing with House of Representatives Commission IV in charge
of transportation and infrastructure.

He said the airfare increase was necessary to help local
airline operators to cover their mounting operation costs.

"Situations have become tougher for us, especially with the
continuing depreciation of rupiah against the U.S. dollar, not to
mention the current increase in the price of fuel," he said.

He said the sharp depreciation of the rupiah against the U.S.
dollar since late 1997 had severely hurt the airline industry
because most airlines' rupiah earnings were eaten up by overhead
costs, which, for the most part, were settled in U.S. dollars.

Some 80 percent of the airlines' overheads, including aircraft
leasing fees, spare parts and fuel, are in dollars.

The skyrocketing expenses have forced local airlines to cut
costs by canceling contracts to lease aircraft, closing
unprofitable routes or dismissing employees.

According to data from INACA, the country's total fleet
decreased from 182 units in 1998 to 130 units in 1999 and 119
units this year.

One private airline, Sempati Air, which was owned by children
of former president Soeharto, closed operations in June 1998
after shareholders could no longer afford to keep the airline
afloat.

INACA has sought to raise domestic airfares since early 1998
in order to survive the economic crisis, which has caused a sharp
drop in the number of air passengers and tripled airlines'
overheads.

In May 1998, the government allowed an increase in domestic
airfares of only 37.5 percent, a figure considered by the
industry as insufficient to cope with surging costs.

In August 1998, the House of Representatives approved the
government's proposal to further increase domestic airfares by
100 percent in two stages; a 40 percent increase in September
1998 and a 60 percent increase in December 1998.

However, INACA delayed the December increase, partly because
the rupiah strengthened to about 7,500 against the U.S. dollar in
October. INACA also decided not to hike on the airfares
throughout last year, considering that the market had not fully
recovered.

Wahyu said INACA, which currently groups about 22 local
scheduled and chartered air carriers, would also propose a change
in the airfares mechanism.

He said the government should determine a ceiling price for
different routes instead of the current fixed price set for each
route.

"The existing fixed price is not working. Airline operators
are selling their tickets at discounted prices, far below the
government's set price. So we'd be better off not using a fixed
price at all and letting the airlines compete openly," he said.
(cst)