Jakarta to propose floor fares for ASEAN airlines

Jakarta to propose floor fares for ASEAN airlines

Tony Hotland, The Jakarta Post/Jakarta

The Ministry of Communications wants to propose floor fares
for airlines of the Association of Southeast Asian Nations
(ASEAN) members to protect domestic players from causing damage
to the industry through a price war.

Ad interim minister of communications Soenarno, said here on
Friday that the proposal could also be one of the triggering
points toward ASEAN integration.

"Air transportation is a crucial issue among ASEAN countries
and we certainly hope that the entrance of regional players and
also the open-sky policy will bring benefits to us," he said.

Soenarno added that before being proposed to the ASEAN forum,
the proposal would be discussed first with the Office of
Coordinating Minister for Economic Affairs, the Ministry of
Finance and the Ministry of Industry and Trade.

Air transportation is one of the 11 "priority sectors"
targeted to be liberated within ASEAN by 2007. However, the
economic grouping failed to agree on the road map of air
transportation integration during the recent economic ministers
meeting in Jakarta.

A number of regional airlines -- such as Singapore's Valuair
and Malaysia's Air Asia -- have entered the domestic market and
have expanded aggressively over the past couple of years,
resulting in tougher competition and pressure on the domestic
carriers serving regional routes.

These carriers are allowed to fly in the domestic market based
on bilateral air agreements, which do not specify floor fares.

The introduction of the no-frills concept has enabled airlines
to offer cheap tickets due to the absence of additional services,
such as food and beverages usually provided onboard. This has led
to a price war and regional airlines, which are backed by strong
financing, are able to offer cheaper tickets than domestic
airlines.

For example, excluding taxes, a one-way ticket from Jakarta to
Singapore on Lion Air -- which claims to offer the lowest fares
among domestic players -- costs US$114, while Valuair costs $100.
A one-way ticket from Jakarta to Kuala Lumpur on Lion Air costs
$68, while Air Asia now costs only about $33.

Secretary-general of the Indonesian National Air Carriers
Association, Tengku Burhanuddin, said it was not easy for
Indonesia to gain the acceptance of other ASEAN members for the
proposal.

"There's nothing we can do if the other countries don't accept
the idea. They'll say why make it expensive if it can be cheap.
Are we going to bar them from flying here? They'll do the same
toward us. But the proposal is not impossible and the government
could start with one country first," he said.

Burhanuddin also wondered why the government was making a fuss
about regional carriers as there were also no floor fares set for
airlines competing in the domestic market -- where the biggest
competition and opportunity actually laid.

"As you know, the law on business competition says that the
industry should leave floor fares to the market. So, if the
government wants to protect domestic players, it had better start
revising the law and setting floor fares for domestic players
instead," he asserted.