Local airlines delay plan to raise fares

Local airlines delay plan to raise fares

JAKARTA (JP): Indonesia's airlines have decided to delay their
plan to increase domestic fares after the House of
Representatives raised opposition to the move.

The decision was taken at a hearing between the Indonesian
National Air Carriers Associations (INACA) and House Commission
IV for transportation yesterday.

"We agreed to set up a team consisting of legislators and
officials from the communications ministry to study the proposed
increases," INACA secretary-general Benny Rungkat said after the
hearing.

The team will decide on the plan at their next hearing on
August 18, after the House recess.

INACA groups the country's six airlines -- state-owned Garuda
Indonesia and Merpati Nusantara Airlines; and the private Bouraq
Airlines, Mandala Airlines, Dirgantara Air Services and Sempati
Air.

The latter stopped operations last month due to financial
difficulties.

INACA regularly adjusts fares under the approval of the
government and the House.

The communications ministry approved INACA's recent proposal
to raise the average domestic fare to 6 U.S. cents per kilometer
per seat from the current rate of 3.7 cents from the beginning of
next month.

The association also proposed to upwardly adjust the exchange
rate used to relate domestic airfares to the U.S. dollar to Rp
8,000. The current exchange rate of Rp 5,000 was set in January.

The adjustments would result in an increase of up to 60
percent in domestic fares.

The rupiah has sunk to around Rp 14,000 against the dollar
from Rp 2,500 in July last year, resulting in low load factors on
domestic flights and inflated operating costs and debt.

INACA Chairman Soelarto Hadisoemarto told the hearing that
current tariffs were no longer valid given the difficulties
facing airlines operators.

Soelarto said the cost of operating aircraft had risen
drastically and airlines had been left facing huge losses.

"We want to raise our tariffs not to increase profits but to
reduce losses, we are all in critical conditions," Soelarto said.

Using an exchange rate of RP 5,000 per dollar and with
airfares set at 3.7 cents per kilometer per seat, airlines will
only break if the load factor reaches 144 percent, he said.

"If the exchange rate is set at Rp 8,000 to the dollar and
fares increased to 6 cents per kilometer per seat then we can
break even with a load factor of 90 percent," he added.

But legislators accused airline companies of "not managing
their businesses efficiently".

They said the proposed increases would burden many sectors of
society.

"You have not convinced us that the fare increases are
necessary," commission member Fahmi Alatas said.

"Passengers are not a small group of people and the business
sector would also feel the effect of the increases in their
operating costs," he said.

Garuda president Robby Djohan said yesterday that 80 percent
of aircraft operating costs were dollar denominated and only 20
percent could be paid in rupiah.

Dollar denominated costs apply to engines, spare parts,
expatriate engineers, crew training, insurance, and maintenance,
he said.

INACA's secretary-general Benny Rungkat said the association
planned an initial increase to 6 cents per kilometer per seat
followed by a second increase to 9 cents per kilometer per seat
in the second half of this year.

Benny said the fare increases would help companies survive and
to repay some of their overseas debt.

"If they don't settle their debts, our airline companies will
be grounded," he told reporters after the hearing. (das)