Indonesian limit on budget carriers stays

Indonesian limit on budget carriers stays

Bloomberg, Jakarta

Indonesia's government may let Singapore Airlines Ltd. add flights to Jakarta and to the resort island of Bali, while keeping its limit on overseas low-fare carriers that want to compete with PT Garuda Indonesia, a minister said.

"The issue of low-cost airlines is one of the agenda" to be discussed on May 25 with Singapore's Transport Minister Yeo Chew Tong, the Minister of Transportation Hatta Radjasa said on Thursday. The ministers are scheduled to discuss a request to let Singapore-based low-fare carriers Tiger Airways Pte. and Valuair Ltd. add flights to Indonesia and Jetstar Asia to begin flying to Jakarta.

The Indonesian government, which owns and appoints managers to run Garuda, wants to protect the Jakarta-based airline from mounting competition by Malaysian Airline Systems Bhd, Singapore Airlines and Southeast Asia's 10 low-fare carriers. Closely held Garuda, whose board members were replaced by the government in March to boost earnings, posted a first-quarter operating loss of Rp 139 billion (US$14.5 million), almost double the loss from last year.

"Garuda now has burdens from the past bad stories that it still needs to sort out. It needs restructuring," said Enggartiasto Lukita, a member of the House of Representatives in charge of transportation affairs. "In other countries like France and Singapore, they do protect their flagship. And that's what Indonesia should do, too."

On May 12, Garuda said it wanted to delay paying up to $523 million of debt owed to European lenders. A successful push to delay the payment would help Garuda save as much as $110 million this year in interest costs and principal payment. Garuda owes $826.5 million in debt.

Transportation ministry said in March that new landing right applications by overseas budget carriers for Jakarta, Medan, Surabaya and Denpasar will be rejected to protect its airlines. Applications for cities of Yogyakarta, Semarang and Bandung would also be rejected, while those for other cities were welcome.

Singapore has written to Indonesian officials on the issue, Yeo said last month. Singapore Airlines' partly owned Tiger Airways flies to Padang, the provincial capital of West Sumatra.

Landing rights that have been given to Valuair, that flies to Jakarta and Malaysia's AirAsia Bhd., Southeast Asia's largest discount carrier, which has flights to Jakarta, Medan, Surabaya, Denpasar and Bandung, won't be affected by the restrictions.

Indonesia's government is also likely to block a request from Singapore for a so-called open sky policy, which offers unlimited access to the nation's aviation market, Hatta said.

Singapore, where government-owned Singapore Airlines competes with state-owned Garuda for flights to Indonesia, "should not get a no-limit policy," he said.

"The only country that gets the no-limit policy from Indonesia is the U.S.," because flights to the U.S. are long distance services that don't compete with Garuda, he said.