Govt stops issuing licenses for crowded airlines industry

Leony Aurora, The Jakarta Post, Jakarta

The government has decided to stop issuing operating licenses for new airlines because it says there is already enough competition in the industry.

Minister of Transportation Hatta Radjasa said on Wednesday that with the current growth of passengers, the existing 22 airlines and 35 air charter services were more than enough to cover demand.

"If the growth enables more airlines, we'll see. But for now, we will stop (issuing licenses). There is no need to add new airlines," said the minister after a meeting between his department and the Indonesian National Air Carriers Association (INACA).

This measure was taken to create a healthy business climate in the industry, Hatta said. "(The existing airlines) can consolidate (their businesses), strengthen their capital and rejuvenate their planes," he said.

The ministry is also in the process of auditing all existing airlines, including their financial reports, aircraft, and maintenance procedures.

Such an audit was deemed necessary in light of a crash involving an aircraft from budget airline Lion Air three weeks ago. The company's Boeing MD-82 plane flying from Jakarta skidded off a slippery runway after landing at Adi Sumarmo International Airport in Surakarta, and 26 people were killed.

Some in the industry have questioned whether the carrier had cut down on safety procedures and maintenance costs to charge lower fares.

"All airlines will have to show their cost (calculations) and prove that they are reasonable," Hatta said.

It is unclear yet when the audit's results will be announced to the public.

The government has also floated the idea of re-establishing minimum fares for airlines to ensure standards are met, a move viewed coolly by the business sector and consumer groups.

Before any decision was made on minimum fares, it would need to be discussed with INACA, the Business Competition Supervisory Commission (KPPU), and the Indonesian Consumers Foundation (YLKI), Hatta said.

"All parties will sit down together and talk about this."

Budget airlines started rapidly growing in Indonesia after the government scrapped minimum fares for the sector in 2002, enabling more Indonesians to travel by plane. Many prices offered were comparable to or even cheaper than other modes of transportation like passenger ships and trains.

The lowest cut-price fares were about 30 percent of the current "ceiling fares", which are stipulated by ministerial decree No. 9/2002.

YLKI chairwoman Indah Suksmaningsih has criticized the plan, saying that the government should instead focus on establishing proper regulations instead of re-introducing tariffs.

KPPU member Syamsul Maarif such price limitations were "anti- competition" and would a step constitute a step back for the industry.

The KPPU and the transportation ministry are scheduled to discuss the fare issue next week.