Garuda imposes $5 surcharge to cover insurance

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Indonesia's flagship carrier Garuda Indonesia has imposed a US$5 surcharge on international air tickets since Oct. 1 to finance the extra cost of higher insurance premiums, according to a senior executive of the Association of Indonesian Travel Agencies (Asita).

Asita chairwoman Meity Robot said that travel agencies had imposed the surcharge on Garuda international flight tickets since that date.

"It (the surcharge) is the first time in a decade. Even the Gulf War didn't have an impact like this," she told The Jakarta Post.

Garuda, however, was reluctant to provide an explanation and instead gave a conflicting statement.

"We're still discussing the possibility of imposing a surcharge," Garuda spokesman Pujobroto told the Post.

Global insurers had raised premiums per passenger for "third- party war and terrorism insurance" following the Sept. 11 terrorist attacks on the U.S.

Airlines must take out the insurance otherwise they will be banned from flying by their aircraft lessors or from landing at designated airports.

Garuda finance director Emirsyah Satar said earlier this week that the airline had secured coverage for third-party insurance of up to $1 billion from London firms.

He said that Garuda must pay additional premiums of between $20 million and $25 million per year for the insurance coverage, besides having to pay about $10 million per year for hull liability. The premiums will be paid in quarterly installments.

According to Asita, Garuda joined the growing list of world airlines imposing a surcharge to pass on the burden of the higher insurance premiums to passengers.

Meity pointed out that KLM Royal Dutch Airlines had also imposed a $5 surcharge, Philippines Airlines $6, Singapore Airlines $1.25, Thai Airways International $1.25 and Malaysia Airlines $1.25.

The U.S. attacks have caused a serious blow to the world airline industry, which analysts say was heading toward a prolonged slump.

It is not clear whether Garuda will also impose a surcharge on domestic air tickets, although a source at the company said earlier that such a move would be unnecessary if the surcharge on international air tickets was sufficient to cover the extra insurance cost.

Garuda had been struggling to make a reasonable profit as the 1997 regional financial crisis had multiplied its dollar-based costs but cut down its rupiah-based revenue.

The airline, which is to be privatized by the government in 2003, reported a 90 percent drop in its 2000 net profit to Rp 53.24 billion ($5.49 million) due to foreign exchange losses.