Local airlines may soon raise domestic fares

JAKARTA (JP): The price of domestic airline tickets may soon increase following the Indonesian National Air Carriers Association (INACA)'s recent decision to raise the exchange rate of their U.S. dollar-based fares.

INACA chairman Wahyu Hidayat said on Tuesday that the association had decided to increase the exchange rate band to between Rp 5,000 and Rp 9,000 per U.S. dollar, from the previous range of Rp 4,000 to Rp 7,500.

The adjustment of the exchange rate has been made to reflect the actual value of the rupiah against the dollar which has fallen dramatically in recent months.

"Every time the rupiah weakens, we domestic airlines tremble (with fear)," Wahyu said, explaining that even though earnings were received in rupiah, almost 80 percent of the local carriers' operational costs were paid in U.S. dollars.

The local unit has been hovering between Rp 10,000 and Rp 11,000 against the U.S. dollar in recent months due to uncertainties in the domestic political situation.

The rupiah ended higher on Tuesday at Rp 11,060 compared to Rp 11,600 on Monday.

The passenger price per kilometer has not changed from 11 U.S. cents a passenger per kilometer despite the exchange rate band adjustment.

The standard exchange rate for airline tickets is determined by INACA, while the passenger price per kilometer is set by the government, Wahyu told reporters after signing an agreement with Lippo Bank.

The agreement provides the bank's credit card holders easier access to Merpati tickets and admittance to the airport lounge.

Wahyu said implementation of the price hike would be at the discretion of each airline, adding that if the airlines still believed their existing price range was adequate then it may not decide to make any adjustments.

"They may retain their fare as long as it is within the price range that has been decided by INACA," he added.

Wahyu, who is also the president of state-owned domestic airline company PT Merpati Nusantara, said the airline will adopt the new price range on June 1.

"By then we also hope that all INACA members will be able to adopt the new exchange band so that measures, such as sanctions for airlines selling below or above the price range, can be imposed," he said.

In the meantime, Merpati's earnings this year may not reach the Rp 1.4 trillion (about $126.6 million) targeted at the beginning of the year, Wahyu said.

"The 1.4 trillion target assumed that the four aircraft we ordered for this year were all operational," he said, adding that so far only two Boeing 737-200 aircraft leased by the company had arrived, while two more were not expected until early June. Wahyu said that he had expected the aircraft to arrive in early January.

"Now I don't think we can achieve higher than 1.1 trillion," he said, noting that Rp 1.1 trillion had been the total revenue received last year. (tnt)