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.