Local airlines may further delay fare increase
JAKARTA (JP): The Indonesian National Air Carriers Association (INACA) might further delay planned increases in airfares despite a slight increase in ticket sales in the first quarter of this year, the association's senior executive said.
The chairman of INACA, Soelarto Hadisoemarto, said on Saturday it was not wise to go ahead with the association's planned increase in airfares when many people were still struggling to survive the economic crisis.
"It just seems unfavorable (to raise airfares) during this time of crisis, not to mention the coming general election and presidential election," he told The Jakarta Post.
He also said the stronger rupiah would allow airlines to maintain current airfares because the rupiah's current exchange rate allowed airlines to cut overhead costs.
Since early last year, INACA has sought to raise domestic airfares in order to survive the economic crisis, which has caused a sharp drop in the number of air passengers and tripled airlines' overhead.
In May 1998, the government allowed local airlines to increase domestic airfares by 37.5 percent, a figure considered by observers as insufficient to allow the country's airlines to recover from the devastating impact of the crisis.
In August 1998, the House of Representatives approved the government's proposal to allow airlines to further increase domestic airfares by 100 percent in two stages; a 40 percent increase in September 1998 and a 60 percent increase in December 1998.
However, INACA delayed the December increase, in part because the rupiah strengthened to about 7,500 against the U.S. dollar in October.
The rupiah, which hit a low of Rp 17,000 in January last year, fell back to above Rp 8,500 earlier this year before stabilizing at around 8,000 this month
Soelarto said that even if INACA did increase airfares, currently seven U.S. cents per seat per kilometer, the increase would be gradual.
"It is impossible to immediately raise rates to the government approved 11 cents per seat per kilometer. We'll start with eight cents and later move up to nine cents, and so forth," he said.
Soelarto said the sharp depreciation of the rupiah against the U.S. dollar since late-1997 hurt the industry because most of their rupiah earnings were eaten up by overhead costs, which, for the most part, were quoted in U.S. dollars.
He said some 80 percent of the airlines' overhead, including aircraft leasing fees, spare parts and fuel, was quoted in dollars.
Skyrocketing expenses have forced many airlines to cut costs by canceling contracts to lease aircraft, particularly Boeing 747s and 737s and Airbus, from overseas parties, resulting in a drastic 50 percent drop in the total domestic fleet, he said.
Several airlines also have been forced to fire employees to survive the crisis, he said.
The economic crisis has cut the purchasing power of Indonesians, resulting in a drastic decline in the number of air passengers, the airlines' largest source of income.
"The average load factor fell by more than half to only 30 percent in 1998," he said.
Soelarto said the impact of the rupiah's depreciation was more severe on airlines with scheduled services, including national flag carrier Garuda Indonesia, Bouraq, Mandala, Merpati, Dirgantara Air Service and the now-defunct Sempati.
Sempati halted operations in June last year after shareholders could no longer afford to keep the airline afloat.
"Chartered airline operators are paid in dollars by oil and mining companies, whose fields of activities have not been severely affected by the crisis," he said, adding that 16 of INACA's 22 members were chartered airline operators.
He predicted domestic airlines would continue to recover this year, providing the rupiah remained stable.
"The current load factor stands at between 60 percent and 65 percent, compared to only 30 percent and 40 percent in May last year," he said.
"We expect this figure to go up to around 70 percent," he added. (cst)