Local carriers add flights amid tight competition
Local carriers add flights amid tight competition
Rudijanto, Contributor, Jakarta
After been bloodied by a long-running, no-holds-barred price
war with one another, Indonesian airlines are now looking forward
to a brief respite provided by higher ticket prices and loads
during next month's school vacation peak season.
The months of June and July are peak season for airlines as
the school vacations take place during these months. Passenger
numbers are expected to rise as students and their parents travel
on holiday or prepare for the new school year.
Merpati Nusantara Airlines' marketing general manager Jaka
Pujiyono says that the number of passengers is expected to rise
by between 10 percent and 15 percent to certain destinations,
especially tourist spots.
No wonder the airline is more than happy to provide additional
flights.
"We will have additional flights to Denpasar, Manado and
Pangkal Pinang. As for other destinations, we have a system that
tells us whether there is a big enough demand for extra flights
or not. If the demand is big, we will certainly provide extra
flights," Jaka said.
Another domestic airline, PT Star Air, is also planning to
increase its flights on the Jakarta - Denpasar route from three
per day to four per day starting on June 11. The airline will
also start flying to Singapore and Kuala Lumpur in July.
"There is growing demand from travel agents for the coming
peak season from June 24 to July 24. I think our load factor for
some routes will increase to more than 90%," says Star Air's
public relations manager Nurwulan Handayani.
AdamAir is planning to add more routes to its existing lineup,
including to Makasar, Manado, NTB, Batam, Riau and even
Singapore. To be able to serve all of these routes, the airline
is expecting the delivery of three more Boeing 737-400 and 737-
500 aircraft starting next month.
Aside from religious and festive holidays, such as Idul Fitri,
Christmas and New Year, school-vacation time provides a boost for
airlines. Increased load factors and above normal ticket prices
provide a long awaited breathing space for domestic airlines,
used to low margins in a highly competitive environment.
The Indonesian airline industry is now the scene of a deadly
price war between more than 20 companies. Some airlines, such as
Bayu Air, AW Air and Indonesian Airlines, have been forced to
close down, for the time being at any rate, but more new airlines
keep appearing.
The government, through the Directorate General of Air
Transportation at the Ministry of Communications, has issued
licenses for dozens of new companies. There is apparently no
effort from the government to limit the number of players in this
industry.
Without any entry barriers and no minimum fare regulations,
the existing airlines have been forced to fight in order to
maintain their load factors and attract more passengers. The
price war has led to severe difficulties for other transportation
modes, particularly passenger ships, buses and trains.
According to data quoted by AdamAir, the number of air
passengers rose from 10.6 million in 2001 to 11.6 million in
2002, and 15 million in 2003.
"That is spectacular growth, particularly the 2003 figure.
This year, we are expecting the figure to increase again to
between 18 million and 19 million," Leo said.
The market for air travel is indeed increasing rapidly. But
with more players set to enter the market, not only sea and land
transportation firms are appealing for help but also some of the
new airlines.
"The government has to sit down with the legislature,
carriers' association (INACA), and operators to set fares.
Currently, the government only fixes the upper limit for fares,
but we also need minimum fares," Leo added.
Leo says that current ticket prices are not favorable. For
instance, on the Jakarta-Pangkal Pinang route and the Jakarta-
Medan route, his company charges fares of slightly over Rp
200,000 and Rp 300,000 respectively.
"We are not afraid of competition. We can survive with the
current fares but, of course, we have to tighten our belts and
reduce costs, without compromising as regards the safety of
passengers," he said.
Old players such as Merpati also say that if there is no
change in the existing regulations, many airlines will have to
close down their operations.
"In short, only a small number of airlines will be able to
remain healthy in this unhealthy environment," Jaka said.
Though admitting that many of the newcomers are highly
efficient due to low manpower costs, Jaka doubted that the
various cost-cutting measures effected by them would be able to
cut their operational costs by up to 70 percent. Without
government intervention, Jaka believes that the price war will
last longer than many expect.
Believing that the price of airline tickets to certain
destination were unacceptably low, Nurwulan also said that Star
Air hopes the government will set minimum prices for airline
tickets.
Although the country's Business Competition Supervisory
Commission (KKPU) says that the setting of minimum fares would go
against the principle of fair competition, she insists that the
KPPU sould also investigate allegations of unfair competition.
Weary of the price war, Indonesian airlines are preparing to
enjoy a little breathing space during next month's peak holiday
season. But they will certainly have to tighten their belts once
again after the respite is over should the government fail to
intervene. If the government refuses to act, then it will be once
again a question of how low can you go?