Flying through the shadow of stiff rivalry

Flying through the shadow of stiff rivalry

I. Christianto, Contributor, Jakarta

With more domestic airlines in operation there has been a
tightening of the competition among local carriers, most of which
continue to focus on proven profitable routes.

The tighter competition has unavoidably led to a price war,
and in certain cases has also brought additional advantages for
passengers.

On the Jakarta-Surabaya route, one of the most profitable
domestic air routes, state-owned Garuda Indonesia, for example,
is offering a special rate of Rp 385,000 (one way), which is much
cheaper than the normal rate of Rp 659,000 (about US$77.60).

Some private airlines are offering even lower rates on the
same route. Mandala Airlines has one-way tickets for Rp 300,000,
Lion Air for Rp 279,000 and Pelita Air Rp 215,000.

On the Jakarta-Medan route, Garuda has a promotional rate
of Rp 556,000 for a one-way ticket, compared to the normal rate
of Rp 1.15 million. On the same route, Mandala charges Rp 756,035
and Lion Rp 759,000 for one-way tickets.

The Jakarta-Denpasar route is also the scene to an active
price war. Garuda is promoting one-way tickets for Rp 685,000
(normally 805,800), while Bouraq and Mandala have tickets for Rp
600,000 and Rp 595,000, respectively. State-owned Merpati
Nusantara Airlines currently has the cheapest rate at Rp 480,000.

Many airlines generally offer cheaper tickets for flights
early in the morning or late at night. Flying with new aircraft
usually costs more.

The Indonesian National Air Carriers Association (INACA) says
the number of domestic air passengers will continue to surge in
the coming years, partly due to greater economic growth in some
provinces.

According to data from the association, the number of air
travelers rose slightly to 8.96 million last year from 8.27
million in 2001 and 7.58 million in 2001.

This number is projected to increase to 9.65 million this year
and 10.34 million in 2004.

Air passenger numbers were climbing in the late 1990s until
the economic crisis hit in 1997, slashing the number of air
passengers by more than half from 13.4 million in 1997 to 6.2
million in 1998. The number of passengers rose to 7.5 million in
1999.

The airline industry can still be seen as having promise. The
competition in the domestic sector, however, can be expected to
be much sharper despite the projected increase in passenger
numbers.

The president of Garuda, Indra Setiawan, said the airline
would avoid price wars though it would remain aggressive in
maintaining its dominance in the domestic market.

He acknowledged that the competition could be even tighter
despite the projected higher growth for the next three
years.

Indra, who is also the chief of INACA, said the ticket pricing
system in Indonesia gave domestic carriers the chance to compete,
but he warned that the system could be fatal for weaker airlines.

At present, the range of tariffs set by the government has no
price floor. This allows airlines to put their prices as low as
possible. In the past, airlines were not allowed to cut their
prices below a set floor price.

Awair International, a new private airline, recently suspended
its operations due to the competition. The airline temporarily
stopped its flights linking Jakarta and Denpasar, Surabaya and
Medan. It plans to resume operations on June 1, possibly with new
routes.

"Recent developments in the country's airline industry,
especially the rapidly decreasing prices due to competition, have
made airline operations too burdensome economically and could
threaten business survival," Awair said earlier this year
regarding its suspension of operations.

It was the first operation suspension by a domestic airline
since the government liberalized the sector in the middle of
2000. Sempati Air was declared bankrupt in 1999 with debts far
exceeding its assets.

Regarding the double blow of war in Iraq and the worldwide
health panic caused by SARS, he said Garuda had prepared a
"contingency plan" and a "crisis center" to monitor every
development related to operations (flight safety) and the
commercial aspects (cost and revenue) of the business.

"The war in Iraq and the mysterious and deadly flu-like virus
have affected all business activities, including the airline
sector," he said.

The aviation industry will suffer even more if the war lasts
longer than expected, not only due to the decline in the number
of passengers but also because of higher fuel prices and
insurance premiums, he said.

Garuda has cut in half to four its weekly flights linking
Jakarta and Jeddah, Riyadh and Dammam due to the Iraq war. And
SARS has led the airline to cut its flights by half to Singapore,
Hong Kong and Shanghai. The spread of the disease has, in fact,
had a greater impact on passenger numbers than the Iraq war.

Data from the Directorate General of Aviation at the Ministry
of Transportation shows that there were 30 airlines as of March
this year. Of this number, 19 airlines are in operation, nine
are not yet operating and two others are idle. The operating
airlines have a total fleet of 180.

Among the new airlines in operation are Air Paradise, Alatief
Alair International, Asia Avia Megatama, Nusantara International
Services, Rusmindo Internusa, Satrio Mataram Airlines and Manado
Airlines.