Government told to monitor airline price war

Adianto P. Simamora, The Jakarta Post, Jakarta

The House of Representatives called on the government on Friday to monitor the current price war among domestic airlines serving the key Jakarta-Medan route.

Rully Chairul Azwar of House Commission IV overseeing infrastructure and transportation said that the government must make sure that the price war would not lead to a string of bankruptcies in the industry.

"The government must see to it that the fare cuts by airline operators do not lead to some going out of business," Rully told The Jakarta Post.

He warned that the price war would hurt the ailing local airline industry because their dollar-denominated operational and maintenance costs were very high, especially given the current weakening of the local currency.

He said that local airlines should implement a floor and ceiling price mechanism for domestic air fares.

Local airlines have cut fares as part of a price war on the once profitable Jakarta-Medan route by between 30 percent and 50 percent due primarily to huge overcapacity following the recent entry of new players into the market.

The operators claim that seat capacity on the Jakarta-Medan route had jumped to between 1,500 and 1,600 while the normal passenger volume on this route was between 700 and 800 passengers per day.

Meanwhile, Arifin Hutabarat, spokesman for PT Awair International, also voiced concerned over what he claimed was an unhealthy price war.

"We have reduced fares since September after two new airlines started flights on the Jakarta-Medan route," Arifin told The Post.

He asked the government to issue a new fare regulation to avoid unhealthy competition.

Meanwhile, a source said that Star Air, one of the new players, had temporarily suspended its Jakarta-Medan flights due to the tougher competition.

The government recently issued new licenses to nine airline operators to provide regular domestic services.

The new players are Airmark, Awair, Bayu Indonesia Airlines, Deraya, Indonesian Airlines Avi Patria, Lion Airlines, Pelita Air, Rusmindo Internusa Air and Star Air.

The new arrivals will be competing with five long-established airlines, namely Garuda, Mandala, Bouraq, Dirgantara Air Service, and Merpati.

According to a travel agent in Jakarta, Garuda's fare on the Jakarta-Medan route was now Rp 785,000 (or about US$78), Mandala's Rp 680,000, Lion Airlines' Rp 640,000, Jatayu Airlines' Rp 475,000, and Awair's Rp 700,000.