Local airlines may further delay fare increase

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)