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.