Government told to monitor airline price war

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.