Local airlines launch price war on lucrative domestic routes
Local airlines launch price war on lucrative domestic routes
Adianto P. Simamora, The Jakarta Post, Jakarta
Domestic airlines are cutting airfares on the Jakarta-Medan
route by between 30 percent and 50 percent due primarily to
mushrooming overcapacity which has placed serious pressure on
their bottom lines.
Marketing director of PT Mandala Airlines Ndan Kamandanu said
on Wednesday that the recent entry of new players had multiplied
seat capacity on the once highly profitable Medan-Jakarta route.
"The huge excess seat capacity has forced domestic airlines on
the Jakarta-Medan route to reduce their fares," Ndan told The
Jakarta Post.
He pointed out that the normal passenger volume on the route
was between 700 and 800 passengers per day, but that seat
capacity had jumped to between 1,500 and 1,600.
He said that the price war had created new difficulties for
the ailing airline industry, particularly because it was already
facing problems on the cost side with the current weakening in
the exchange rate of the rupiah against the U.S. dollar.
Some 80 percent of local airlines' operational costs,
including aircraft leasing and maintenance, are denominated in
dollar terms, while revenue is obtained in rupiah.
"We are in a difficult position... because operational and
maintenance costs are very high," Ndan said.
"But it is impossible for Mandala to maintain the old fares
while our competitors, who offer better facilities, continue to
reduce their fares," he added.
The government recently issued new licenses to nine airline
operators to provide regular domestic flights.
The new players are Airmark, Awair, Bayu Indonesia Airlines,
Deraya, Indonesian Airlines Avi Patria, Lion Airlines, Pelita
Air, Rusmindo Internusa Air and Star Air.
The new arrivals will be competing with five long-established
airlines, namely Garuda, Mandala, Bouraq, Dirgantara Air Service,
and Merpati.
At present, Mandala's fare on the Jakarta-Medan route is about
Rp 700,000 (about US$70) compared with a previous fare of about
Rp 980,000.
National carrier Garuda Indonesia's executive director Bachrul
Hakim said that the price war on the Medan-Jakarta route spelled
trouble for the industry as it would be difficult to generate
profits and maintain good service.
"All of the airlines operating now are competing for greater
passenger numbers by lowering airfares and providing discounts,"
Bachrul told the Post.
He said that Garuda had also cut its fares in a bid to
maintain market share.
At present, Garuda's travel agent fare for the Jakarta-Medan
route was about Rp 800,000 compared to the previous fare of Rp
1,125,000.
Meanwhile, Indonesian National Air Carriers' Association
(INACA) chairman Wahyu Hidayat played down the concerns over the
price war.
"It's not a serious problem because that (price cutting) is a
normal business practice," Wahyu said.
He regretted, however, the recent government decision
prohibiting INACA from launching a floor and ceiling price
mechanism for domestic air fares following a protest by the local
antimonopoly watchdog.