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INACA Chairman Soelarto Hadisoemarto told the hearing that current tariffs were no longer valid given the difficulties facing airlines operators.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